Welcome Back to the Dealership—Without the Internet
There was a time not too long ago when buying a car meant walking into a dealership and bracing for a battle. You knew better than to pay the sticker price. There was no CarFax, no Kelly Blue Book at your fingertips—only your grit and your negotiating skills stood between you and a bad deal. Fast forward to today, and while consumers have gained power in most financial transactions thanks to transparency and competition, one part of the retirement world remains stubbornly stuck in that old sales model: fixed annuities in 401(k) plans.
When it comes to these insurance-based investments, especially general account fixed annuities, the rate you receive isn’t always about the market—it’s about your leverage. Your negotiating power. And for too many plans, that means quietly accepting returns well below what other, savvier plans are earning. The result? A two-tiered system where uninformed or unempowered fiduciaries leave millions on the table while others cash in.
Sticker-Price Rates for the Uninitiated
Let’s start with what most plan sponsors and fiduciaries are seeing: general account fixed annuity 2 to 3% rates with some less than 2%. In most cases, these rates have been locked in for years. Plan fiduciaries assume that’s the best available. They’ve never asked for better. They trust the insurance company’s glossy marketing and ratings and their consultants.
Prudential, for example, publicly posts general account rates of 3%–4% on consultant platforms like FI360/Broadridge. Some like TIAA and Mass Mutual post rates of 4%-5% for basically the same or less risky product. But the rates with many insurers like Prudential can vary from 1.5% to nearly 7%, with little rhyme or reason. In at least one case, a savvy union plan in New Jersey negotiated a general account fixed annuity rate of 6.8%—within the same 401(k) framework.
Yes, you read that right. Nearly five full percentage points higher than what other plans were receiving from the same insurer for the same product type. The only difference? They knew they could ask.
A Broken Marketplace
What we’re seeing is not an efficient marketplace. It’s a holdover from a time when product pricing was opaque and negotiation was king. But here’s the problem: this isn’t used car sales. These are retirement assets regulated by ERISA, with fiduciary standards that prohibit arbitrary pricing structures that benefit one plan over another without justification.
If an insurance company retains total discretion over annuity rates, then it also retains the ability to allocate higher yields to preferred clients—possibly to reward larger assets, political influence, or favored consultants—and lower yields to everyone else. This unequal treatment is not only unfair; it’s potentially unlawful under ERISA.
As I argued in this recent piece, annuities in 401(k) plans often constitute prohibited transactions when they are offered with non-transparent, discretionary pricing structures. If plan fiduciaries do not negotiate, they are not fulfilling their duty of loyalty or prudence under ERISA.
Consultants Are Not Always Your Friend
A deeper concern is that some consultants—the very advisors plan sponsors rely on to protect them—are complicit. Rather than push for higher negotiated rates or run competitive bids, some simply accept posted rates or worse, recommend insurers where they may have their own compensation arrangements or conflicts. Some consultants have insurance licensees where they can receive hidden insurance commissions. Sometimes rates are burned off to pay for recordkeeping fees, consultant fees etc.
Some consultants may use databases like FI360/Broadridge, which show insurer-published general account rates many conflicted consultants do not even do that. But unless they go further—soliciting competitive proposals or uncovering the higher rates being granted to others—they are not doing their job. Worse, in some cases they actively steer plans toward underperforming fixed annuities while pocketing fees from the insurers themselves.
A Fiduciary Wake-Up Call
The key message for fiduciaries of 401(k) plans is this: you get what you negotiate.
If your plan holds a general account annuity yielding 2%-4%, and you’ve never asked for more, you may be in violation of your fiduciary duty. Your peers—especially in larger or union-affiliated plans—may be earning triple your rate simply because they demanded better terms.
That’s not just a bad deal. It’s a fiduciary breach.
The Solution: Demand Transparency and Competition
- Require Competitive Bids – Treat your annuity provider like any other investment manager. Get multiple quotes. Benchmark rates.
- Disclose the Spread – Insist on full transparency on how the insurer earns money. What’s the gross yield on their general account? What are they keeping?
- Use Independent Experts – Be cautious of consultants who may have undisclosed relationships with insurers. Get independent advice or a second opinion.
- Document the Negotiation – Keep records of the steps you took to secure the best rate. It’s your defense in any potential ERISA litigation.
- Over time get rid of your Conflicted Non-Transparent fixed annuities, switch to a diversified Synthetic based stable value fund like the Vanguard RST, or Fidelity MIPS, this may take time because many fixed annuities are known as “Roach Motels” you easily get in but getting out may require a substantial penalty
Conclusion
Fixed annuities in 401(k) plans should not be sold like used cars. They should reflect a competitive, prudent process.
In the end, it’s simple: when it comes to annuity rates, you get what you negotiate—or what you fail to.
The CommonSense 401k Project 