The first morning of the PLANSPONSOR National Conference, held in Orlando, Florida, opened with a discussion of the retirement income solutions available for participants and how plan sponsors can decide which to adopt. Rebecca Moore, managing editor of special content for ISS Media, moderated the panel, composed of Toni Griffin, assistant vice president, applied knowledge, with MetLife; Hugh Penney, senior adviser benefits planning, Yale University; and Bruce Lanser, senior retirement plan consultant, with UBS Retirement Plan Consulting Group. This is a short excerpt from the session.
PS: What plan design solutions can plan sponsors use to help participants create an income stream in retirement?
Lancer: There are many paths to go: in-plan annuities, guaranteed benefits wrapped around an investment; a fixed annuity as part of a TDF [target-date fund]. Annuities grow as their owners get older. Plan sponsors need to understand the whole retirement income landscape to find out what’s best for their plan. It’s also important that recordkeepers begin in earnest to adapt to retirement income solutions and can offer systematic withdrawals and not just lump sums.
Griffin: The biggest consideration is knowing your participants and which solution might help them the most. For example, QLAC [Qualified longevity annuity contract] benefits kick in once a person is in their 80s, when health issues become more expensive.
Plan sponsors can have an annuity within a target-date fund. There are lots of different options, but it depends on what’s best for plan participants.
Lancer: For participants, it’s simple. They want to know that the income stream is guaranteed. They don’t want to know too much more. It’s a complex decision but simple for participants.
Griffin: Keeping it simple is important; otherwise there’s no action. Annuitization does not need to be all or nothing. We think a partial solution is the best of both worlds. The “great retirement decision” is whether to take one’s accumulated savings as a paycheck—i.e., monthly annuity payments—or a perceived “pot of gold”—i.e., a lump sum—or some combination of the two. Eighty-nine percent of pre-retirees would like a partial annuity/partial lump sum option.
PS: How does Yale University offer its retirement plan participants options to create retirement income?
Penney: A significant feature of the Yale 403(b) plan’s qualified default investment alternative, a custom TDF, is it has no bond fund. Instead, Yale’s group guaranteed-annuity investment is akin to a high-performing stable value investment that has an annuity option. An annuity, unlike a bond fund, is guaranteed to go up every year. When the market went down 10% during the financial crisis, annuities did not.
PS: What are you seeing in terms of demand for retirement income solutions?
Lancer: I’m seeing demand for guaranteed income options on both the plan sponsor and participant fronts.
Griffin: The biggest barrier was not having a safe harbor. We thought we’d see lots of interest after it was instituted, but COVID distracted from that, and we are seeing interest pick up. We’re seeing a lot of RFPs [requests for proposals] and RFIs [requests for information]. There is definite interest from plan sponsors. Of participants, pre-retirees are the most interested. Ninety percent are interested in guaranteed annuities.
PS: How can plan sponsors decide which retirement income solution is best for their participant base?
Lancer: It’s going to be driven by the recordkeeper. Plan sponsors are still restricted by what your recordkeeper can do for you.
Canvas the marketplace to see what works for you. What solutions might your participants respond to? Work with advisers, who can explain the choices you may have.
Griffin: There are lots of different features in annuities [to consider]. You can leave your benefit to your spouse or another beneficiary.
Penney: The challenge in lifetime income is that it’s more complicated for plan committees. They need to understand how lifetime income can work in your organization.
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