Plan Sponsor Roundtable: Retirement Income Is the Outcome

Plan provisions and advice tools can help participants turn their savings into reliable retirement income.

During PLANSPONSOR’s 2021 “What’s on the Minds of Plan Sponsors” virtual conference, speakers discussed how they are offering retirement income to their participants.

Leidos, a defense, aviation, information technology (IT) and biomedical research company, has found there are numerous benefits of having its retired employees keep their money in the plan, said Beth Pattillo, director, retirement programs, at the company. “For the participants, there are a lot of benefits,” she said. “They can continue to get low-cost advice solutions, including our managed account, and can enjoy our low recordkeeping fee, all while having access to a diversified portfolio of investments. Our investment committee is fully engaged and educated, and they have access to an investment adviser.”

From Leidos’ perspective, keeping retirees in the plan gives the company more “buying strength to get into investment vehicles at discounted rates, which translates to a benefit to participants as well,” Pattillo added.

Leidos’ plan has $10 billion in assets, and retirees account for 53% of those assets, Pattillo said, “so we are interested in keeping them happy and in our plan because of that buying power.”

Thus, to serve this retiree group as well as the company’s overall population, Leidos changed its plan design. It enables loans to be repaid through payroll deduction, and terminated employees can make ACH [automated clearing house] payments to the plan’s recordkeeper, Vanguard, she said.

The company also allows participants to roll outside assets into the plan. “What better way to manage RMDs [required minimum distributions], draw down those assets and enjoy low fees?” Pattillo asked. “We make it a point to actively communicate to our terminated participants to help them understand the benefits available to them in our plan and to be connected to us on a day-to-day basis. We also allow partial payments and have an installment and drawdown service. We want to offer the most flexibility possible to our participants.”

Vanguard also offers a guided installment service that can help retirees figure out how much money they will need each month and set up a drawdown schedule for that, she noted. “It also includes information on portable vehicles they can invest in that will give them a stream of income over their lifetime.”

That said, Leidos does not have an in-plan or out-of-plan annuity, but participants can explore those options with Vanguard, Pattillo said.

Southwest Airlines makes it a point to highlight participants’ income replacement ratios, said Elaine Parham, senior manager, compensation and retirement, at the airline. “Our founder said that our priority should always be on our employees. Keeping them happy, they will keep the customers happy and we will maintain profitability. That is the operating model of Southwest Airlines. One way to keep employees is through our retirement programs. We have a 401(k) with a very generous match, and a qualified plan for our profit sharing, which we have contributed to each year since its founding, except this past year. These are big investments for us; one year we contributed close to $1 billion. That’s a lot of money. We take a paternalistic approach.”

To help its workers with their investments during their working years, Southwest Airlines has a dedicated education counselor and a recordkeeper that actively handles group and one-on-one meetings at all the airports where the airline operates. “They also work with our benefits committee to help participants understand the value of their retirement plan,” Parham said.

With the help of its recordkeeper, Empower, Southwest Airlines trains its participants’ eyes on their “Lifetime Income Score,” which tells them how likely they are to replace 75% of their income in retirement, and encourages them to include outside assets, including their anticipated Social Security benefit, in the projection so they can get the most accurate picture of their standing, she said.

For those approaching retirement, Southwest Airlines holds pre-retirement workshops, where such topics as Social Security and Medicare are discussed, she continued.

The airline permits its retirees to take out distributions without any fees, she added.

Hugh Penney, senior adviser of benefits planning at Yale University, said, “Two years ago, we wanted to incorporate lifetime income into our default investment. We turned to our recordkeeper, an insurance company, TIAA, to develop a default investment that looks like a target-date fund [TDF] but that is a managed account that the individual invests in directly. It invests a portion of the assets in a guaranteed accumulating annuity with the option to turn it into retirement income. We re-defaulted our entire population, all 17,000 participants, into this new TDF-looking managed account program. Just under 95% of all of our participants have remained in the new program. Eighty-five percent have remained there by default, and 10% have done a risk profile.”

For 401(k) sponsors interested in annuities but unsure about them, Penney recommended that they speak with an insurance specialist, just as they would if they were conducting pension de-risking.

Yale also runs what it calls a “two-column” investment lineup, Penney added. The first column is for accumulation of assets, and the second column is for decumulation of assets, he said. “Accumulation is radically different than decumulation, when people face many different risks, including inflation, cognitive decline and low interest rates,” he said, which is why it is important to invest at least some of a participant’s money at this stage in variable or guaranteed annuities.