Opinions November 12, 2024

Retirement Income Stands Out as a Rare Consensus Focus for Politicians

Both major political parties and the business community agree on the need for solutions to help address challenges around income in retirement, and they’ve taken action to address them.

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While expectations around retirement regulation and enforcement shift meaningfully depending on who sits in the White House, retirement income access within defined contribution plans has emerged as one of the few truly bipartisan topics where political parties, regulators, and the industry are aligned.

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A couple of critical factors underlie the bipartisan support for easier access to retirement income within DC plans. There’s been a meaningful shift from defined benefit pensions to DC plans over the last several decades. DB plans offer retirees guaranteed income for life while DC plans put the responsibility for retirement income planning on the individual; a real challenge for most Americans to manage. Combined with increased life expectancies, this lack of income certainty is causing concerns for those near or in retirement.

Retirement income uncertainty does not just impact workers, employers are affected as well. With the relatively low unemployment rate in the U.S. recently, employees can be more selective with where they choose to work. The Employee Benefit Research Institute’s 2021 Retirement Confidence Survey showed that three quarters of workers would prefer in-plan solutions that offered some guaranteed income for life.  Inclusion of those offerings can benefit employee retention and recruitment. One of the impacts of retirement income insecurity, is delayed retirement. A 2017 study by Prudential showed that that the cost to employers of a single employee delaying retirement for one year is more than $50,000.

These challenges are real for both individuals and their employers, but retirement income solutions may solve these challenges. Retirement income offerings can both help make a company an attractive place to work, and also facilitate timely retirements; helping companies compete for talent and better manage expenses.  

Both major political parties and the business community agree on the need for solutions to help address these challenges, and they’ve taken action to address.  The Setting Every Community Up for Retirement Enhancement Act of 2019 was passed with bi-partisan support in the House and Senate before being signed into law by President Trump. That law made it easier to include annuities in 401(k) plans by offering a fiduciary safe harbor, which reduces liability for plan sponsors when selecting a guaranteed retirement income solution.  The SECURE 2.0 Act of 2022, also passed with bi-partisan support, was signed into law by President Biden. SECURE 2.0 builds upon the 2019 law’s efforts to improve access to retirement income with several additional provisions. It allows individuals to move up to $200,000 from a retirement plan or IRA into a Qualified Longevity Annuity Contract and also encourages the use of annuities with provisions including annuity portability.

With employee and employer retirement income needs clear, the federal government responded with rare, consensus action to address those needs. The next step in executing on delivery of retirement income access through DC plans falls on the business community. That has not happened as quickly as many had planned or hoped, but positive signs are emerging. Delivering better outcomes for American workers requires industry collaboration along the same lines we have seen from politicians. Standardizing nomenclature around guaranteed retirement income offerings, educating advisers and plans sponsors, and increasing availability of these solutions are crucial for success. In 2022, Broadridge started a Retirement Income Consortium to bring like-minded firms together to increase plan sponsor consideration of retirement income solutions (both guaranteed and non-guaranteed). Since its inception, there have been more than 20,000 views of the consortium’s educational webinars.  In January, Fidelity announced national availability of its Guaranteed Income Direct Solution; a bold move from the U.S.’s largest retirement provider. In March, the second largest retirement record keeper, Empower, announced the launch of four retirement income solutions on its platform. Also in March, BlackRock CEO Larry Fink’s annual letter to investors highlighted its ‘LifePath Paycheck’ solution, which offers guaranteed income access. Fink expects that investment strategy to be the most used in DC plans. Finally, a retirement income training certificate program offered by the National Association of Plan Advisors was oversubscribed at the group’s annual conference last April.  There is much more to be done, but these ‘green shoots’ of activity bode well for increased retirement income access.

The table has been set for a blue-ocean retirement plan opportunity and progress depends on the collective action of business leaders, policymakers, plan sponsors and other stakeholders in the retirement ecosystem. Embracing innovative retirement income solutions is a win-win for individuals and businesses, and now is the time to turn bipartisan consensus into action to create a robust pathway to a dignified retirement for all.

John Faustino is the head of retirement products at Broadridge Financial Solutions. Bonnie Treichel is founder and chief solutions officer at Endeavor Retirement.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.

Administration November 11, 2024

Principal CEO: Recordkeepers Should Get Creative to Enhance Services, Go Beyond Scale

The industry will see further consolidation, with winners innovating for advisers and participant services, according to the head of the recordkeeper, asset manager and insurer.

