A New Peer-Reviewed Paper Lays the Groundwork
This week, Dr. Tom Lambert and I published a peer-reviewed article in the Journal of Economic Issues:
Lambert, T. E., & Tobe, C. B. (2026). “Safe” Annuity Retirement Products and Possible Future U.S. Retirement Risks, Threats, and Shortfalls. Journal of Economic Issues, 60(1), 149–165. https://doi.org/10.1080/00213624.2026.2613361
The paper was submitted nearly two years ago. Since then, the retirement landscape has changed dramatically: major Supreme Court decisions have reshaped ERISA litigation standards, and Washington has entered a new deregulatory phase at both the Department of Labor and the SEC. But if anything, the developments of the last two years make the paper more urgent, not less.
For the first time in an academic journal article, we systematically lay out why many annuity structures — particularly fixed annuities and pension risk transfer contracts — may fundamentally conflict with core fiduciary principles embedded in ERISA and the common law of trusts.
1. Annuities Fail the Most Basic Investment Principle: Diversification
The foundational fiduciary rule is simple: do not put all your eggs in one basket.
Fixed annuities violate that rule at their core.
Unlike a diversified bond portfolio, a general account annuity exposes participants to:
- Single-entity credit risk
- Single-entity liquidity risk
Participants are effectively lending 100% of their assets to one insurance company, whose balance sheet they do not control, cannot exit, and often cannot even fully see.
That is not diversification. That is concentration risk disguised as “guarantee.”
Under ERISA’s prudence and diversification standards, this structural concentration alone raises serious prohibited transaction questions when plans enter into these contracts with insurers that are parties in interest.
2. The Forgotten Crises: 1992 and 2008
The life insurance industry has already experienced two major stress events in modern times:
- The early 1990s insurance failures (Executive Life and others)
- The 2008 financial crisis (AIG)
Following the 1992 crisis, the Federal Reserve explicitly warned about the structural weakness of guaranteed investment contracts (GICs). These are not diversified investment vehicles — they are insurance promises dependent on the issuer’s claims-paying ability.
In 2008, the Fed made clear that without federal intervention, stable value insurance backing 401(k) plans could have evaporated overnight.
Unlike bank deposits (FDIC) or defined benefit pensions (PBGC), annuities have:
- No federal insurance
- No federal prudential regulator
- State guaranty coverage typically capped at $300,000
- Less than 1% prefunded capacity relative to liabilities
Participants are told they are “guaranteed.” They are not told the guarantee depends on a lightly regulated balance sheet.
3. Pension Risk Transfer: Swapping PBGC for Private Credit Risk
We introduce and analyze the rise of Pension Risk Transfer (PRT) annuities — where companies replace PBGC-insured defined benefit pensions with single-insurer annuity contracts.
This is one of the most significant structural shifts in U.S. retirement security in decades.
A diversified pension portfolio backed by federal insurance is replaced with:
- A single insurer obligation
- No federal insurance
- State guaranty patchwork protection
Major litigation is already emerging around these transfers.
The fiduciary question is simple:
Is it prudent to replace a diversified, federally backstopped pension with a concentrated private contract dependent on insurer solvency?
4. The Structural Risk Difference: Insurance Contracts vs. Securities
Annuity contracts differ fundamentally from regulated securities:
| Diversified Bonds | Fixed Annuity |
| Marked to market | Not marked daily |
| Liquid | Illiquid |
| Sellable if downgraded | Generally locked |
| SEC regulated | State insurance regulated |
| PBGC protection (DB) | No federal backstop |
When a bond is downgraded, a fiduciary can sell it.
When an insurer is downgraded, participants ride it down.
That is single-entity liquidity risk layered on top of credit risk — and rarely disclosed as such.
5. Athene and the Private Equity Model
We analyzed Athene, owned by Apollo, as a case study of the private-equity-backed insurer model. This was years before the Jeffrey Epstein connection to Athene was exposed.
Academic research now documents how private equity ownership of insurers leads to:
- Increased allocations to private asset-backed securities
- Regulatory capital arbitrage
- Use of affiliated reinsurance
- Greater exposure to commercial real estate and leveraged credit
When annuity premiums become a funding vehicle for private credit strategies, the risk profile changes materially.
Participants are rarely told that their “safe” retirement product may be financing leveraged buyouts or complex structured debt.
6. Balance Sheet Reality: TIAA vs. Vanguard Synthetic Stable Value
We directly compare TIAA’s General Account to Vanguard’s diversified synthetic stable value trust. Since submission TIAA has been the subject of 2 major stories from NBC.
Key differences:
- Vanguard: 74% AA or higher securities; ~96% public and liquid
- TIAA: 12.5% rated securities; ~48% public; significant private and illiquid holdings
Even the most conservative general account insurer holds materially more illiquid and privately valued assets than diversified security-based stable value structures.
Yet both are marketed as “safe.” The risk is not the same.
7. Hidden Spreads: The $Billions Nobody Sees
Perhaps the most underappreciated issue is spread income.
Insurance companies do not primarily charge visible expense ratios.
They:
- Take participant funds into the general account.
- Invest at a portfolio yield.
- Credit participants a lower rate.
- Keep the spread — often 200 basis points or more.
Public statements have confirmed spreads exceeding 2%.
That is enormous in a low-risk asset class.
These spreads:
- Are generally undisclosed.
- Are not competitively bid in many cases.
- Vary dramatically across nearly identical products.
- Appear disconnected from measurable risk.
In any other fiduciary context, secret, discretionary profit margins of this magnitude would invite scrutiny.
8. Pricing Is Arbitrary — Not Risk-Based
We demonstrate that pricing often depends not on underlying risk, but on:
- Negotiating power
- Sales relationships
- Platform constraints
- Opaque crediting rate practices
Two nearly identical products can produce radically different participant returns.
We construct a risk-return efficient frontier showing that many fixed annuities fall well below what fiduciaries would consider efficient.
In other words: Participants are bearing higher risk for lower return. That is not prudence.
Why This Matters Now
Since our submission:
- ERISA litigation has intensified.
- Pension risk transfer lawsuits have expanded.
- Private credit exposure in insurers has grown.
- Regulatory oversight has loosened.
- Disclosure initiatives face rollback.
Meanwhile, annuities are being aggressively marketed as the solution to retirement insecurity. Our paper does not argue against lifetime income. It argues that: If a product violates diversification, embeds hidden spreads, concentrates single-entity risk, and operates without federal prudential safeguards — it must be examined under the prohibited transaction and fiduciary frameworks that govern retirement plans.
This article lays the academic foundation for it. The courts will ultimately decide where regulators hesitate.
Below are additional annuity blog articles published since the submission of the paper.
The CommonSense 401k Project 