BlackRock’s LifePath Paycheck Now Live for DC Plans

BlackRock announced that its guaranteed income solution LifePath Paycheck, which can be used as a qualified default investment alternative in defined contribution plans, is now available. 

The product provides access to a guaranteed income stream through a target-date fund, an investment vehicle many are comfortable with, that automatically adjusts to a targeted retirement year that the participant can select. Participants can then annuitize a portion of their assets as early as age 59½ by purchasing annuity contracts issued by providers Equitable and Brighthouse Financial, which are working with BlackRock on LifePath. 

Nick Nefouse, global head of LifePath at BlackRock, said at a press briefing on Wednesday that the goal with the product is to help investors convert assets from their traditional 401(k) plan into something more akin to a pension. 

“We’ve embedded a huge amount of choice into the portfolio,” Nefouse said. “You’re not forced into taking the guarantees if you don’t want them. They feel and trade like fixed income units, [and] if you don’t [covert it to guaranteed] income, it’s just like a bond fund in your portfolio.” 

Nefouse added that LifePath provides a large window for when a participant may want to retire and start annuitizing their assets—anywhere between age 59 ½ and 72. He said this window allows the individual a fair amount of time to choose when they would like to start collecting retirement income.   

When a participant turns 55, LifePath introduces a new asset class, which essentially allows them to get exposure to fixed income and to remain “fully liquid.” The plan would start automatically allocating 10% of a participant’s assets to the lifetime-income asset class at age 55. By age 65, the allocation increases to 30%, and the participant has the option to buy the guaranteed income from the insurers. 

To date, 14 plan sponsors, with plans totaling $27 billion in target-date assets, are planning to make LifePath Paycheck available to 500,000 employees. The 14 include retirement plans like Avangrid, Adventist HealthCare Retirement Plans and the Tennessee Valley Authority Retirement System.  

Paul Visconti, senior director of total health and retirement programs at Avangrid, said that his company has spent the last three or four years freezing its defined benefit plan and that LifePath Paycheck will help enhance its 401(k), as well as provide legacy employees the “comfort” that they were used to with the pension plan.  

Visconti said he was attracted to BlackRock’s product because it satisfied the “three Cs”: Cost, Complexity and Continuity.  

“The cost was alleviated because BlackRock … was generous enough to give very market-competitive pricing for the fund we’re in,” Visconti said. “Complexity [was] one of the biggest concerns I had in general… By embedding it into a target-date fund, where 75% of our participants are already invested, that kept it really simple.” 

According to Nefouse, individuals do not have to pay a fee when they decide to convert their assets to an annuity, and there are no distribution or surrender fees associated with the product. 

Visconti added that Avangrid’s recordkeeper, Fidelity, was easily able to implement LifePath onto their platform.  

Since the announcement of LifePath going live, recordkeeper Voya Financial also announced that it will be supporting the solution on its platform. 

Because LifePath functions like a TDF, Visconti said there was continuity as participants are able to invest in a vehicle that they are already accustomed to and do not need to go outside the plan to find a guaranteed income product.   

Kathleen Kelly, founding and managing partner at Compass Financial Partners, said embedding guaranteed income into the QDIA is a win-win for plan sponsors and participants. 

“Participants are accessing it through their employer without the need to engage an outside financial adviser and potentially pay higher fees, as is typically the case if accessing a similar type of solution in the retail marketplace,” Kelly said.  

Jason Fichtner, chief economist at the Bipartisan Policy Center, added that LifePath offers the “best of both worlds” because it provides a defined benefit-type paycheck to retirees that comes out of their DC assets, while still enabling investors to maintain access to the market.  

“We are all used to getting a paycheck when we work, and that paycheck becomes our budget. We use it for rent, utilities, vacation, spending money, savings… that’s our budget constraint,” Fichtner said. “Research shows that people who have an annuity, visceral security, now have that budget constraint that they know they can spend. And they actually spend up to that [constraint] and let their assets continue to accumulate.”    

Anne Ackerley, head of retirement at BlackRock, said LifePath includes a calculator that participants can play around with to see how much income they can receive in retirement based on how much they allocate to the lifetime income asset class.  

As of now, Ackerley said LifePath is only available in defined contribution plans, but she said there is interest in eventually offering the product to those who do not have access to a workplace plan, potentially though a mutual fund or ETF. 

In related news, Nationwide announced on Wednesday that it will also automatically default participants into its in-plan annuity solution, launched in 2020. Nationwide’s launch of the Dynamic Default feature will allow an employer to select multiple default investment options based on age. 

At the end of the first quarter of 2024, 6,931 plans offered in-plan protected retirement solutions supported by Nationwide with $4.95 billion assets under management for more than 64,000 participants, according to the firm.