Participants Will Need Support to Understand Lifetime Income Projections

Recordkeepers are bolstering education, projection modeling tools and tailored advice capabilities to support plan participants and encourage them to remain on track for retirement income planning.

Plan sponsors and advisers are preparing for defined contribution (DC) plan participants’ reactions to the lifetime income estimates that will be coming on their plan statements this year with custom tools and planning advice, as well as investment menu evaluations.   

In 2019’s Setting Every Community Up for Retirement Enhancement (SECURE) Act, Congress required that DC plans provide retirement plan participants with projections illustrating monthly retirement income amounts generated from their accumulated retirement savings. The Department of Labor (DOL)’s interim final rule on the matter, published in September, requires that participants’ projected income be illustrated as an account balance conversion to a lifetime income annuity.

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“We expect that it’s an important framing for retirees and all DC participants to think about their account balance in terms of projected income, but it’s also going to lead to many emotions and needs for further support,” says Josh Cohen, PGIM head of DC client solutions.

By Cohort

PGIM’s research team examined three scenarios for how workers are likely to react to the income illustrations and how those reactions are likely to impact plan participant behavior. The research considered early career savers seeing low illustrations in the first year of disclosures; early career savers seeing modest but steady year-over-year progress; and near-retirees seeing projected income that’s higher than actual income.

“It’s going to create a pretty steep learning curve for most participants out there, especially because it’s going to involve some pretty complex calculations,” says David Morehead, vice president, Retirement Benefits Group.

For younger participants who have not accumulated large balances, the projections could be a wake-up call, as the research showed that, overall, 68% of participants’ responses were negative. The survey also asked respondents if they were likely to take action with respect to their retirement plans after seeing the numbers, and 70% responded they are likely to act.  

Among early career savers, 50% of responses were negative, and 78% said they were likely to act.

“The challenge with the methodology that is going to be used is that it really reflects assumptions that are going to underplay what the retirement income is likely to be for most people, because the projection doesn’t consider the future contributions that someone might make or the future earnings,” says Amy Reynolds, a partner at Mercer. “Therefore, it is not going to look sufficient from the perspective of most participants, and the issue for most sponsors and recordkeepers is really that they have been providing information historically, through the recordkeepers’ and modeling tools and other services, to help participants to model and estimate retirement income while considering some of these projections and changes.”

She adds, “That’s really the challenge, to help people reconcile what they see on these statements versus what they’ve probably seen on the websites that they’ve historically been accessing.”

The PGIM research found reactions for older participants were 79% negative, and 74% said they would act.

In the survey, near-retirees were presented with a hypothetical scenario where the participants had accumulated $200,000 of savings in a DC plan. Participants then received statements indicating that the amount will generate $966 in monthly retirement income, payable for life, but under the actual, non-annuitized figure that assumes a yearly 4% withdrawal, monthly payments will only be $666.

Older participants and near-retirees receiving the projected disclosures are likely to see projected incomes that are higher than their actual incomes will be. That’s because the mandated DOL calculation method assumes that the participant’s full balance has been annuitized.

“The reason it is less is that financial experts suggest withdrawing only 4% of your initial retirement balance annually if you wish to retain access to your assets and have a good chance of not running out of money in retirement,” PGIM research states. “The amount communicated in your statements was based on annuitizing your full account balance.”

Supporting Participants

Plan sponsors and advisers are preparing for participants to receive the lifetime income statements with tools, educational sessions and customized advice targeted to specific cohorts, sources said.

Jeff Cimini, head of institutional product at Voya Financial, says the recordkeeper—along with the DOL lifetime income projected disclosure—will send participants supplemental projection information that includes lifetime income projections based on future contributions, earnings and investment returns.

“The regulations that the DOL put forth allow for an additional projection, a supplemental projection, which allows recordkeepers to continue doing what we did in the past, which is to make assumptions about the future that can help participants understand if they continue their behavior, what their retirement can look like,” Cimini says.

Voya is focusing on continuing its support efforts for recordkeepers, outreach and education to help plan sponsors manage participant reactions, Cimini says.

“One is making sure that the advisers and the recordkeepers and those that work with participants are aware of the methodology, so that when participants have questions, which we assume they will, that we are giving them good answers for why that DOL projection is on their statements and how the supplemental projection ties to that,” he says. “And then we have our counselors ready to talk to participants who have questions about ‘How can I improve my outcome?’ We’re just preparing for a fair amount of questions and really preparing for questions and inquiries that we’ll get that are sparked as a result of this additional income projection tied to the DOL requirements.”

PGIM will marshal resources from the PGIM DC Solutions group and focus on offering plan sponsors additional customized tools, advice capabilities and investments geared toward generating retirement income, Cohen says.

