Feature:You Can’t Always Get What You Want

PS: Why was this company specifically in need of a retirement income option?    

Jason Chepenik: The company’s retirement plan statistics explain why participants needed [this option]: The average salary is $107,000, average age is 50 and the average deferral is 8.9%. They have a big chunk of people 10 years away from retirement, and the [company worries about] … how [it is] going to help them. They don’t want to wake up 10 years down the road and have participants not know what to do. The anecdotal evidence suggests that the participants have been relying on a great company match, defaulted investment options and perhaps initial auto-enrollment to get them to where they are now—so the challenge is using this data to help their employees “auto-out” of the plan and, using the participant historical behavior, to help them better manage their retirement.   

PS: What kind of retirement income product was the plan sponsor seeking?    

Chepenik: The client wanted a product that provided a “DB-ization” of the DC plan, to make it look like a pension plan. They wanted an option that had a combination of a managed account with an income piece to it—like a fixed annuity—that would start paying out an income at age 65. They felt this was the right solution for the participants and made them feel more comfortable, plus the client could use it as a unique marketing tool to attract employees, as they compete with firms that still offer defined benefit [plans]. 

PS: What obstacles did you encounter when trying to make this option available in the plan?  

Chepenik: The recordkeeper would not host this income option. Recordkeepers would have to reprogram all of their computers to handle it, train their call center employees to understand the option [and] change all enrollment materials and website information. Every component of their business has to change to support it. This retirement income option is what gets talked about, but you can’t actually buy it today. There are companies willing to manufacture it but not distribute. Recordkeepers say, “Nobody’s doing it.” But people want to do it. It’s frustrating, but it also means—in my opinion—that [plan sponsors and advisers are] doing something right. We need to replace the income people need. In many ways, companies are treating this as a product rather than a holistic solution to the problem. The marketplace leaders—vendors, advisers, recordkeepers—have drawn the blueprints of how to deliver the appropriate solutions, but nobody has been willing to build the building, as of yet. It will happen.

PS: Why do you think some recordkeepers are unable or resistant to host this option?   

Chepenik: The cost of going first is huge. If you’re a publicly traded company, you have the obligation to make money. The answer to this game is a money-loser at first, and though everyone would say [offering this retirement income solution] is the right thing, nobody will sacrifice today for tomorrow. [It] ultimately hurts the participants, and it hurts the ability of the adviser to do what they need [done]. The participant[s are] the one[s] impacted, because there are products out there that could work for them, and, yet, the recordkeeper marketplace and the current recordkeeper [were] not built for this. So you know, it’s a game changer. We have to start doing new things and implementing new ideas to help participants because we keep doing the same things over and over again, and the 401(k) plan, in many ways, is too complex and overwhelming for participants. To make a great difference in this business does take thought leadership, money and it takes the guts of [the] recordkeeper[s] to consider completely changing their product or their platform. And that’s what they’ve been afraid to do.