Accumulation Takes Back Seat to Income

The retirement industry has shifted its focus from accumulation to income in retirement, changing the way tools present readiness and income projection.

Plan advisers and plan sponsors now want to be able to tell participants how their accumulated assets in a 401(k) plan translates into income they can live on in retirement, says Jamie Ohl, president of tax-exempt markets for ING U.S. Retirement.

A pilot program by ING U.S. provides holistic advice and guidance to plan sponsors and participants. Tools and resources allow a participant to pull everything together for a personalized, integrated financial picture that will take the individual to and through retirement. The program is partly the result of several years of surveys that ING U.S. conducted with plan sponsors, who said the sole focus on accumulation did not resonate with employees as retirement readiness.

“Participants want to know how to convert that pot of assets into retirement income, and they want to know what they will need to retire on,” Ohl tells PLANADVISER.

Chip Castille, BlackRock managing director, head of U.S. retirement group at BlackRock, says a frequent question of plan sponsors is, how much do participants have to save to get the outcome they want?

Last year, BlackRock introduced the CoRI indexes, which enable pre-retirees to quickly estimate the annual lifetime income their current savings may generate once they turn 65. The investment manager just brought out five CoRI mutual funds that invest in fixed-income securities and seek to provide the results that correspond to the total return of the CoRI indexes.

“There’s a range of uncertainty around how to generate retirement income,” Castille tells PLANADVISER. The CoRi indexes and funds are a way of taking a very complex global retirement crisis and making it digestible to the average individual.

The emphasis is on building retirement readiness using a combination of tools and capabilities delivered to the employee in a form that is most convenient and usable to that individual. Every possible way to interact with a participant—by phone, on the Web, on a smart phone, with Google and Apple devices, or in person—is used.

The usable format is crucial, Ohl says, and Millennials may need a different communication method from pre-retirees.

Ohl says she is nearly positive her 22-year-old nephew’s cell phone is surgically attached to his hand. “He doesn’t respond to phone or email, but if he gets text he answers immediately,” she says. The way to reach these participants is by making information accessible through mobile devices and smart phones.

A majority of participants (70%) in ING U.S.’s pilot program take positive action. Ohl says they did not go into the test program with a specific number, but knew that personalizing advice would give them a high response rate. “We were pleased,” Ohl says, “and we think we can get it to 80% or 90%.

A holistic approach to income in retirement factors in not just the individual’s retirement plan but the other finances, whether someone has a defined benefit plan, or how much they can expect from Social Security, according to Ohl. Personalizing advice and communication means a participant receives specific, tailored advice. If a person is not contributing enough to get the full match, they will receive a message that says, “Your next best step is to increase your contribution to get the match.” If someone is not contributing at all, the message might say, “Your next best step is to enroll in the 401(k) plan. Increase your contribution to receive the full matching contribution."

Plan sponsors want a plan tailored to their specific business, Ohl says. “It’s allowed us to customize the way we deliver the program for the specific needs of plan sponsors,” she says. “The way we rolled it out at a hospital might be different from midsize corporate clients or a local government because of differences in employee demographics.”

Education and communication programs need to be tailored for specific employees and for specific populations. Millennials have different needs from pre-retirees, and the work force of a health care company is different from that in a midsize corporation.

In a recent survey, ING U.S. says their score for the ability to help plan participants prepare for retirement went up dramatically. The firm will roll out the program to its entire book of business in March and April. “The program drives outcomes,” Ohl says.