Annexus has announced the launch of a venture called “Annexus Retirement Solutions,” a new division that will focus on “re-engineering” the target-date fund (TDF) structure to better enable lifetime income as part of defined contribution (DC) plans.
In conversation with PLANADVISER, Dave Paulsen, former president of individual solutions and chief distribution officer of Transamerica, and Charles Millard, former director of the U.S. Pension Benefit Guaranty Corporation (PBGC), said they are pleased to have been brought onto this project as advisers. Paulsen confirmed that the new venture intends to debut its first retirement solution in early 2021, to be followed up by multiple other solutions later in the year.
The pair said Annexus Retirement Solutions is developing “a completely new and innovative offering” that makes it easy for a participant to prepare for a secure financial future.
“Our approach overcomes the barriers that have limited the appeal of lifetime income solutions within retirement plans, including prohibitive costs, lack of true liquidity over the lifetime of the product and the absence of portability if a participant separates service,” Paulsen noted.
Millard emphasized that the announcement “is just the first step we are going to take.”
“We’re going to have multiple innovative income products coming out, and we will have name brand partners joining us,” he said. “Importantly, our solutions are being designed to maximize the income that is ultimately delivered to the participant. We believe we will be competitive in both the qualitative service aspects and the quantitative performance aspects.”
Paulsen said the retirement planning industry as a whole, building on the Setting Every Community Up for Retirement Enhancement (SECURE) Act, is closer than ever to successfully delivering in-plan income. Paulsen and Millard said they are among the supporters of the Securing a Strong Retirement Act, which is already being referred to as the “SECURE Act 2.0” after being proposed and discussed recently in Congress.
“Solving in-plan income is all about creating a default-eligible solution, as we are doing, and, second, it’s about harnessing the power of inertia and not requiring the participant to make decisions that they are ill-equipped to make in terms of the amount of income protection they should purchase,” Paulsen said. “After a lot of work throughout the industry, I believe we are on the cusp of this type of solution being widely utilized.”
Though Annexus Retirement Solutions is an early mover in this space, it should be noted that other firms are pursuing similar strategies, including TIAA, though that firm is focused on the 403(b) marketplace. In a recent conversation with PLANADVISER, TIAA Senior Managing Director Tim Walsh noted his firm’s RetirePlus solution just secured its 100th client.
RetirePlus is comprised of a set of predefined asset allocation models used by plan sponsors to create risk-appropriate defaults using the investment options on the plan’s core menu. The TIAA RetirePlus models include three risk categories, 10 possible models per risk category, and a mix of mutual funds, annuities and other investment options from eight preselected asset allocation categories.
What this ultimately looks like for a given participant is that their portfolio will automatically replace portions of the traditional bond allocation with fully liquid fixed annuities as the glide path unfolds and retirement approaches. Another important feature is that an investor can choose to exit and liquidate the portfolio before, at or after their retirement date, without facing any negative consequences from “exiting” the annuity portion of the portfolio.
“The way I like to explain this is that it has many of the bells and whistles of a managed account, but it is being delivered at no additional costs to the plan or participants,” Walsh said. “RetirePlus Pro, a version of the solution, allows plan sponsors to work with advice from a 3(21) fiduciary adviser or delegate asset allocation to a 3(38) investment manager to customize all aspects of model attributes.”
From a fiduciary perspective, the TIAA RetirePlus Series satisfies Department of Labor (DOL) guidance on pursuing custom solutions supported by the SECURE Act.
“This structure, flexibility and pricing make it appropriate for a variety of client institutions,” Walsh suggested.