Empower Partners With Variety of Firms to Pair Guaranteed-Income Products With Advice

Empower is working with asset managers and insurance companies to launch a new lineup of products to convert savings into retirement income.

Empower today announced partnerships with asset managers and insurance providers to supply plan sponsor clients with a menu of guaranteed retirement income products.

The firm announced multiple options to convert participant retirement savings into an income stream, which can be customized to individual needs.

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Empower’s retirement business serves “smaller plans up to the some of the largest plans in the U.S., [where] the demographics [of each] are different, the needs of those plans are different, certainly preferences are different and so having a one-size-fits-all doesn’t make a lot of sense for us,” explains Tina Wilson, Empower’s chief product officer.

Each of the guaranteed options will debut on its own timeline, with all reaching market by October, Wilson adds.

“Some will [launch] within the next 90 days, but everything that [is launching] will be released by the [beginning of the] fourth quarter,” Wilson says.

A Suite of Offerings

Empower’s four new offerings include:

  • Managed accounts with a guaranteed lifetime income withdrawal benefit, featuring Income America by American Century Investments;
  • A target-date-fund series featuring American Funds and TIAA’s secure income account with flexPath Strategies managing the glide path allocations and the collective investment fund provided by Great Gray Trust Company LLC;
  • Empower-managed spend-down strategy and proprietary variable annuity; and
  • Access to an annuity marketplace that offers out-of-plan annuity offerings through Blueprint Income.

“They’re all insurance contracts,” Wilson says.

More than three-quarters (76%) of plan sponsors prefer to retain in their plans the assets of both retired and terminated participants, compared with 44% who had that preference in 2015, according to a March 2023 Empower white paper with data from the Callan LLC 2022 DC Trends Survey.

“We want to make sure that we do have a range of options to help those plans and their fiduciaries make the best decisions based on their needs, their demographics, and, frankly, what’s going to drive the right outcome for their participants who we’re all here to serve,” Wilson says. “If we’re going to serve the needs of those plans and those participants, a big part of that need is to have retirement income capabilities.”

For Empower, the increased plan sponsor interest in retaining assets means greater demand for guaranteed income products, “the time is right now” to launch because participants can invest to create a stream of income, Wilson says.  

Engineering Retirement Income in the Managed Account

Empower’s managed account will, by default, begin to invest in the guaranteed retirement income sleeve about 15 years before retirement.

“It’s highly personalized, meaning that the individual may or may not get a recommendation around income depending on whether they need it,” adds Wilson. “A lot of people do, [but also] there’s a cohort of people where guaranteed income doesn’t make sense for them.”

For participants, Empower’s “advice engine” delivers personalized guidance about how much guaranteed retirement income individuals should purchase, adds Wilson.

“We have a lot of information about [participants],” Wilson says. “Just by being a recordkeeping client, we know … your salary, we know your [retirement account] balance, we know how much you’re saving every period … we know your match, we know your plan design, so there’s a lot that we know about you without your ever giving us information. We call that passive personalization.”

Plan sponsors can also provide additional information, Wilson adds.  

Participants may choose to allocate between 0% and 30% of their assets to the retirement income sleeve for guaranteed income, according to Empower.

American Century will allocate participants’ assets to insurance products, within a collective investment trust that has investments as well as embedded insured components, Wilson says.

Empower plans to distribute the retirement income products through advisers and consultants, says Wilson.

“Income products have been around for a long time, but they’ve been there as stand-alone products that, frankly, participants couldn’t absorb on their own,“ she says. “They struggled with making the appropriate decisions, so what’s also changed is our ability to think about income in conjunction with advice.”

Empower is a retirement plan recordkeeper for $1.5 trillion in assets, for 18.5 million participants and for 70,00 plans, says an Empower spokesperson.

Data from the PLANSPONSOR 2023 Recordkeeping Survey show Empower ranked second overall among recordkeepers, serving plans with $1.231 trillion in assets, for 16.83 million people and more than 80,000 plans on its proprietary recordkeeping platform.

HSA Balances on the Rise, Despite Higher Spending on Health Care

Average health savings account balances continue to increase, even as employees often treat them as short-term spending vehicles and take consistent distributions, new EBRI data show.

In the face of rising health care expenditures and out-of-pocket spending, average health savings account balances have also steadily increased since the COVID-19 pandemic, according to new data from the Employee Benefit Research Institute.

The average HSA balance rose to $4,418 at the end of 2022 from $2,711 at the start of the year, the most recent data available in EBRI’s database, given that participants can still contribute to 2023 HSAs until taxes are due in April.

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Jake Spiegel, a research associate at EBRI, says he sees this trend continuing in 2023 and into the start of 2024 as well.

EBRI’s analysis revealed two predominant factors associated with higher average account balances. The first was that age is strongly associated with higher HSA balances: the older the accountholder, the higher the average balance.

“When you’re young, you tend to have less disposable income, so you’re able to spend less to begin with [compared with] somebody who’s been established in [their] career for a few years,” Spiegel explains.

Older workers also tend to incur more health care expenses than younger workers, hence the need, and willingness, to contribute more to their HSAs.

In addition, EBRI found that account tenure is strongly associated with higher balances. The longer someone has had their account, the more contributions he and his employer are likely to have made.

Most accountholders in EBRI’s database—which analyzes more than 14 million HSAs—took a distribution in 2022, with an average withdrawal of $1,868. However, relatively few accountholders spent down their entire accounts, suggesting that many participants are aware of, and reaping, the tax advantages—tax-free contributions, tax-free growth and tax-free withdrawal for health care costs—that HSAs offer.

The report explained that workers view HSAs through different lenses, as some view the accounts as a short-term spending account to be used when out-of-pocket costs crop up, whereas others view them as longer-term savings vehicles.

“The financial wellness gurus [often] say, ‘contribute as much as you can and never take distributions and don’t touch that money until retirement,’” Spiegel says. “But the fact of the matter is: That advice is not appropriate for everybody.”

Spiegel argues that it is not necessarily a “bad thing” that employees are using their HSAs as short-term spending vehicles, because the accounts are still helping people stretch their health care dollars further than they otherwise could.  

EBRI also found that accountholders who received an employer contribution to their HSA were more likely to have taken a distribution than accountholders who did not receive an employer contribution, and they took larger distributions on average. This is likely because those who receive employer contributions may feel more comfortable taking larger distributions, knowing that their employer’s contribution added to their account balances.

Spiegel adds that employees who do not receive an employer contribution tend to contribute more themselves, whereas those who do receive an employer contribution tend to contribute less. However, the employer contribution makes up for the lower employee contribution and ultimately results in a higher account balance.

He says accountholders with higher balances are also more likely to invest their HSAs.

In general, EBRI found that relatively few HSAs are invested, as only 13% of accountholders invested their HSAs in assets other than cash. Spiegel says it is not wise for employees to invest their HSA balances in risky asset classes, especially if they expect to use the funds in the shorter term.

However, the report stated that if accountholders have a large enough buffer in liquid accounts to weather a larger, unexpected health care expense, then they may be better off at retirement by investing some portion of their HSAs.

EBRI concluded that providing an employer contribution to an HSA, or even allowing for them to be invested, will not automatically cause an investor to treat his HSA as a long-term savings vehicle, but plan sponsors and administrators do play a “critical role” in helping accountholders understand the long-term tax advantages and financial wellness benefits of contributing to an HSA.

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