“When we look at what’s typically on a menu versus what’s needed for retirement income, most menus are short on options such as additional fixed-income options, longer duration, more inflation-sensitive asset classes and income-producing asset classes such as commodities, real assets and real estate,” he says. “It’s bringing more of those types of options into the menu.”

Retirement Industry People Moves

Mercer appoints U.S. defined contribution leader; PBGC-focused law firm joins The Wagner Law Group; Schroders names North America head of sustainability; and more.

Mercer Names U.S. Defined Contribution Leader

Mercer has named Holly Verdeyen as its U.S. defined contribution (DC) leader.

Based in Chicago, Verdeyen’s responsibilities include managing the strategy, development and growth of Mercer’s DC and financial wellness business within the U.S. She will report to Chris Mahoney, U.S. wealth leader

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“The defined contribution space is in a period of exciting but rapid change, with new challenges and opportunities prompting plan sponsors to re-evaluate their governance models,” Verdeyen says. “The legislative agenda is packed with proposals to bolster retirement coverage and adequacy, and employers are in a unique position to expand retirement plan access while still affording participants flexibility. I’m very excited to join a team of experts who are working with leading organizations to tackle retirement plan challenges.”

Verdeyen brings more than 20 years of institutional investment experience to Mercer. Most recently, she was the head of defined contribution at Russell Investments, where she led the U.S. institutional and intermediary DC business units, which included traditional outsourced chief investment officer (OCIO), target-date funds (TDFs) and custom multi-asset mandates. She was responsible for Russell Investments’ funds distributed to DC plans via financial intermediaries, as well as personalized managed accounts and model portfolios.

Prior to that, Verdeyen served as an executive director in defined contribution at UBS. She began her career at BlackRock, as a business development officer in the defined contribution group. Verdeyen earned her MBA from Northwestern University and her bachelor’s degree from St. Norbert College.

PBGC-Focused Law Firm Joins The Wagner Law Group

Marcia Wagner, the managing director of The Wagner Law Group, has announced that the entire team from Keightley & Ashner, a Pension Benefit Guaranty Corporation (PBGC)-focused law firm, will be joining The Wagner Law Group’s Washington, D.C., office.

In the aggregate, this expanded PBGC team has 165 years of experience working for PBGC, and, in the aggregate, 100 years of experience providing legal or other professional services to employers and others facing PBGC issues. The expanded PBGC team at The Wagner Law Group will address the full range of PBGC-related issues that may be encountered by employers, actuarial firms, other law firms, investment banking firms or private equity firms.

Harold J. Ashner, who joins The Wagner Law Group as a partner, advises and represents clients on a wide variety of employee benefits matters, with an emphasis on PBGC issues. He served as assistant general counsel for legislation and regulations at PBGC, where he drafted or supervised virtually all regulations and policies issued by PBGC from 1988 until he left the agency in 2005.

Linda E. Rosenzweig advises and represents clients on a broad range of matters involving employee benefits and employment matters, including PBGC matters, having practiced in these areas for more than 40 years. She has represented employers in administrative and court proceedings arising under the Employee Retirement Income Security Act (ERISA) and federal employment laws and has handled private litigation (including U.S. Supreme Court and federal court cases) on behalf of employers as well as on behalf of PBGC during her PBGC tenure.

Deborah West advises clients on a wide variety of PBGC-related issues, drawing on her 12 years of experience with Keightley & Ashner and her 25-year tenure with PBGC. She served as PBGC senior assistant general counsel for ERISA/bankruptcy matters from 1996 until she left PBGC in 2005, supervising hundreds of cases involving the full gamut of PBGC issues, including cases involving employer liability in and out of bankruptcy; standard, distress and involuntary terminations; participant benefit entitlement; conflicts between ERISA and other federal laws; fiduciary breaches; evasion and avoidance transactions; and PBGC’s Early Warning Program.

John F. Langhans works closely with lawyers in advising clients on a variety of actuarial issues, with an emphasis on those arising under Title IV of ERISA. He served as deputy manager of PBGC’s actuarial services division for most of his 14 years at the agency, thereafter joining Keightley & Ashner as senior actuarial adviser in 2008. While at PBGC, he was extensively involved in the Early Warning Program and in bankruptcy litigation, and he served as an expert witness for PBGC on a wide variety of actuarial matters. Prior to his PBGC employment, he had over 20 years of experience as a consulting actuary.

Ellan Hamilton Spring works closely with lawyers in advising clients on a variety of issues relating to how PBGC determines and pays benefits when it takes over a terminated pension plan. Prior to joining Keightley & Ashner as its senior PBGC benefits adviser in 2010, she had a 27-year career at PBGC and another eight years as a consultant to PBGC. She served as PBGC’s primary program official on benefit policy, having created and headed the agency’s central benefit policy office.

