An Independent Review Of The Opportunity Plus Variable Annuity From VOYA Retirement Insurance & Annuity Company
This is an independent review of the Voya Opportunity Plus Variable Annuity Contract, a popular 403(b) annuity product. If you work in K-12 public schools and participate in a 403(b), there is a good chance you might have been sold this annuity.
Legal Disclosures
Before we get into the details, here are some legal disclosures. For readers who have found my website and don’t know much about me, I am a fee-only financial advisor held to the Fiduciary Standard. I am legally obligated to make recommendations that are in the best interest of my clients. Unlike other advisors, I find that some annuities may be a part of a comprehensive financial plan when used correctly.
This is a review, not a recommendation to buy or sell a variable annuity. Voya has not endorsed this review in any way, nor do I receive any compensation for this review. This review is meant to be an independent review at the request of a client so they can see my perspective when breaking down the positives and negatives of this annuity product. Before purchasing any investment product, be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances.
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Table of Contents
Advertised Features & Benefits
Voya Life Insurance Company Platform Overview
Voya Life Insurance Company is a provider of insurance, annuities, employee benefits and asset management. They are one of the largest institutional investors in the United States with a $270.2 billion general account portfolio.
Product Name: Voya Opportunity Plus Annuity
Type of Product: Variable Annuity
Issuer: Voya Life Insurance Company
Standard & Poor's Rating: A+ (Strong)
Phone Number: 800-584-6001
Website: www.Voyafinancial.com & https://oppplus.beready2retire.com/plan-information/plan-overview
What is a Variable Annuity?
A variable annuity is a contract between an individual and a life insurance company where, in exchange for the individual’s purchase payments, the insurer agrees to pay out a lump sum or a stream of retirement income at a later date. It is called “variable” because the account and the value of the income payments will vary based on the performance of the investments that you select, resulting in payments that may go up or down. Read More on SEC.gov.
The Voya Opportunity Plus is a variable & fixed annuity contract designed for employees of public schools, colleges and universities, nonprofit hospitals and nonprofit organizations. The contracts may be single purchase payment contracts, which allow for lump-sum payments, or installment purchase payment contracts, which are designed for installment payments, but which also accept lump-sum payments. They are intended to be used as funding vehicles for certain types of supplemental retirement programs.
*Standard and Poor’s Rating Service provides ratings which measure the claims-paying ability of an insurer. These ratings are the opinions of an operating insurance company’s financial capacity to meet the obligations of its insurance policies in accordance with their terms.
Voya Opportunity Plus Annuity Investment Options
Voya Opportunity Plus Annuity offers a wide range of investment options. Investors have access to over 50 different investment fund options (sub-accounts) including numerous equity and fixed income portfolios as well as various asset allocation and target date retirement portfolios. The underlying investment options available in a variable annuity invest in stocks, bonds, money market instruments, or some combination of the three.
Voya has entered into sub-advisory agreements with these various investment providers:
American Funds, Pax Funds; Fidelity VIP Funds, American Century Funds; Oppenheimer Funds; Calvert Funds; Wells Fargo Funds Management, LLC; Loomis Sayles Funds; Franklin® Funds ; USAA Funds; Amana Funds; Alger Funds; PIMCO Funds; •TCW Galileo Funds Inc.; Lord Abbett Funds, Victory Funds; Invesco Funds; • Nuveen Funds; BlackRock Funds; LazardFunds.
These financial companies provide the investment options also referred to as sub accounts in the Voya annuity. Depending on market conditions, you may make or lose money in any of these Funding Options.
You can make transfers among these options as frequently as you wish without any current tax implications. Currently there is no limit to the number of transfers allowed. Voya may, in the future, limit the number of transfers allowed. At a minimum, Voya would always allow one transfer every six months.
Voya Opportunity Plus Fees & Expenses
Keeping fees low should be a top priority when saving for your retirement. If you’re not familiar with variable annuity products and how they work, their fees can be confusing to decipher. With a variable annuity, the majority of your cost comes from two types of fees:
Fees to the insurance company associated with risk protection: Income & Death Benefit
Fees associated with the investment funds inside the annuity.
Below are Voya Annuity fees and how you will be paying for them.
