In January, OneAmerica Financial Partners Inc. announced it would be offering a personalized retirement planning tool called PensionPlus.
The decision launched the first commercial use of a retirement income planning tool created by behavioral economist and retirement industry entrepreneur Shlomo Benartzi. The partnership is, in part, the result of a 20-year relationship OneAmerica President of Retirement Services Sandy McCarthy has had with the innovator, according to the executive.
“This was exciting for me, especially because it was a tool that aligned with OneAmerica’s philosophy of providing retirement saving access to all employees,” McCarthy says of the decision to incorporate the tool. “Addressing the [high-net-worth] clients makes more sense in some business models, but PensionPlus really looks holistic planning for all participants, and makes it personal.”
Part of what made PensionPlus compelling to McCarthy is that its modelling draws on factors outside of employer-offered retirement plans—from Social Security estimates to ZIP codes that impact the cost of living. By filling out what McCarthy touts as a relatively simple form with external inputs and goals, a user will get an estimated “paycheck” identifying what they will need for retirement, as well as a plan for drawdown.
“One of the reasons we are in this business is that we want people to be prepared for retirement and can give them the tools to help,” McCarthy says. “There is the employer and advisers and everyone else—but the participant, at the end of the day, is the customer.”
McCarthy said she would like to see 20% of OneAmerica’s client base offering PensionPlus to by the end of this year. The Indianapolis-based firm will be offering the tool through its workplace solutions team as an additional, customizable strategy for retirement plan advisers and plan sponsors.
“It takes some time for the conversation and then the implementation,” McCarthy says. “It’s an incredible tool in our toolkit of total capability.”
Annuity Not Required
OneAmerica, which works with plan sponsors, advisers and individuals on a range of insurance and employee wellness offerings, also sells retirement income annuities. As a private company, it does not break out sales or net income on annuities, and the company declined to provide or comment on figures. McCarthy said PensionPlus will not be linked to retirement income created from annuities, but the firm will offer them when it makes sense for the participant.
The Pension Protection Act of 2006 helped auto features in retirement savings plans drive accumulation of savings. Now, McCarthy says, the industry is shifting to the decumulation phase—in part due to fiduciary clearances in the Setting Every Community up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022—which paves the way for automatic default into annuities within 401(k)s.
“It’s really changing at this point from a DC savings plan to a DC retirement,” McCarthy says. “People are saying, ‘I’ve saved my money, but do I have enough? Am I going to outlive it?’”
In-plan annuities for defined contribution savings are an oft-discussed option to provide guaranteed retirement income. But issues including lack of portability, no clear best vehicle for payment and getting retirement plan advisers and plan sponsors to see them as viable qualified default investment options has stymied uptake, according to experts.
McCarthy says that, depending on the analysis done by PensionPlus, an annuity may not be a good option for some participants.
“They may be paying themselves out of the balance of that is in the plan,” she says. “There is no need for them to transfer into an annuity option or a different investment vehicle … but the tool connects them to their employer and provides a feel-good aspect: They feel their employer is taking care of them.”
In other cases, McCarthy says, annuities may be the right option, but that will depend on conversations with the plan adviser and sponsor on how to make them available.
Learning How to Spend
George Fraser, a managing director with Fraser Group at Retirement Benefits Group, has worked with creator Benartzi on PensionPlus, and helped champion the program with OneAmerica, including piloting it with clients.
Fraser says that institutionally-priced annuities as part of lifetime income makes sense for many savers, but for years his core focus has been dispelling the myth—sometimes perpetuated by others in the industry—that Social Security won’t be available for people to live on in retirement. He says that Social Security is the most important guarantee for the average American worker and one of the reasons that he is engaged with Benartzi’s PensionPlus.
“Our industry has spoken regularly about the fact that Social Security might not be there for you, which is why you need to save 15% of your paycheck and have a $1 million in your account in order to look like the people in the brochures,” Fraser says. “It’s a fear tactic.”
To prove his point, Fraser has given away thousands of lottery tickets over the years to clients. He compares the longshot odds of winning to the lottery ticket workers have already won: Social Security.
“The ability to change [a participant’s] attitude from fear to one of hope is amazing,” Fraser says. “Our business shouldn’t necessarily always be about saving more, but more about saving enough.”
Fraser says that when he has asks an audience of financial executives if they know what their first check will be in retirement, no one has the answer. “If we don’t know that in our industry, how can we expect the average American to know?” Fraser asks.
Fraser says the results of the test pilot have been strong for his clients, and he expects PensionPlus will do well with the further rollout this year.
McCarthy, meanwhile, will continue to put resources into the offering, along with OneAmerica’s other financial education and benefit products. If the tool is used correctly, McCarthy explains, participants will not necessarily have to move their money out of their retirement plan and can take advantage of fees that are “more in-line with an institutional mindset.”
“It answers the question for individuals: How do I decumulate?” she says. “It’s not about moving your money. … If we can make it simple for them, they can stay in plan and pay themselves.”