Continued: Annuities: Rethinking the A word

It was the height of the dot-com boom, when workers were retiring early on their double-digit tech-stock winnings and day trading was all the rage. There stood Kelli Hueler, before an audience of financial professionals, explaining the urgent need for affordable annuities so that future retirees won't run out of money. The comment cards she collected afterward confirmed what she knew all along: "We were painfully ahead of our time," she said, chuckling as she recalled the day that dull, dependable, unfashionable annuities became her passion.

Since then, Hueler, who runs her six-person Hueler Associates out of an office park in Eden Prairie, has created a unique one-stop shop for retirees wanting to turn 401(k) assets into an income stream.

Think of Hueler's annuity marketplace, called Income Solutions, as the Travelocity or Orbitz of annuities, where 401(k) participants with access through their employee benefits can compare the monthly payouts promised by various insurers and select the best.

Hueler and her team are setting out on a gargantuan task -- to convince a generation of do-it-yourself investors who don't trust annuities to embrace them as a way to ensure they won't outlast their money. In recent years, annuities have only made headlines as unsuitable investments sold to the elderly.

But Hueler and other experts argue that good annuities are an idea whose time is now. With pension plans and Social Security benefits on the decline and retirees living longer with inadequate 401(k) balances, running out of retirement money is a top fear of the baby boom generation. And with 77 million baby boomers reaching retirement age in the next several years, every insurance agent, financial planner and brokerage firm is poised to grab a piece of the retirement income pie.

Hueler is no exception. But her mission is to keep that money away from "a whole contingent of folks who are making a living on high-cost product," said Hueler, who entered the business as a broker for IDS Financial Services. "We as a society allow retirees to leave their plans, where they've been given the benefit of low-cost, institutional pricing on their accumulation phase," often with lump-sum options, only to buy high priced annuities. "That's a very dangerous scenario. I don't think we can afford it."

Income Solutions customers log onto the website (incomesolutions.com), decide what portion of their retirement dollars they wish to annuitize into a fixed-income or inflation-protected model, then send the request off for quotes from insurers.

The insurance companies send back bids -- "no bells, no whistles, no marketing -- just a very straight, apples-to-apples comparison," Hueler said.

There is no fee for participants to use Income Solutions, and Hueler does not accept fees from insurers. She makes money by charging a transaction fee of 1 to 2 percent of the dollar amount being annuitized, depending upon how the employer or 401(k) provider offers her program.

By comparison, a similar retail-priced annuity charges as much as 5 to 6 percent. That doesn't include equity-indexed and variable annuities that are typically higher cost and have been giving annuities their bad reputation.

'Train is leaving the station'

"Insurance companies did not love this," Hueler said of her model. Such companies and their brokers earn more selling annuities and other so-called retirement income products to retirees through the retail marketplace.

But Hueler was persuasive. "I said, 'Look, this train is leaving the station. We are going to do this.' " And so she sold the idea to insurers using the analogy of book publishers selling on low-cost bookseller Amazon.com. Although publishers make more selling for full price, "would they be foolish enough to not sell books to Amazon.com?" Part of her success came from her strong connections and reputation she built with insurers as a consultant.

Jody Strakosch, MetLife's director for institutional income annuities, said the company doesn't typically compete against other insurers as it does through Income Solutions. But Hueler is "the crème de la crème," said Strakosch, and MetLife believes "income annuities are really, really critical for baby boomers."

In five years, Income Solutions has attracted 10 insurance companies, large retirement plan providers such as Hewitt Associates, Citigroup's Citistreet and T. Rowe Price, plus companies such as IBM and Boston University. As many as 250 retirement plans are either offering Hueler's comparison tool to employees or considering its adoption.

Currently, Income Solutions is available only to individuals whose employers or retirement-plan providers offer it, or clients of financial advisers that belong to the National Association of Personal Financial Advisers. Regulation requires that individuals be members of a group to participate, but Hueler is trying to challenge the group definition and is hoping that states will partner with her to offer low-cost annuities to the masses.

Industry experts say there's nothing exactly like Income Solutions. Many insurers and retirement plan companies are introducing their own annuities designed for 401(k) rollovers. Genworth, Prudential, Hartford and MetLife all have inexpensive annuities for employees to purchase with retirement money. Fidelity, which sells its own annuities, launched an annuity marketplace in 2006.

Find a mission, make money

Hueler hasn't fallen far from the family tree. Her parents, Wallace and Ruth Hustad, were real estate developers who helped turn Eden Prairie from the rural area where Hueler rode a horse to visit friends into the booming suburb where she now lives. Her father taught her that business owners "have a mission that's bigger than making a buck," although making money is critical too.

"Your chosen contribution can't be what defines you," said the mother of three sons. "It's a part of you."

Hueler wasn't sure what to do after graduating from St. Olaf College in 1981 with a degree in speech. She tried and dismissed grain trading before a friend's brother convinced her to give IDS a try.

Hueler found her niche helping employers pick investment options for employees. And it was from her experiences selling financial products that she formulated her beliefs about transparency, cost and putting the consumer's bottom line first.

Eager to leave sales, Hueler set out on her own in the late 1980s as a retirement benefits consultant for large companies such as Dayton Hudson and Supervalu. A need for better tools to serve her clients pushed her to develop a database that allowed employers to evaluate stable-value funds -- a conservative investment option found in many retirement plans that offers higher returns than a money-market fund. For the next decade, her consulting business grew and her stable-value research became the industry standard that's still used today.

Hueler didn't venture into the annuity world until the 1990s, when clients started asking her to help price annuities for retiring employees. That's when she realized that few employers, who held their workers' hands while they saved for retirement, had a good plan to help them spend that money.

Many simply gave workers a check and wished them luck.

This is beginning to change. With the end of pension plans at many companies, Jeff Bailey, director of benefits finance for Target Corp., said more businesses recognize that employer-offered annuities are a tremendous benefit for employees, because retail annuities tend to have "opaque" fees and are hard to compare. Target offers annuities through its retirement plan provider and has used Hueler as a consultant for years. A Financial Research Corp. survey found that 67 percent of retirement plan administrators are improving or developing annuities within defined-contribution plans, better known as 401(k)s.

Just 3 percent of workers signed up for employer-sponsored annuities, according to a study last year by Hewitt. The stock market's poor performance this year is helping the issue gain attention. In January, purchase activity through Income Solutions increased 300 percent, compared with the previous January. New York Life said that income annuity sales have grown nearly 40 percent this year from last year.

But consumers are still reluctant to consider annuities after the bad publicity that certain types have received in recent years. And they tend to think that a six-figure lump sum will translate into a nicer paycheck than it does. Withdrawing the recommended 4 percent annually from a $200,000 lump sum amounts to just $8,000 of annual income, or about $666 a month. Annuitizing the same amount through Income Solutions would provide a 65-year-old male a lifetime monthly income of around $1,400.

If Hueler was looking to make easy money, she would have abandoned her annuity idea that day in 1999 when she was practically laughed off the stage. But she had no doubt from Day One that slowly, but surely, her annuity marketplace would work.

"We're going to be the industry standard for changing lifetime retirement income for retirees," she said. "That's a goal that's worthwhile --and fun."

Kara McGuire • 612-673-7293