Compliance February 28, 2024

Julie Su’s Nomination for Secretary of Labor Passes Senate Committee

The vote was held in a closed session and advanced by a party-line vote; meanwhile, the Senate committee chaired by Bernie Sanders ponders a return for DB plans.

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The Senate Committee on Health, Education, Labor and Pensions advanced Julie Su’s nomination to be Secretary of Labor to the full Senate late Tuesday by an 11 to 10, party-line vote. Su has served as acting secretary since March 2023, having been confirmed as deputy secretary in July 2021.

The hearing was initially scheduled as a public hearing for Wednesday. Senator Bernie Sanders, I-Vermont and the chair of the HELP Committee, did not explain during a separate open committee on Wednesday why the vote was changed to a closed session. In the closed session, the committee also approved Moshe Marvit to be a member of the Federal Mine Safety and Health Review Commission and Stephen Ravas to be inspector general of the Corporation for National and Community Service.

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Su was previously approved by the HELP Committee in April 2023, also by an 11 to 10 vote. Her nomination stalled and never received a full Senate vote. She has continued to serve in an acting capacity since previous Secretary of Labor Marty Walsh resigned in March 2023.

Senator Bill Cassidy, R-Louisiana and the ranking member of the HELP Committee, was critical of the hearing that took place “behind closed doors” on Tuesday. He said that, due to “bipartisan opposition, she would not be confirmed.” He was also critical of Su’s “troubling record” and said Su would “promote large labor unions at the expense of worker’s freedom and economic growth” and is focused on “dismantling the gig economy,” a reference to independent contractor rules approved under her tenure as California’s secretary of labor and her tenure as acting Secretary of Labor at the federal level.

The Senate has not scheduled a full vote to confirm Su.

HELP Discusses DB Plans

The HELP Committee’s public hearing on Wednesday morning considered how expanding defined benefit plans could help improve the retirement savings gap. Sanders spoke to the importance of expanding Social Security and advocated for lifting the cap on income that is subject to FICA payroll taxes, currently $168,000, “You make a billion dollars a year, you make $168,000 a year, you pay the same amount. Does that make sense?” Sanders asked rhetorically.

Cassidy described promoting DB plans as “an agenda that is outdated and a little disconnected.” Cassidy emphasized the flexibility that defined contribution plans offer because they are more portable than DB plans.

Dan Doonan, the executive director of the National Institute on Retirement Security, called this a “chicken and egg thing,” in which the decline of DB plans leads to lower retention, and higher turnover in turn leads to higher demand for DC plans.

Doonan said that “the move away from pensions is a major culprit in the nation’s retirement crisis.” Though he acknowledged that DC plans have value, “they are just not designed to replace pensions,” and “pensions are user-friendly for workers.”

Though the hearing was intended to focus on DB plans, Senators and the witnesses also spoke about Social Security and retirement security more broadly.

Senator Tommy Tuberville, R-Alabama, suggested that some of the tax collected by Social Security should be invested in some securities. For someone who paid about $1 million into Social Security, Tuberville said that “I could have put my Social Security money in the market, and it’d be worth $8 or $10 million today,” but instead, “the federal government wasted it.”

Rachel Greszler, a senior research fellow at the Heritage Foundation, concurred in part later in the hearing. She said she would support lowering benefits for higher earners, increasing benefits for lower earners, while tying benefits to life expectancy and a more accurate measure of inflation. She added that, “I think workers need an option for something that has a positive rate of return” as an alternative to paying into Social Security.

Products February 28, 2024

BlackRock Prepares LifePath Paycheck to Address In-Plan Retirement Income

The retirement income solution functions like a target-date fund, embedding the option to annuitize a portion of a participant’s assets starting at age 55.

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When BlackRock CEO Larry Fink organized a team six years ago to address the issue of providing retirees with a guaranteed income stream in retirement, he wanted to build off of what was already working in 401(k) plans.

