PSNC 2017: Retirement Income Products and Solutions

DC plan sponsors have been hesitant to adopt retirement income products and solutions, but changes may be coming to spur more innovation in the industry to address their concerns.

By Rebecca Moore | June 12, 2017
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At the start of the 2017 PLANSPONSOR National Conference panel on Retirement Income Products and Solutions, Barbara Delaney, principal, StoneStreet Advisor Group, and moderator of the panel, shared a chart showing that the ability to make sound financial decisions starts to decline at age 49 and precipitously declines through age 75. “We need to get people to make retirement income decisions while working,” she stressed.

However, defined contribution (DC) plan sponsors have been slow to adopt guaranteed income products for their plans. John Doyle, senior vice president, defined contribution strategist at American Funds from Capital Group, noted that the concern over fiduciary liability has been the biggest roadblock to adopting retirement income products or solutions. “Plan sponsors say, ‘We’re not supposed to be talking about guaranteed or insured products,’” he said. Plan sponsors are also worried about portability, he added. They worry that the solution will be stuck in the plan and the plan sponsor will be stuck with the recordkeeper. “It could put handcuffs on the plan sponsor and on participants. The solution may be to have out-of-plan options available,” Doyle said.

Marty Menin, director – retirement solutions division at Pacific Life Insurance Co., said another issue is complexity. “If you think of all the different versions of retirement income—guaranteed minimum withdrawal benefits [GMWBs], qualified longevity annuity contracts [QLACs], regular annuities—there are some complex choices, but those of us in the insurance industry are working on these things,” he said. “Plan sponsors have to understand them, then have to teach employees about how they work. As the industry adds solutions and builds them, we imagine all the different things plan sponsors and participants have to understand and communicate.”

Bruce Lanser, senior retirement plan consultant at UBS Retirement Plan Consulting Group, noted that 30% of his firm’s clients have adopted GMWBs as an in-plan solution. “They are aware of the added responsibility and speedbumps such as portability, but they have the view that this is too important,” he said. Lanser explained that a GMWB is something somewhat simple for participants to grasp. Participants in defined benefit (DB) plans didn’t know interest rates and investment allocation, but they knew what they would get in retirement, and this is the same with a GMWB. Participants know they will have a benefit of “x” amount if retire in year “z.”

A plan sponsor in the audience shared that it took a different approach because it didn’t want an investment in the plan. The plan sponsor partnered with Financial Engines to offer its Income Plus product. It is not so much a guarantee, but Financial Engines works with participants on a draw-down rate and the purchase of an annuity at age 80.

NEXT: Changes coming due to DOL fiduciary rule