Retirement insights from a Colorado PERA perspective

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In 2019, Congress passed sweeping legislation known as the SECURE Act that ushered in some major changes in retirement plans. One of those changes was making it easier for employer-sponsored plans like 401(k)s to offer annuities to plan participants.



Since then, consumer interest in annuities has grown, and 2020 <a href="https://www.fa-mag.com/news/total-annuity-sales-rose-16--last-year-to--255b-66117.html" target="_blank" rel="noreferrer noopener" class="broken_link">saw the highest annuity sales in over a decade</a>, totaling nearly $255 billion.



PERA now has two annuity products to offer participants in the <a href="https://www.copera.org/peraplus-401-k-457-plans" target="_blank" rel="noreferrer noopener">PERAPlus 401(k), 457</a> and DC plans.



<h3 class="wp-block-heading" id="what-is-an-annuity">What is an annuity?</h3>



Simply put, an annuity is a financial product that provides guaranteed, regular payments — either for a fixed amount of time or for a person’s life. PERA’s Defined Benefit (DB) plan and Social Security are both annuities that provide a lifetime retirement benefit.



While PERA’s DB plan offers lifetime income in retirement, workers who save on their own in a defined contribution plan like a 401(k) risk running out of savings in retirement. Annuities, which are usually available for purchase through insurance companies, can help offset this risk by converting all or a portion of a person’s account balance into regular income. Like a pension, annuities collect or “pool” assets from a large number of individuals in order to provide each person with guaranteed payments.



There are many types of annuities with a variety of features, but PERA, through its partner Empower, is able to offer two types of annuities for participants in the PERAPlus 401(k), 457 and DC plans: A single premium fixed immediate annuity and Qualified Longevity Annuity Contracts (QLACs).



<h4 class="wp-block-heading" id="single-premium-fixed-immediate-annuity">Single premium fixed immediate annuity</h4>



Empower’s parent company Great-West Life &amp; and Annuity Insurance Company offers a <a href="https://www.copera.org/pera-offering-new-lifetime-income-options-to-dc-plan-participants" target="_blank" rel="noreferrer noopener" class="broken_link">single premium fixed immediate annuity</a> through the PERAdvantage Capital Preservation Fund within the PERAPlus 401(k)/457 and DC plans. This allows participants to use all or a portion of their account balance to make a one-time purchase that immediately converts to guaranteed payments. The participant can choose the frequency of the payments as well as how long they’ll continue.



This annuity can be a good option for plan participants who are entering retirement and are ready to start receiving income right away.



<h4 class="wp-block-heading" id="qlac-marketplace">QLAC marketplace</h4>



Plan participants who want to wait until later in retirement to begin collecting payments can take advantage of the <a href="https://www.blueprintincome.com/copera/" target="_blank" rel="noreferrer noopener">Qualified Longevity Annuity Contract (QLAC) marketplace</a> offered by Blueprint Income.



While an immediate annuity provides income right away, a QLAC is a deferred annuity that is designed to begin providing income after age 72, and as late as 85. QLACs are exempt from IRS required minimum distribution (RMD) rules, so they can be a good option for retirees who wish to reduce their RMDs and taxes between the ages of 72 and 85.



Blueprint Income facilitates the rollover of the purchase amount from the participant’s retirement account into the annuity option the participant chooses.



Both annuity options provide retirees the ability to turn their savings into reliable income, and both offer joint annuity options, which can provide income to a surviving spouse. While an annuity might not be the right fit for everyone, it can be a helpful tool in planning for one’s golden years.



For more information on these annuity options, visit <a href="https://coperaplus.org" target="_blank" rel="noreferrer noopener">coperaplus.org</a>.

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