Think Tank Proposes Scorecard for Retirement Income Options

In the paper, co-author Mendel Melzer, an IRIC member and chief investment officer for The Newport Group, notes that while a large body of knowledge has been developed regarding selecting and monitoring traditional investment options within participant directed retirement plans, these emerging lifetime income options such as annuities and managed payout funds don’t easily fit within existing frameworks.  The scorecard that IRIC proposes includes a set of metrics that both plan sponsors and their consultants and advisors can utilize to assess the suitability of a retirement income strategy as an investment option.  

The scorecard includes five major criteria that IRIC says must be evaluated and “scored” to demonstrate that the plan sponsor has followed a prudent process in selecting and monitoring a retirement income strategy, including: 

• Efficacy of the underlying investment process, 
• Nature of the lifetime income guarantee, 
• Counterparty strength, 
• Product cost including both investment management and insurance, and  
• Operational flexibility including both plan sponsor and participant level. 

Each criterion would be scored on a 1-5 (low to high) scale and then an overall average composite score ranging between 1 and 5 would be determined.  A composite score of 3 or higher would place the retirement income strategy in good standing while scores below 3 would place the strategy on a watch list.    

The paper notes that in order to appropriately score a strategy, a plan sponsor or consultant would need to have a good understanding of the entire spectrum of available lifetime income options.