Mortality and Expense Risk Charge: 1.00% annually
Each business day, Voya deducts a mortality and expense risk (“M&E”) charge from your account. This charge is equal to 1.00% annually and compensates Voya for risks assumed, benefits provided, and expenses incurred, including the payment of commissions to your sales agent. Voya may charge a different fee for different funds (but not beyond the maximum amount), and the current mortality and expense risk charge for the Voya Government Money Market Portfolio is 0.35% annually. This fee comes right out of your account annually for the life of the investment, whether your investments earn money or not. It compensates the insurance company for the risk it assumes under this annuity contract, and it applies to all variable investment options.
Purpose. This fee compensates Voya for the mortality and expense risks they assume under the contracts. If the amount they deduct for this fee is not enough to cover their mortality costs and expenses under the contracts, Voya will bear the loss. They may use any excess to recover distribution costs relating to the contract and as a source of profit. Voya expects to earn a profit from this fee as stated in their prospectus. This charge is commonly found in variable annuities, but it’s not something you have to pay with all annuities. A variable annuity is the only type of annuity that charges the M&E fee.
Underlying Sub Account Operating Expenses: Range from 0.28% to 1.43%
This is another ongoing fee charged for the investments inside of the variable annuity. You may not find this fee listed by the materials presented to you by the sales. To find out about these fees, you have to dig through the prospectus. I did that for you. The internal expenses of the sub-accounts for this variable annuity contract range from 0.28% to 1.43%.
Administration Charge: .20%
Voya currently charges 0.20% but reserve the right to charge up to 0.25% on an annual basis from your account value invested in the funds. Voya deduct this fee daily from your account value held in the subaccounts corresponding to the funds you select. This fee may be assessed during the accumulation phase and/or the income phase. If they are imposing this fee under the contract when you enter the income phase, the fee will apply to you during the entire income phase.
Purpose. This charge helps defray their cost of providing administrative services under the contracts and in relation to the separate account and subaccounts.
Fund Redemption Fees
Certain funds may impose redemption fees as a result of withdrawals, transfers or other fund transactions you initiate. If applicable, Voya may deduct the amount of any redemption fees imposed by the underlying mutual funds as a result of withdrawals, transfers or other fund transactions you initiate and remit such fees back to that fund. Redemption fees, if any, are separate and distinct from any transaction charges or other charges deducted from your account value. For a more complete description of the funds’ fees and expenses, review each fund’s prospectus.
Withdrawal / Surrender Charges: see chart below
In addition to all the fees listed above, this variable annuity also charges a surrender fee (sometimes known as a withdrawal charge). Typically speaking, a surrender fee is only assessed when an investor makes a withdrawal prior to a specified time. If you withdraw amounts from the Contract, Voya may deduct a withdrawal charge. The charge equals 5% of each Purchase Payment withdrawn if withdrawn within 5 years of the payment date. There are situations when the withdrawal charge maybe waived—details are in the prospectus (see link at the beginning of this post.)
Commissions: How is Voya paying the agent?
The financial representative who sells this investment product receives a sales commission. These commissions are not transparent. You will not see this compensation as a line item in any statements. The amount and timing of compensation may vary depending on the selling agreement but could be as high as 6-7% upfront to the annuity salesperson.
A distributing firm or financial representative of a firm may receive different compensation for selling one product over another and/or may be inclined to favor one product provider over another product provider due to differing compensation rates.
Voya pays agents’ commissions on every future dollar you contribute to your 403(b) Annuity. This creates ongoing compensation for your broker.
VOYA Variable Annuity Features & Benefits
Guaranteed Death Benefit: A common feature of variable annuities is the death benefit. We highly suggest you read our in-depth Death Benefit article to determine whether this insurance benefit is worth the extra cost.
How this insurance benefit works: If you die, a person you select as a beneficiary (such as your spouse or child) will receive the greater of: (i) all the money in your account, or (ii) some guaranteed minimum (such as all purchase payments minus prior withdrawals).
In this case, the Voya variable annuity agrees to pay out your total contributions even if your account takes a significant market hit.
Income Benefits: Voya annuity does NOT provide an income benefit. So, in order to receive income from this account during retirement, you may have to annuitize the contract.