Because participants generally understand how target-date funds work, the team at BlackRock wanted to create a solution that functioned like a TDF and could be used as the qualified default investment alternative, while also embedding an option to annuitize a portion of one’s assets to generate lifetime income.

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“Even though we’re not an insurance company, we [feel] that people generally need some sort of guaranteed income,” says Anne Ackerley, head of the retirement group at BlackRock. “But with all the issues that there are with annuities, we said, ‘Let’s see if we can innovate. Can we make them liquid? Can we make them institutionally priced? Can we make them simple?’”

Forthcoming Rollout to 500,000 Participants

To date, 14 plan sponsors, representing more than $27 billion in target-date assets and more than 500,000 participants, who have elected to work with BlackRock to implement LifePath Paycheck as the default investment option in their employees’ retirement plans. The implementation of the solution in these plans is set to occur in the coming months, according to Ackerley.

Ackerley says the product is nearing completion, and companies are now notifying their participants, as they are required to give at least 30 days’ notice when there is a change to the qualified default investment alternative.

Rob Crothers, head of product and strategy at BlackRock’s retirement group, explains that LifePath Paycheck is designed to deliver an “index target-date-fund-like return,” regardless of whether or not the participant wants to purchase a lifetime income stream.

“That means for most of [a participant’s] working life, from, say, age 22 all the way to age 55, [LifePath Paycheck] looks and feels exactly the same as our existing index target-date fund does—that’s traditional stocks and bonds, [and] it de-risks over time as you get closer and closer to that retirement at age 55,” Crothers says.

According to Crothers, LifePath then introduces a new asset class, which essentially allows the participant to get exposure to fixed income and to remain “fully liquid.” The participant would automatically start allocating 10% of assets to the lifetime-income asset class at age 55.

“LifePath gives them that option to take a piece [of their assets] and convert it into a lifetime income stream at a later point in life, between the ages of 59.5 and 71,” Crothers says. “We start to introduce it at age 55, educating and communicating with people along the way.”

By age 65, the amount of assets invested in the fixed-income asset class increases to 30%. The participant has the option to use those assets from the TDF at retirement and buy the guaranteed income stream from insurers Equitable and Brighthouse Financial.

Participants Fully Liquid Until They Choose an Annuity

Crothers argues that pairing the TDF-like investment with technology that is heavily integrated with the recordkeeper’s platform allows participants to see every day how much guaranteed income they could receive, based on the assets in their accounts. He says participants can educate themselves and model different outcomes using their recordkeeping platform.

“For example, say I don’t want to retire at age 63, and I wanted to retire at age 65,” Crothers says. “I can change my assumption and see what my lifetime income benefit might be.”

Crothers adds that BlackRock purposefully does not allow a participant to change the allocation of assets being put into the lifetime income asset class over time because he argues that providing too many choices to participants can lead to inaction, and the goal of LifePath was to make it as simple as possible for investors.

Ackerley explains that if a participant with LifePath Paycheck is 65 years old and wants to take 30% of their assets and annuitize it, the participant will start receiving the payments right away.

“Up until the point that you say, ‘I do or do not want to use the annuity,’ you are fully liquid,” Ackerley says. “So really, what we’ve done is: We’re giving [participants] the option to annuitize, but if [they] don’t want to, [they] still have a fixed-income return on those assets.”

Ackerley adds that BlackRock has spent several years educating consultants and advisers on how the lifetime income solution works, so plan sponsors understand how they can offer it to their employees. Because BlackRock chooses the insurance companies that will provide the annuity, Ackerley says BlackRock takes on a fiduciary responsibility.

“BlackRock has a robust process for how we’ve determined which insurance companies to include, and we have an ongoing process around that, so I think, in some ways, we’ve alleviated that burden for the plan sponsor,” she says.

Initially, Ackerley says LifePath Paycheck will be available on three recordkeeper platforms, including Fidelity. BlackRock has not yet disclosed the other two recordkeepers.

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