Products June 3, 2009

Financial Engines Puts Advice on Retirement Plan Statements

Financial Engines launched Financial Engines Retirement Plan, a personalized statement giving individualized advice to participants about investments, savings, and retirement income.
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The Retirement Plan is designed to give 401(k) participants a comprehensive roadmap to address key retirement decisions, the company said.

The statement gives the participant the fund-by-fund changes that Financial Engines plans to make in their account. This section also incorporates information on the participant’s tax-deferred and taxable accounts, according to a news release.

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The Retirement Plan also provides advice on how much a participant should be saving for retirement and what an increase in savings could mean in terms of increased employer match. The advice considers total portfolio savings, including savings to Roth 401(k), as well as contributions to IRAs and other tax-deferred accounts.

The statement includes a personalized forecast that provides a realistic view of how much a participant’s portfolio might be worth at retirement and the likelihood that the participant will achieve their retirement goal. The Retirement Income section also covers how much a participant’s investments, Social Security, and other pension sources could produce in terms of annual income, and if a participant is not on track to achieve their goals, they are reminded that they have access to a licensed investment adviser representative who can work with them to help improve their outlook.

“Investors are emerging from the initial shock felt after the market declines of 2008 and want to know where they stand and what they need to do to achieve their retirement goals,” said Ken Fine, executive vice president of Marketing, Financial Engines, in the release. “Through the Retirement Plan we address the key decisions 401(k) investors face and help them navigate their way to a more secure retirement.”

The company said The Retirement Plan was inspired by features currently available in its online advice service.

More information is available at www.financialengines.com.

Products June 3, 2009

Prudential Calls for Target-Date Offerings with Income Guarantees

Prudential Retirement released a white paper that said target-date funds should be changed to include guaranteed income features.
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A news release from Prudential, a guaranteed income provider, said the addition of a guaranteed income feature could help more participants deal with market downturns.

“Refining the construction of target-date funds will not eliminate these risks,” said Christine Marcks, president of Prudential Retirement, in the report. “An income guarantee must be integrated with target-date funds to address these problems. Combining target-date funds with income guarantees is the logical next step to enhance retirement security, while preserving the opportunities for market appreciation, control, and flexibility that today’s pre-retirees and retirees value.”

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The report, “Strengthening Target-Date Funds with Guarantees to Enhance Retirement Security,” outlines what Prudential said are the risks inherent in using target-date funds as an investment vehicle to achieve retirement goals.

Marcks said in a target-date fund context, an income guarantee would be activated as participants get closer to retirement.

Prudential said:

  • The income guarantee generates an “income base” at the time of activation, likely five to 10 years before retirement. The income base is initially set at the market value of the participant’s assets at the time of activation, and can never be less than this amount plus additional contributions.
  • The income base may increase before retirement depending on market performance, but cannot decline in the years before retirement.
  • After retiring, the participant will receive a guaranteed level of annual income for life set at a percentage, such as 5%, of the income base at retirement.
  • During retirement, the income base will never decline as long as withdrawals do not exceed the guaranteed minimum annual amounts. It may increase depending on market performance.
  • Before and after retirement, the participant retains full control of his or her assets and is able to withdraw varying amounts of those assets. Withdrawals prior to retirement will lower the income base proportionally, as will withdrawals after retirement that exceeds the guaranteed level of income. Upon death, the participant’s assets are available as a bequest to heirs.

The white paper is available here.

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