BlackRock Prepares LifePath Paycheck to Address In-Plan Retirement Income

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.

“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.