"We welcome attempts by lawmakers to encourage Americans to save more for retirement. But the SECURE Act, which will enable firms to market confusing annuity plans with over-sized hidden fees, would place many investors in peril, and at the mercy of high-pressure sales," said Scott Puritz, managing director at Rebalance, which seeks to give investors endowment-quality advice at lower cost.
Under the proposed rules, retirement companies wouldn't need to recommend the most cost-effective products, he added.
"At a time when not enough people have enough saved for their old age, this initiative is counterproductive. Congress is poised to lead thousands of everyday investors into trouble," he said.
There's always a risk that the "guaranteed lifetime income" could turn out to be a mirage if an insurance company goes belly-up (Penn Treaty American went under in this fair state). Fears they could be left on the hook have prompted many 401(k) providers to steer clear of annuities.
Under the SECURE Act, retirement plans now have "safe harbor" from being sued if annuity providers went out of business or stopped making payments. If they're less likely to get sued, employers may offer annuities.
Consumer advocates warn that 401(k) investors and plans would turn to high-cost, lower-quality annuity providers.
Still, the bill could help people manage income in retirement more effectively. Wharton professor Olivia Mitchell noted in a research paper that the SECURE Act would encourage retirees to convert a portion of their 401(k) accounts at retirement into deferred annuities, her preferred insurance product. But she and her colleagues suggest that retirees put only 10% of their savings into those products.
Congress is pondering two versions of this legislation -- a House and Senate version -- that must be hashed out. The hope is passage takes place before 2019 ends.
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