Jonathan L. Henkel works closely with lawyers in advising clients about distress terminations, plan termination and other liabilities, and other matters involving negotiations with PBGC. Before joining Keightley & Ashner as its senior PBGC negotiations adviser in 2016, he had a 30-year career at PBGC, and another seven years as a senior financial analyst with Deloitte, where he supported PBGC by negotiating and valuing employer liability settlements. During his PBGC tenure, he served as supervisory auditor for PBGC’s plan termination insurance program and worked closely with PBGC attorneys, actuaries and other financial analysts in making plan termination and trusteeship determinations and negotiating settlements for PBGC.

Schroders Appoints North America Head of Sustainability

Schroders has announced that Marina Severinovsky will join Schroders’ global sustainable investment team in the role of head of sustainability, North America.

In this role, Severinovsky, who is based in New York, will lead the sustainability efforts and environmental, social and governance (ESG) integration for Schroders’ investments in North America. She will collaborate with senior managers on market strategy, client communications, product development, sales and investor management. Severinovsky will report to Andy Howard, global head of sustainable investment, and regionally to Tiffani Potesta, chief strategy officer, North America.

Severinovsky has been with Schroders for more than 11 years, most recently as the investment director for the quantitative equity products (QEP) team. She has also served in various roles across relationship management, investment strategy and alternatives.

Separately, Schroders announced that Sarah Bratton Hughes, who previously was head of sustainability, North America, has left the firm.

Ninety One Appoints Senior Analyst, Latin America

Ninety One has announced the appointment of Christine Reed as senior analyst, Latin America, joining the emerging markets (EM) sovereign and foreign exchange (FX) team. Based in New York, Reed will be responsible for Latin American coverage and will support the alpha decisionmaking process across investment capabilities.

She joins Ninety One from Goldman Sachs Asset Management, where she was vice president, head of emerging markets local debt, responsible for all emerging markets rates positions taken globally across the firm’s EM dedicated strategies and crossover assets. Prior to this, Reed was an associate at Citigroup on its Latin American fixed income and FX trading desk, where she was a market maker of fixed income and FX products in countries including Colombia, Brazil, Chile, Peru, Uruguay and the Dominican Republic. She has a Bachelor of Arts in economics, and a secondary degree in global health policy from Harvard University. 

“Christine brings extensive experience across the full emerging market spectrum and in particular Latin America,” says Peter Eerdmans, head of fixed income, Ninety One. “Furthermore, her in-depth knowledge and understanding of EM sovereign bonds, interest rate swaps, FX spot and forwards will be an asset to the team as we further develop our investment capabilities. Christine is the second hire to the EMD team based in New York, underscoring our commitment to the North American market.”

Voya Announces Diverse Market Segment Leader

Voya Financial has appointed Jay Washington to the newly created position of assistant vice president (AVP), diverse market segment.

Washington is focused on partnering with Voya’s business teams and internal partners to enable Voya to better serve the diverse needs of its equally diverse customer base. He will have a direct influence on distribution strategy, the positioning of Voya’s solutions and the engagement of target consumers in select designated market areas. Specifically, Washington will be providing overall business development leadership of multicultural sales growth including, but not limited to, Hispanic, Asian, African American and women’s markets.

Washington joined Voya nearly two years ago as a client relationship manager (CRM) supporting Voya’s small-mid corporate market. During his tenure as a CRM, he successfully managed a book of business throughout the greater New York area including New Jersey, Delaware and Philadelphia, helping make connections with key advisers and partners to forge new relationships and drive new business.

Washington was also vital to the success of Voya’s first diversity, equity and inclusion (DE&I) task force—in which he was a participating member. Based out of Wilmington, Delaware, he spent a large portion of his career before joining Voya in client relationship, sales and consulting roles with TIAA-CREF and One America.

“At Voya, we are constantly focused on enhancing the ways that we can help our clients with their growing needs. I am thrilled for Jay to be taking on this new role and for the opportunities that we will have to further serve the specific needs of underserved communities,” says Bill Harmon, chief client officer at Voya. “Jay’s passion, energy and engaging approach will continue to result in fantastic growth for our team and I look forward to seeing his continued success here at Voya.”

Washington graduated from Indiana University of Pennsylvania with a bachelor’s degree in economics and journalism and received his MBA from Point Park University. In addition, he holds licenses and certificates in financial planning and services, retirement income and employee benefits and is an Accredited Investment Fiduciary.

Aon Names Head of North America Health Solutions

Aon has announced the installation of Farheen Dam as the firm’s head of North America health solutions.

Dam comes to Aon with more than 24 years in the industry, including a strong combination of experiences in consulting (Mercer), health insurance (Cigna) and most recently InsurTech (Buoy Health).

“This diverse background will enable Farheen to have a holistic understanding of clients’ needs as well as bring fresh perspectives and diverse insights to this very important leadership role,” says Dave Guilmette, CEO of Aon’s global health solutions practice.

Dam will join the firm’s North America and health solutions leadership teams and will be based out of Aon’s New York City office.

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