What is annuitization? One of the basic insurance features that comes with a variable annuity is called annuitization. Annuitization refers to the process by which, you elect, your account value is converted into a stream of payments (this being the payout phase), for a specific period or for the rest of your life. When you annuitize a variable annuity contract, you forfeit your account value in return for these guaranteed payments. The insurance company calculates your payments using an algorithm that considers factors such as your age, your initial investment premium, and the annuity account value at the time of annuitization. Annuitization could be considered if an investor’s account value has declined substantially at a time when he or she needed income from the annuity.
Tax Deferred Benefit: One of the major selling points of a variable annuity is the benefit of tax deferral. An annuity lets you save for retirement and delay paying taxes on your earnings until you make withdrawals. By deferring taxes, you can increase compounded earnings growth and potentially end up with a bigger nest egg.
Here’s what you may not realize: If you are investing in a variable annuity through a tax-advantaged retirement plan (such as a 403(b) plan or IRA), you will get no additional tax advantage from the variable annuity. Under these circumstances, consider buying a variable annuity only if it makes sense because of the annuity's other features, such as lifetime income payments and death benefit protection. The tax rules that apply to variable annuities can be complicated – before investing, you may want to consult a tax adviser about the tax consequences to you of investing in a variable annuity.
Automatic Rebalancing: You may elect to have Voya periodically reallocate the values in your contract to match the rebalancing allocation selected.
Free Withdrawal Allowance: Beginning in the second Contract Year and prior to the Maturity Date, you may exchange/transfer up to 10% of the Contract Value annually without the imposition of any applicable withdrawal charges or tax implications if moving to another 403b account.
Guaranteed Investment Option: Voya also offers a guaranteed interest account inside this annuity contract. This account is a fixed annuity option that offers a stated interest rate. Interest rate guarantees and income options are backed by the financial strength and claims-paying ability of Voya Insurance Co.
Roth Eligible: Voya allows for Roth Contributions in this Annuity contract.
Loan Provision: The amount that may be borrowed, the interest rate charged, the loan repayment schedules and loan application fees are described in the loan application form and the contract Loan availability may be subject to plan provisions but normally allows you to borrow up to a maximum of 50% of your account balance or $50,000.
Conclusions on the Voya Opportunity Plus Annuity
Variable annuities are one of the most complex and misunderstood investment products that I’ve come across over the past 25 years. When I review existing variable annuities for prospective clients, I get the facts about them by calling the insurance company directly rather than the broker who sold them. Why? Because I believe you should trust but verify, and I like to get my information directly from the horse’s mouth.
Variable annuities are an investment product with insurance related benefits
Variable annuities have higher fees than other investment options available in 403(b) accounts.
This variable annuity will add at least 1.00% in costs just for the M&E fee alone.
The fees for the investment sub-accounts and/or income riders that can (and often are) added on. Over time, these additional costs can negatively impact your return potential.
My biggest concern with this annuity (and most annuities in general), is that you are paying extra for tax deferred growth when you already have that benefit in a qualified retirement account such as a 403(b).
As the Securities Exchange Commission states:
"If you are investing in a variable annuity through a tax-advantaged retirement plan (such as a 403b, 401(k) plan or IRA), you will get no additional tax advantage from the variable annuity. Under these circumstances, consider buying a variable annuity only if it makes sense because of the annuity's other features, such as lifetime income payments and death benefit protection."
In reviewing the other features that this annuity offers, you should consider that it does not offer an income benefit and offers only a standard death benefit. Also consider that an investment product with high costs must perform better than a low-cost investment product to generate the same returns. Comparable investment choices may be available that do not include the additional 1.25% in insurance benefit costs.
Things to Consider About the Voya Annuity
No additional tax benefits when part of a 403(b): You’re buying a tax-deferred product (an annuity) inside an already tax-deferred product (403b). Since 403(b) plans are already tax-advantaged, a variable annuity will provide no additional tax advantages. It most likely will increase the expenses of the 403(b), while potentially generating higher fees and commissions for the broker or salesperson.
FEES:
Mortality and Expense Risk charge: There are additional fees associated with variable annuities that are not found in other types of annuities or mutual funds. Over time, higher fees can negatively impact your return potential. If you don’t need the benefits of an annuity at this time, then paying these extra fees for the next 10 to 20 years will hinder the growth of your retirement account. This variable annuity carries additional fees that should be considered. Whether the higher fees make sense for you will depend on your specific needs and situation.
