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Retirement Plan Participants Need Help With Retirement Income

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By Rebecca Moore

OUTLIVING THEIR ASSETS is cited by individuals as a top fear about retirement in multiple studies throughout the years.

“Eventually people will retire and will need some help with income,” says David Will, senior financial adviser at CAPTRUST in Allentown, Pennsylvania.

From systematic withdrawals from defined contribution plans to annuities that guarantee a certain income stream in retirement, there are a range of options for plan sponsors to help participants create and manage retirement income. Will suggests that, whether considering an in-plan or out-of-plan income solution or not, plan sponsors should proactively change their plan design to allow systematic withdrawals—periodic or installment payments.

“We’re hearing more from plan sponsors about the need for and interest in retirement income solutions,” says Joel Schiffman, head of intermediary distribution at Schroders in New York City. “I think the challenge remains what direction they should go. It seems everyone’s looking but no one is sure of the right method to take.”

In-plan options are getting more attention these days both because of the Setting Every Community Up for Retirement Enhancement Act and plan sponsor preference for keeping retirees’ assets in the plan, says Michelle Richter, executive director at the Institutional Retirement Income Council, in New York City. She notes that the preference to retain retiree assets has changed from 10 years ago when most did not want to do so. When recently polled, 70% of plan sponsors indicated they do. “This is one reason plan sponsors are seeing a need to create a retirement tier in their plans,” she says.

Another impetus for retaining retiree assets and offering income solutions for them is the Department of Labor’s point of view on rollovers, according to Richter. “Its establishment of PTE 2020-02 signals it wants to prevent rollovers because participants can access less expensive solutions via the plan, and the DOL said in the last year that retention of assets in-plan is a top priority,” she says.

In-plan retirement income solutions that exist range from guaranteed minimum withdrawal benefits, or GMWBs, which is the most flexible and maintains market participation throughout the investment lifecycle, to qualified longevity annuity contracts, or QLACs, which guarantees a nominal amount of retirement income at a certain age in the future. Richter says the range of in-plan solutions are set by those two limits: a GMWB is the most liquid and offers the greatest level of market participation, and a QLAC is the least liquid and offers the lowest level of market participation.

“The challenge is trying to make sense of the alphabet soup of options,” says Richter. “Plan fiduciaries are going to need to become educated on these solutions and what their responsibilities are.”

To help plan sponsors decide which solution to offer participants, Broadridge Fi360 Solutions, Cannex, and Fiduciary Insurance Services have created a consortium that offers two prongs of activities to enable plan sponsors and advisers to become knowledgeable about the choices, says Richter, who helped to create the consortium. “Education on a monthly basis for at least a year and a half is free to plan sponsors and advisers,” she says.

The second prong is to establish objective metrics around each offering to determine which retirement income solution fits plan participant characteristics, Richter explains. “Whether a workforce has longer tenure employees or shorter tenure employees, skews older or younger, as well as their different saving attributes all matter in the process of evaluation for the appropriate retirement income solution,” she says.

“The objective of the consortium is to relay one appropriate process to evaluate which solution is best for a plan, given its attributes,” Richter adds.

As an example, Richter says one product exists that gives accumulation credits. The longer a participant is in that product, the greater the accrual experience towards the rate at which they can annuitize assets. “The product has a unique design where it is more useful for a plan sponsor that has a workforce that tends to be longer tenure,” she explains.

“Knowing the characteristics of each product will help plan sponsors understand how the product will work for its participants,” she says.

Schiffman notes that since the SECURE Act was passed, there’s been a proliferation of retirement income products, but nothing has really caught on at this point. “There is no silver bullet. I think as products come out and plan sponsors dig deeper, they’ll offer multiple options to plan participants,” he says. “Maybe they’ll offer some combination of guaranteed and not guaranteed solutions. The idea of having insurance doesn’t appeal to everyone, and guarantees sound good, but they are costly and complex.”

Read the Full article, here: https://www.plansponsor.com/in-depth/retirement-plan-participants-need-help-retirement-income/

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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Ashley SaundersRetirement Plan Participants Need Help With Retirement Income

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