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Photograph by Matt Kalinowski
Photograph by Matt Kalinowski

Dan Houston, chairman and CEO of Principal Financial Group, says scale continues to be important for the vastly consolidated recordkeeping space, but stressed that innovation and participant services that plan advisers can best leverage is what will lead to sustained growth.

Houston, speaking at the PLANADVISER 360 conference in Scottsdale, Arizona, said he anticipates further acquisitions and consolidation among recordkeepers, but that the future is requiring more customization for advisers and plan sponsors.

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On Tuesday, Principal announced that Houston will step down as CEO at the start of 2025, to be replaced by Chief Operating Officer and recently named President Deanna Strable. Houston will continue to serve as the executive chair of Principal’s board.

In a final public appearance before the announcement, Houston stressed the need for the retirement industry to better meet the needs of participants.

“The question is, how do you create a platform that allows advisers, participants and plan sponsors to be better, well served and really checking the box on financial security?” he asked. “And we can’t always be dependent on government rules and regulations changing like Secure 1.0 and 2.0,” referencing the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and the SECURE 2.0 Act of 2022.

He said the lack of standardization in recordkeeping processes has been further complicated in the past decade due to the growing demand from large employers for more tailored solutions that link with their existing systems.

“There are as many ways to handle record-keeping as there are recordkeepers,” Houston explained. “The technical side of it is complex, and it’s only become more so as plan sponsors increasingly demand customization and integrated solutions for their payroll and benefit systems.”

Principal acquired Wells Fargo & Company’s retirement division in 2019, bringing on a number of large plan sponsors.

Houston addressed the challenges of managing not just 401(k) records but also other retirement and benefit-related data, including frozen defined benefit plans and deferred compensation arrangements. He emphasized the need for recordkeepers to provide consolidated views for plan sponsors, making it crucial to manage these different data types in a unified and secure way.

401(k) Trust

Houston also spoke about the importance of maintaining the trust of U.S. workers and expanding access to employer-based retirement plans, rather than having government programs step in.

“401(k) participants trust their employer,” said Houston. “Not only do they trust the employer, but they also trust this industry that the money they’re setting aside is going to be there.”

Leah Sylvester, executive partner, president of retirement plans at Shepherd Financial LLC., who was speaking with Houston during the fireside conversation at the conference, gave the example of a person who, in switching jobs, did not have access to an employer-based retirement plan. Sylvester offered to help the person open an IRA, but found it took considerable effort to carve out the time to complete the process.

“The account process wasn’t hard,” Sylvester explained. “It’s just how do we get people to pause to do the things that they already know they should be doing?”

She noted that this challenge is common, as people often struggle to take the necessary steps toward securing their financial future, even when they understand the importance of doing so.

Houston agreed, speaking to the need for the retirement plan industry and employers to keep expanding workplace retirement plan access—as opposed to government programs that have been discussed and brought forward by some policymakers.

If the industry can’t create “convenient payroll deduction at the workplace, some other system will,” Houston said. “That’s why the industry trade [associations] are paying very close attention to what the Democrats and the Republicans are doing to make sure that there is a commercial need to ensure that people don’t fall through the system as we define it. In other words, broadening the scope to include IRAs at the workplace. That’s something that’s on my mind every day, and we have the capacity today to do that.”

Election Impact

While emphasizing the need for the retirement industry to maintain its trustworthiness, Houston also acknowledged the other events in the political landscape that could impact the future of retirement savings such as tax implications.

With Republicans likely to hold control in the House, Senate, and the presidency in 2025, Houston noted that political dynamics might reduce immediate pressures but warned that the federal deficit continues to grow in what remains a relatively strong market. As co-chair of the American Council of Life Insurers Tax Committee, Houston has been vocal about the importance of the tax-deferral benefits enjoyed by 401(k), 403(b) and other defined contribution retirement plans, which he argues are crucial for motivating retirement savings.

“Employers want to support their employees, and the tax-deductibility of retirement contributions is a key factor,” he emphasized. “Participants value the ability to defer taxes until they’re likely in a lower tax bracket, typically in retirement, which encourages individuals to engage in retirement planning.”

Houston said employers may feel reluctant to add or expand retirement plan offerings because they think their company is too small or the administrative expenses are too high—but he argued that there are many affordable options.

“We have an employer-based system which is trusted,” he said. “We’ve got something good going for us. What we can’t afford to do is to ever breach that, and to have ourselves as an industry not doing what’s in the best interest of the participants and … plan sponsors, which is why the industry need to make sure it holds itself in check.”

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