Client Service April 28, 2021

Next-Generation Retirement Plans Will Deliver Customized Retirement Income Solutions

PGIM says evolving technology will enable plan sponsors and advisers to deliver on this promise.

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While workplace retirement savings plans have evolved significantly over the past four decades, they still fall far short on delivering retirement income, investment manager PGIM says.

But PGIM says that by relying on technology, retirement plans will soon be able to not only deliver retirement income solutions—but to provide customized options.

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Those personalized solutions could include managed accounts, model portfolios and advice engines, Josh Cohen, PGIM head of institutional defined contribution (DC), tells PLANADVISER.

Cohen says he’s optimistic that after years of discussion on retirement income with no real outcome, it will finally start to become a reality.

“There are a few trends that have been building up over time to get us to this point, starting with the movement from defined benefit [DB] to defined contribution [DC] plans,” he says. “Sponsors are also dealing with aging demographics and have more appreciation for the benefits of keeping participants in the plan. When you pair all of these developments with the product innovations that have been happening and the safe harbor for annuities that the SECURE [Setting Every Community Up for Retirement Enhancement] Act created, plan sponsors have become much more supportive of retirement income. But our research indicates that we must continue to evolve these offerings, particularly with the help of technology, to ultimately meet the decumulation needs of American workers.”

PGIM found that the current most popular “retirement income” offering that sponsors turn to is stable value funds, offered by 54% of plans. The fact that sponsors cite stable value funds rather than annuities or other guaranteed income solutions simply underscores the fact that true retirement income solutions are sorely needed, Cohen says.

As to what advisers and sponsors can begin to do to help participants establish better withdrawal strategies, Cohen says they can start by permitting participants to take systematic withdrawals; currently, only 49% of plans permit this.

“Communicating lifetime income projections, which will be required for DC plans subject to ERISA [the Employee Retirement Income Security Act] thanks to the SECURE Act, and allowing systematic withdrawals are relatively simple enhancements plan sponsors can make to have a positive impact on employees’ retirement income stream,” he says.

According to PGIM, the next generation of retirement income solutions should deliver both guaranteed lifetime income as well as non-guaranteed components that leverage asset allocation and asset-structure best practices, liability-driven investing (LDI) concepts and institutional investments.

Cohen added, “Plan sponsors need to evolve their defined contribution plans to focus not only on retirement savings, but also achieving adequate retirement outcomes. By embracing new technologies, robust income communications, customization opportunities and risk mitigation solutions with both non-guaranteed and guaranteed investments, DC plans have the potential to help workers meet their retirement income challenges.”

Deals & People April 27, 2021

The Inside Take: Ascensus CEO on GIC, Stone Point Acquisition

Ascensus CEO David Musto says the goal of the deal is not for his firm to radically shift its strategy or change its approach to doing business; instead, the transaction is about scale, resources and knowledge-sharing.

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News broke this week that Stone Point Capital, a Greenwich, Connecticut-based private equity firm specializing in financial services, and GIC, Singapore’s sovereign wealth fund, have reached a deal to acquire Ascensus from its current private equity ownership led by Genstar Capital, Aquiline Capital Partners and Atlas Merchant Capital.

According to the companies’ joint announcement, Genstar and Aquiline will retain a minority stake in Dresher, Pennsylvania-based Ascensus. The transaction is expected to close in the third quarter of 2021.

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Asked for his inside take on the deal, Ascensus CEO David Musto tells PLANADVISER that this development is very exciting to participate in, but it is perhaps not the most groundbreaking development for those who closely track retirement industry merger and acquisition (M&A) activity.

“The new partnership is all about strengthening our ability to continue investing in new capabilities, technology and solutions,” Musto says. “In that sense, this development is really the continuation of our existing strategy. It’s not about taking a new direction. It’s about building on the formula that has been working well for our clients, our associates and our partners.”

Musto notes that Ascensus has been in operation for more than 40 years, and it has been through ownership transitions before. Today, through the company’s network of institutional, financial adviser and state partners, Ascensus interacts with more than 12 million savers in a variety of tax-advantaged retirement, education and consumer-directed health savings accounts (HSAs).

“Our new partners clearly share our confidence in the strategic importance and growth potential of the retirement, education and health savings markets,” Musto says. “Like us, they are encouraged by the strong bipartisan consensus that exists with respect to improving the retirement savings system here in the U.S. There are very compelling opportunities for providers like Ascensus in the short, medium and long term.”

In the initial deal announcement, Chuck Davis, CEO of Stone Point Capital, offered the following explanation of his firm’s working vision: “We have followed Ascensus’ success for some time and see tremendous opportunities for further growth and positive impact on the industry. We believe Ascensus is a true leader in providing technology, expertise and partnership to enable savings across the critical areas of retirement, education and health care. We look forward to partnering with their management team and talented associates to support their continued growth, solutions innovation and strong service delivery.”

Yong Cheen Choo, GIC’s chief investment officer (CIO) of private equity, offered a similar take. “Ascensus is delivering industry-leading solutions to help people save for what matters most,” he said. “As a long-term investor, we believe Ascensus’ unique technology, market insights and business knowledge will continue to drive growth and innovation in this space. We are thrilled to grow our yearslong partnership through this increased investment, and look forward to working with Ascensus’ impressive management team over the long term.”

Though he could not share more formal details about GIC and Stone Point’s anticipated ownership time frames or return expectations, Musto says it is clear that this is not going to be a short-term partnership.

“We know that Stone Point and GIC were drawn to us and impressed by the investments we have made in the business for the long term, and they want to expand the leadership positions we have established in various markets,” he explains. “Like us, they believe in the need to provide more people with more savings opportunities—and the need for providers like Ascensus to use our technology and operating service capabilities to solve the big problems of holistic financial wellness.”

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