PSNC 2017: Innovation at Work

The final session at the PLANSPONSOR National Conference explored how one company’s innovative plan design extends prospects for retirement readiness to all of its full-timers, regardless of income level.

“How many of us go into an auto dealership to buy a new car and the first thing we look at is the engine?” asked Kevin Hanney, senior director of pension investments at United Technologies Corp. (UTC) during the final panel of the 2017 PLANSPONSOR National Conference, held in Washington, D.C.

His allusion was to the common, yet risky, practice of buying a vehicle because it looks good, instead of based on what’s under the hood—the parts and engineering that determine how long it will last. He was describing the effects of making uninformed investment decisions, and how his company helps its plan participants make a choice they can rely on as long as they’ll need it.

In order to provide a useful retirement savings plan, a plan sponsor must be willing to be flexible, Hanney noted. At UTC, which provides engineering to the commercial aerospace, defense and building industries, the 100,000-plus plan participants have access to a “build-it-yourself” solution in their 401(k) plan. With more than 250 mutual fund families, more than 10,000 available funds, and core options built with investments named generically—to make types that are unfamiliar simpler to understand—the solution allows participants tailor their own account, possibly choosing from, for instance, a stable value fund, non-U.S. equity or an inflation-sensitive fund.

If employees would rather have a professional manage their major investment decisions, Hanney said, UTC will provide them that service. The idea is to let them have as much power over their account as they would like. “It’s retirement planning that they can do on their own terms,” Hanney said.

Aside from its 401(k) plan, UTC also runs a pension plan, called the Lifetime Income Strategy. The company employs workers of all incomes levels, so it created the strategy in an effort to help all participants save well, no matter how much they are paid.

“This is designed to work for everyone, regardless of where you’re coming from,” Hanney said.

The Lifetime Income Strategy provides ever-changing professionally managed investments, protection against risk of outliving retirement savings, and a retirement income with liquidity and upside potential, Hanney said. “We’ve got 111,000 participants, so we’re considering 111,000 different life paths,” he said. “We design this so it provides security [] people need but the ability to change when necessary.”

Until the participant reaches age 48, the Lifetime Income Strategy is a traditional investment portfolio comparable to a target-date fund (TDF). When the participant is 48 through 59, the strategy utilizes annuities, while maintaining some liquidity in the portfolio to establish what will be a secure income. At the last phase, for participants 60 and older, the strategy is designed to deliver lifetime income and investment upside, still maintaining daily liquidity. Participants need not apply for plan membership, Hanney said, as all full-time employees of UTC are enrolled in the Lifetime Income Strategy.

Concluding his session, Hanney emphasized a plan sponsor’s duty to employ a variety of features and solutions in their retirement plan. Otherwise, he said, the plan will run out of gas. “You can build the most sophisticated retirement plan in the world; it’s not going to go anywhere if there’s no fuel in the tank,” he said.