The new “Securing a Strong Retirement Act of 2020” bill — which some called the “SecureAct 2.0” bill — contains a provision thatcould help life insurers expand variableannuity investment option menus.
Section 203 in the Secure Act 2.0 wouldmake it easier for life insurers to put subaccounts linked to exchange-traded fundsinto annuity investment option menus.
House Ways and Means CommitteeChairman Richard Neal, D-Mass., andRep. Kevin Brady, R-Texas, the highestranking Republican on the committee,introduced in late October.
One of the provisions getting attentionwould increase the required minimumdistribution age for employer-sponsoredretirement plan account assets and traditional IRA assets to 75, from 72.
Another provision would clear up a legalobstacle to life insurers putting ETF-linkedsubaccounts on all annuity product menus.
Today, federal regulations require thatETFs be open to some financial institutions, such as market makers, to keep gapsfrom opening up between the performanceof the ETF shares and the performance ofthe underlying investment index, such asthe S&P 500 stock index, according to asummary provided by the bill sponsors.
Because of how the ETF regulationsinteract with variable annuity subaccountasset diversification rules, variable annuities that offer ETF-based subaccountmenus may fail to qualify for the tax rulesthat normally apply to variable annuities.
Some life insurers have been getting
around that conflict by offering ETF-
linked subaccount menus only or mainly
to investors who are using variable annui-
ties inside individual retirement accounts
(IRAs), to avoid the tax concerns that apply
to variable annuities held outside IRAs.
Section 203 would eliminate the con-
flict between the ETF rules and the
nature of insurance company segregat-
ed account rules, by letting all variable
annuity holders buy insurance-dedicat-
ed funds that track the performance
of publicly-traded ETFs as well as the
performance of mutual funds, according
to the bill sponsor summary.
“The provision would be effective
within 18 months, or upon issuance of
IRS regulations,” the summary stated.
The provision also would help purchasers of private placement life insurance buy insurance-dedicated fundslinked to the performance of ETFs.
GOLDMAN MERGES FIVE
Goldman Sachs Asset Management hasreorganized its five thematic ETFs intoa single fund called the Goldman SachsInnovate Equity ETF (GINN), whichstarted trading Nov. 9 on the NYSE Arca.
The new fund, which has a net
expense ratio of 0.5%, integrates on
an equally weighted basis what were
once five separate ETFs: the Goldman
Sachs Data-Driven World ETF, Finance
Reimagined ETF, Human Evolution
ETF, Manufacturing Revolution ETF
and New Age Consumer ETF.
“These themes, now combined, offer
investors a single-point solution for expo-
sure to the companies we’ve identified as
driving technological innovation and secu-
lar growth,” said Michael Crinieri, GSAM’s
Global Head of ETFs, in a statement.
Todd Rosenbluth, head of ETF andmutual fund research at CFRA, saidthe new GSAM ETF represents a “goodstrategy as it provides diversificationrather than making investors try to pickwhich thematic ETF will perform thebest” when “thematic ETFs can be volatile in the short run.”
The Goldman Sachs Innovate EquityETF tracks the Solactive InnovativeGlobal Equity Index. Goldman’s previous five thematic ETFs were based onindexes from Motif Capital Management,but that firm shut down in May, endingits relationship with Goldman Sachs. Itsold its client accounts to Folio and itstechnology to Schwab.
The GINN is expected to appeal toinvestors who were previously investedin one or more of the five previous thematic ETFs, attracting more assets thaneach of the five did in the past. Its totalassets were approximately $307.7 million based on a NAV per-share price of$50.03, according to the GSAM.
Allison Bell an be reached at email@example.com.Bernice Napach can be reached at firstname.lastname@example.org.
By Allison Bell and Bernice Napach
‘Secure Act 2.0’ Could Expand Use of
ETF-Like Options in Variable Annuities
Section 203 could clear away a conflict between ETF rules and
annuity subaccount rules.