Surrender Charges based on ongoing contributions: You should carefully consider whether it is in your best interest to buy an investment that charges a penalty fee to get out of it. Many annuities will impose a surrender charge if the annuity is cashed in before a specific period.
No Income Benefits features available: Which means, in order to receive an income for life, Annuitization of the contract may be required. Annuitization may not be as common anymore because of the availability of income riders. You should research all your options before annuitizing a contract.
The sales representatives commissions and compensation are based on initial deposits and ongoing contributions.
How do Voya Annuity Fees Stack Up Against Other Investment Options?
According to one analysis from the independent investment research company Morningstar, the most popular version of the Voya® Opportunity plus annuity has total annual operating costs that can range from 2.00% to over 2.50%. There may be other investment options that have lower costs. However, variable annuities charge for insurance features and benefits that may not be available with other investment options.
When the Voya Annuity Might Make Sense
Annuities can be a good investment if you are buying them for the right reasons. You can buy annuities for long-term growth, or for their income benefits. For example, a fixed annuity might offer higher interest rates than other fixed-rate alternatives, a variable annuity might be bought for long-term, tax-deferred growth, and an immediate annuity is bought for income purposes. In each of these cases, the insurance company that issues the annuity is ensuring some portion of the outcome. In many cases, they are insuring the amount of income you can take from the annuity in the future.
If you have already maxed out all qualified retirement account options (403b, 457b and/or IRA) and would like to put aside more money into a tax-deferred account, then a variable annuity might be an appropriate option. However, think carefully about whether this specific variable annuity with the structure of its surrender fees, agent commissions, and income rider options would best support your retirement goals. You may also want to consider the relative features, benefits, and costs against or with any other investment that you may use in connection with your retirement. Be sure to read carefully the marketing materials and prospectus, and if you don't understand what you’re paying for, ask questions and receive a full disclosure before deciding.
You can’t get life insurance (and want to leave more to your heirs)
You can use an annuity to provide some of the same benefits as a life insurance policy. But, because an annuity is an investment contract, you don’t need to qualify for it the way you do life insurance. If you have a health-related condition that makes life insurance impossible to get or prohibitively expensive, an annuity might be a really good alternative.
Can You Get Out of the Voya Opportunity Plus Annuity?
If you are out of the Surrender Charge period, you can transfer the balance to another 403b account.
If you are still in the Surrender period, contract owners can withdraw 10% of the value per year without penalty. That 10% can be transferred or rolled to another 403(b) provider or qualified retirement account if you met certain terms.
What if I bought a Voya Annuity I No Longer Want?
You can ask to surrender the annuity. If you have owned the annuity for less than seven years or so, you may have to pay a surrender charge. That fee can start at around 7% if you pull out in the first year you own the annuity, and then it typically declines by one percentage point a year until it disappears after seven or eight years.
Now may be a good time to take another look and evaluate this product considering your long-term goals. If you are interested in a more detailed analysis specific to your situation, please, contact us.
Thank you
If you found the information in this annuity review to be beneficial to you, please feel free to forward the review and share it with anyone else that you think may also benefit from it, too.
However, if after reading this annuity review you still have questions or concerns, then please reach out to us directly via our secure online contact form here and we’ll be happy to help.
Did you notice anything in this review that may be outdated or in need of revision? Please let us know and we will make the necessary updates as soon as possible.
Are there any other annuities that you would like to have us review? Let us know the name of the annuity and our team of experienced annuity geeks will get on it!
Thanks for reading! –Ken Ford
None of the third parties referenced in this communication are affiliated with K12 Financial Advisors, Private Advisor Group or LPL Financial.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Variable annuities are long term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They have fees and charges, including mortality and expense risk charges, administrative fees, and contract fees. They are sold only by prospectus. Guarantees are based on the claims paying ability of the issuer. Withdrawals made prior to age 59½ are subject to 10% IRS penalty tax and surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor’s unit, when redeemed, may be worth more or less than their original value.
Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59½ are subject to a 10% IRS penalty tax and surrender charges may apply.
Investors should consider the investment objectives, risks, charges and expenses of the variable annuity contract and sub-accounts carefully before investing. The prospectus and, if available, the summary prospectus contains this and other important information about the variable annuity contract and sub-accounts. You can obtain contract and sub-account prospectuses and summary prospectuses from your financial representative. Read prospectuses carefully before investing.