The Principal Launches Guaranteed Income Option for Plan Participants

Principal Pension Builder offers participants an income stream for life.

For retirement plan participants who want to lock down a guaranteed amount of income before they retire, Principal Financial Group has introduced Principal Pension Builder, an option that allows them to purchase a deferred income annuity while still in the plan.  

Offered as an option in a defined contribution (DC) plan, Principal Pension Builder lets participants grow a steady stream of guaranteed income for life by directing a portion of their retirement plan contributions into a deferred income annuity. They can transfer part of their retirement plan account balance to purchase guaranteed income, or direct a portion of their plan contributions toward such a purchase.

Get more!  Sign up for PLANSPONSOR newsletters.

According to Jerry Patterson, senior vice president of retirement and investor services at The Principal, the product allows pre-retirees to buy future guaranteed income in advance. “Participants are able to decide when, how often and how much they wish to transfer via lump-sum transfers or future contributions,” Patterson tells PLANSPONSOR. Up to half of a participant’s total account balance (minus outstanding loans) may be transferred, and up to half of contributions may be directed. The minimum transfer amount is $10 per investment transfer.

Participants have 90 days to change their minds, Patterson says, and may transfer funds out of the Pension Builder for the full original purchase amount. A surrender charge may apply to annuities that are surrendered more than 90 days from the date of purchase.

NEXT: Plan balances as well as projected monthly income can be viewed online or in statements.

The balance can be viewed at any time on the participant website, Patterson says, and so can the projected amount of monthly guaranteed income. The information will also be on retirement plan statements.

Patterson says The Principal will provide guidance to teach participants about guaranteed income, including the impact it can have on their retirement. “Each participant’s financial situation is different,” he says.

Because Principal Pension Builder is offered within the existing retirement plan, participants don’t have to move funds out of the plan to start building guaranteed income. They also benefit from the increased buying power of group pricing, and the funds are protected from market fluctuations. In addition, purchasing guaranteed income over time helps smooth out the effect of changing interest rates on the amount of income purchased.

Adding Principal Pension Builder to a retirement plan helps plan sponsors manage their fiduciary responsibility to offer a range of investment choices, The Principal says. Participants get an opportunity to diversify their in-plan retirement savings and to play an active role in planning for retirement income, allowing them to build a guaranteed income stream, much like Social Security or a pension plan.

“Guaranteed income is a key factor in creating a reliable base for retirement,” Patterson says. Principal Pension Builder can be thought of as a way for people to supplement Social Security by adding an additional portion of guaranteed income.

“Nobody wants to outlive their money, and everybody wants to know they can meet their core financial needs once they stop getting a paycheck,” Patterson says. “This product allows pre-retirees to set the stage for the moment of retirement by purchasing future guaranteed income ahead of time.” 

Plan sponsors can add Principal Pension Builder to their retirement plans later this year, and plan participants can begin contributing to it in March 2016.

Well-Off Savers Seek Advice From a Multitude of Counselors

Most affluent Americans save for their golden years with the aid of a retirement advisory network.

If networking is useful for finding a job, how about for achieving retirement readiness? To offset the loss of the pension and uncertainty over Social Security, Americans are looking to other means to ensure they save enough for retirement. Those other means may be people.

“Americans are taking retirement into their own hands and surrounding themselves with a network of people to help them plan,” says Celandra Deane-Bess, chair of the national practice group for retirement at PNC.” According to the bank’s study Perspectives on Retirement 2015, 93% of “successful savers” have formed a network of advisers, ranging from personal to professional, who help them make financial decisions for retirement—and be more confident those decisions are good.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

 This confidence is far from just friendly optimism. A cool 45% of those with “a very effective network” have saved, on average, hundreds of thousands more, the survey says. PNC defines “successful savers” as Americans ages 35 through 44 with at least $50,000 of investable assets and ages 45 through 75 with at least $100,000 of investable assets. The average retirement savings for both age groups is $800,000 vs. $510,000, based on whether the saver had or didn’t have such a network, the study says.

On the whole, savers enlist various types of advisers, including family, friends, employers, accountants and, of course, financial advisers. Of their top two recruits, their spouse/partner, selected by 32%, is mainly an encourager. Their financial adviser (41%) aids with “most important” activities such as creating a plan, providing specific expertise and suggesting investments.

 NEXT: What to keep in mind when forming a network

 

What’s important when creating a retirement advisory network is to be deliberate, Deane-Bess says. She recommends that the saver choose people he knows he can trust. Just because someone is a friend or a highly paid professional doesn’t necessarily make him a good prospect for a particular saver’s network. Also, the saver should capitalize on any available tools and resources, such as online retirement calculators—as these are part of his network, too, PNC says.

Beyond this, he should “plan for all circumstances” by thinking through different scenarios, and, ultimately, “take responsibility,” Deane-Bess says.

In other words, to get the most from a network, the saver must work the network.

Because a major reason to have the network in the first place is to get help with the financial decisions, 95% of the savers seek information to that end. The top three needs they expressed were: help with choosing investment vehicles (72%), organizing an investment portfolio (68%) and rebalancing a portfolio (67%).

The support makes a significant difference in savers’ confidence they will indeed save enough—90% vs. 70%. Age apparently does, too. Eighty-three percent of Baby Boomers surveyed are more confident they know how much they need to save ($1.16 million) than the 74% of Generation Xers who believe $1.48 million is the number. The most confident are those who have at least $500,000 in investable assets, and are served by both a financial adviser and a strong retirement advisory network.

Pensions—here including defined contribution (DC) plans—and Social Security were still in the equation—when confident savers projected how much they expect to store up for retirement, 48% calculated the numbers based on those benefits. Yet, a combined 59% arrived at their amount based on their adviser’s help (33%) or an online retirement calculator (26%).

The Perspectives of Retirement Survey was conducted online, July 17 through 26, among 1,025 American adults representing a cross section of successful savers aged 35 through 75. About 20% of those surveyed were retired.

More information about the survey may be found here.

«