What Is a Group Annuity Contract?
A group annuity contract is similar to an individual annuity in that it is designed to offer guaranteed retirement income based on the growth of an initial premium. In the case of a group annuity, the contract itself is held by an employer rather than by the individual who will receive the annuity payments.
Group annuities were initially created as a way to help companies meet the obligations of retired employees who were receiving pensions. The first group annuity contract in the United States was issued by the Metropolitan Life Insurance Company (MetLife) in 1921. Before long, employers all over the country were purchasing group annuities to provide for their employees. By 1955, group annuity contract sales totaled over $900 million.
Guaranteed income contracts like group annuities have become even more popular in recent years in the American workforce. The 2021 Lifetime Income Survey from the Teachers Insurance and Annuity Association of America found that over 70% of workers “would choose to work for, or stay with, a company that offers access to guaranteed lifetime income in retirement over one that does not.”
Many clients have had group annuity contracts through employers or organizations. While pooled resources offer cost advantages, many complained about the lack of customizable benefits. Individual annuity contracts allow investors to buy based on their goals. Group annuity contracts are rare now, as most clients prefer the control of individual policies with customizable features.
Aamir M. Chalisa, MBA, LUTCF, MDRTGeneral Manager at Futurity First Insurance GroupAamir M. Chalisa is the GM at Futurity First, leading Oak Brook’s top branch. With 30+ years’ expertise, chairs GAMA Global, driving diversity worldwide.
How Group Annuity Contracts Work
Employers purchase group annuity contracts from insurance companies as part of the retirement benefits package they offer to employees. The premium for the contract, which is the initial amount of money used to purchase the annuity, is invested in the annuity when the employee begins receiving their retirement benefits.
Throughout the employee’s working years, the annuity is in its accumulation phase. During this time, the value of the annuity will grow at a fixed or variable rate depending on the type of annuity.
Once the employee reaches retirement age, the value of the annuity contract is converted into a stream of income payments. Depending on the terms of their employer’s contract, the employee can opt to receive income payments for the rest of their life and may also be eligible to choose spousal benefits for their partner.
Variable Group Annuities
Many group annuity contracts are a type known as fixed deferred group annuities. This means that the annuity contract earns interest during its accumulation phase based on a fixed rate before converting the value of the annuity into guaranteed lifetime income payments.
Some insurance companies also offer types of annuity contracts called variable group annuities. With these annuities, the contract’s value is tied to a portfolio of investments such as mutual funds. Variable group annuities are often included in retirement plans you get from a public agency, such as 457(b) or 401(a) retirement plans.
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Companies That Offer Group Annuity Contracts
Many companies who provide annuity contracts for individuals also offer group annuity contracts for employers. About 80% of the market share of group annuities is held by the 10 biggest providers.
Top 10 Group Annuity Providers by Direct Premiums Written in 2023
| Rank | Annuity Provider | Direct Premiums Written |
|---|---|---|
| 1 | Voya Financial Inc. | $12,256,802 |
| 2 | Teachers Insurance and Annuity Association of America (TIAA) | $11,262,907 |
| 3 | Athene Holding Ltd. | $10,423,407 |
| 4 | Prudential Financial Inc. | $6,682,446 |
| 5 | MetLife Inc. | $6,289,822 |
| 6 | Nationwide Mutual Group | $6,016,581 |
| 7 | Lincoln National Corp. | $4,886,032 |
| 8 | OneAmerica Financial Partners Inc. | $4,643,392 |
| 9 | Massachusetts Mutual Life Insurance Co. | $2,913,742 |
| 10 | Principal Financial Group Inc. | $2,898,606 |
In the last few years, a few companies that formerly sold group annuity policies have withdrawn or sold these business lines. The companies include John Hancock Life Insurance Company, which halted all its annuity operations in 2012, and Great American Life Insurance Company, which sold its annuity business to MassMutual in 2021.
Deciding if a Group Annuity Is Right for You
If your employer offers an annuity contract as an option for your retirement benefits, you’ll likely have a choice when it comes time to use those benefits. You can either choose to receive your retirement savings in a lump sum or as a stream of annuity payments.
To understand which option is best for you, here are some things to think about:
Benefits and Risks
There are some benefits to receiving your retirement savings as an annuity. Annuities provide guaranteed income that you can’t outlive. A recent report from MetLife found that 96% of retirees receiving annuities felt that their budget was more predictable, and 95% reported feeling more financially secure.
However, certain circumstances might make an annuity less than ideal. For example, if you have a serious illness, annuity payments may not provide enough money to cover medical bills.
Other Factors to Consider
The question of whether you should receive annuity payments depends on your overall financial situation. When deciding how to receive your retirement benefits, you should consider what other income sources you’ll have in retirement, such as Social Security benefits or pensions from other employers.
You may also want to estimate how much money you’ll need in retirement, how much you have saved in other accounts such as an individual retirement account or savings account, and any debt that you owe. Taking a big-picture look at your finances can help you make the right choice. It’s also worth noting the tax implications of the annuity versus the lump sum option.
Still Not Sure Where to Begin?
Frequently Asked Questions About Group Annuity Contracts
The difference between a group annuity and an individual annuity is that the group annuity is held in an employer’s name rather than in an individual’s name.
In most cases, when a member of a group annuity retires, they will have a choice as to how they receive their payments. The choices will vary based on the terms of their employer’s contract.
Under a group annuity, the contract holder is the employer who purchases the annuity to fund retirement benefits for their employees.
