Savings proposals seen as opportunity for insurers. (Briefing).

Annuities would be allowed in any one of the three savings plans President Bush has proposed, which represents an opportunity for sellers of this retirement product, according to the National Association for Variable Annuities.

Annuities are allowed in a 401(k) or Individual Retirement Account, and about 50% of annuities are sold in qualified plans, said Deborah Tucker, a NAVA vice president.

Purchasers of annuities don't hold them for the tax-deferred nature, she said. "It's the insurance features--the death-benefit feature where you can lock in certain gains in the event of your death so your heirs won't lose market value, and the ability to receive a lifetime stream of income," Tucker said. "The focus on the payout side of the annuity is more important."

IRAs and 401(k)s have the same tax treatment as annuities, so NAVA sees the president's proposal as an opportunity.

"In it's simplest form, what the president is proposing would be a higher ceiling on the amount of money you could contribute to a qualified plan," Tucker said. Whether the proposal remains as originally presented is another matter, but as it currently is written, there would be no limit on the amount of money that could be put into the employer retirement accounts, she said.

Bush's ideas, contained in his 2004 budget proposal, would create two new consolidated savings accounts: Lifetime Savings Accounts and Retirement Savings Accounts. The president's plan also includes a proposal to create Employer Retirement Savings Accounts to promote and vastly simplify employer-sponsored retirement plans.

Announcement of the proposal also contained a question-and-answer section. In answer to the question, "Will LSAs and RSAs be permitted to be held in the form of an annuity?" Treasury's response is, "Yes. LSAs and RSAs may be held in the form of a nontransferable annuity contract issued by an insurance company that meets the rules that currently apply to individual retirement annuities."

For that and other reasons, Scott Cipinko, executive director of the Life Insurers Council, said he also sees opportunity for insurers in the president's proposal for now.

"Someone has to receive the funds and invest them, and it appears from Treasury's outline that it's not going to be Treasury or the U.S. Government," Cipinko said. "That leaves the private sector. And who is best equipped to receive, invest and create the necessary products? Financial-services companies like insurers and banks."

The "challenge" is that Bush wants to make these changes by the end of the year, Cipinko said, referring to Treasury's outline. Legislation for creating these accounts has to be agreed upon by Congress and the Bush administration; Treasury and the IRS have to come up with rules to implement the changes; and the products' designers will need those rules.

"Creating LSAs and RSAs would mean fundamental changes in structure to existing retirement plans," Cipinko said. "That can't be done overnight."

Variable Annuity Issuers Ranked by New Sales

Nine-month variable annuity sales of $27.7 billion were up 7.8% over
the same period a year earlier.

                                     9/30/02 YTD
                                       New Sales
                                       By Issuer
Rank * Issuer                       ($ Millions)

1 TIAA-CREF                             $9,301.6
2 Hartford Life Insurance Co.           $6,902.8
3 AIG/SunAmerica/VALIC                  $5,808.7
4 Metlife/NEF/Gen Am/MLI                $4,499.3
5 Equitable Life Assurance Society      $4,308.1
  of the U.S.

Sales are reported on an individual product-by-product basis.

* Based on 2002 new sales, as of Sept. 30.

Source: The VARDS Report, Info-One