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George Castineiras, Senior Vice President, Total Retirement Solutions at Prudential Retirement discusses industry trends and the role of the recordkeeper in assisting retirement plan sponsors
George Castineiras, Senior Vice President, Total Retirement Solutions at Prudential Retirement

 PS: Is there a typical Prudential client, and if so, what does that client look like?

Castineiras: Target markets for our TRS business fall into the corporate and tax-exempt markets. We spend most of our time on plans with $10 million to $1 billion in assets. That’s where we actively participate and keep a strong focus. We are very selective when we go above $1 billion and not well suited to go below $10 million.

Typical clients within Prudential also have more than one retirement platform. We’re very well-suited to handle multiple retirement platforms versus just being a DC player and nothing else.

Paternalistic plan sponsors do well with us because of what we produce—whether its our focus on outcomes or producing income for lifetimes.

PS: What trends are you seeing among your clients?

Castineiras: I think the trends we see are validated across the industry.

On the DB side the requests we get are: Help me solve my DB challenge from a funding, derisking and glide path perspective; Help me make good on the promise that I made to my participants; Help me understand  the best time for me to derisk these assets or move these liabilities off of my balance sheet.

On the DC side we have seen an increase in adoption of automatic features, and what I would call the modernization of DC plans to be more DB-like—meaning  automatically enrolling participants into a glide path and automatically escalating their deferral rate 2% a year.

That solves for a good part of the population, but not the entire population. We’re seeing a major uptick in nonqualified penetration for plan sponsors.

These plans allow executives to defer some of their income in the future from a tax perspective, and are helping plan sponsors get past any discrimination test and challenges that they’ve had historically. Plan sponsors are combining the DC and nonqualified plans together, and that becomes more and more prominent.

 PS: What is your role at Prudential and the role of the recordkeeper in general in helping plan sponsors improve their plan designs?

Castineiras: I think it is through innovation. When I look at innovation as a recordkeeper I’m looking at how we incorporate the human behavior dynamic and engineer solutions so people understand them, adopt them and take action.

When we look at building a solution, it’s not enough to build the engineering that produces the mathematical best output. To do that, I would give somebody an irrevocable annuity option, which gives you the most income possible. However, no one is going to take action there because they don’t want to lose control of their savings or income. If you create a solution that says, “I’m not going to make it irrevocable. You always have complete control. Your beneficiary will get the assets if you don’t use them all” Suddenly participants are interested.

An example of that would be our income solution, IncomeFlex. A participant inside a protected solution, for lack of a better term, is contributing 33% more than the average participant in the U.S. When the market went down in 2008, people with a protected solution like IncomeFlex were 2.5 times more likely to remain in equities than to get out of equities or out of the market.

It’s one thing to produce something that looks really nice. It’s one thing to produce something that produces great output quantitatively, but it means nothing to us unless it produces outcome. We’re a recordkeeper that builds solutions in order to influence behavior change.

PS: How do you help increase participant engagement and therefore, retirement readiness?

Castineiras: When you’re looking at recordkeeping how do you create an experience? You have to address the financial literacy component and the way people want to receive information.

If you go to the average American and ask them what their retirement plan deferral rate is, they don’t understand what a deferral rate is. That’s our term. You have to ask them, “How much money from your paycheck goes to your 401(k) plan?” As an industry, we don’t have a tendency to speak English.

When addressing how people want to receive information, you have the millennials that are increasingly coming in to the workforce and then you’ve got the Baby Boomer population coming out of these plans.

When you look at a millennial, their number one interest isn’t the engineering or the sophistication of the product as much as it is the experience. If you have to double click to do anything for a millennial, that’s a pretty bad experience. Millennials are less interested in the investment options; they are more interested in “Can you help me understand this in a very easy to digest way? Give me an experience that’s meaningful and relevant to me.”

Contrarily, when you’re looking at a Boomer, they’re just looking for the answers; they want to call somebody and get the answers they want.

We’ve been working very feverously to change the language and the experience dynamic for participants so we have a different engagement model. I’ve never found a more energizing time to play in this space and a lot of it has to do with the dynamics, the demographics and the relevance of how important saving for retirement is.