“Participants just can’t envision 20 years, or more, from now,” Bill Marshall, VP, senior product director of AllianceBernstein Defined Contribution Investments, told attendees at the 2012 PLANADVISER National Conference. He said if plan sponsors and participants simply want to address longevity risk, there are products available for that, but to address the retirement savings problem, retirement income solutions need to be in-plan default options.
AllianceBernstein developed an integrated solution to help participants understand longevity risk and know how to manage it. They partnered with United Technologies, the first company to use a guaranteed income product as its retirement plan default investment (see “Default Investment Option Addresses Longevity Risk”).
Ferraro said ING offers a similar product that looks just like a regular target-date fund for the youngest participants, but at 17 years from retirement starts methodically and automatically moving participants’ assets into guaranteed products. Five years out from retirement, 100% of assets are in guaranteed products.
One previous argument against in-plan retirement income solutions was a lack of control and flexibility, Marshall noted. Alliance Bernstein’s product allows for participants to take withdrawals at any time; it’s just a question of how much control the plan sponsor wants participants to have.
Ferraro added that ING uses the SPARK recommended layouts to transfer guaranteed assets if participants change employers, so the product offers portability.
Jon L. Prescott, president of CPI Qualified Plan Consultants, reminded conference attendees that participants are still not done with asset accumulation, so plan advisers should continue focusing on those efforts. When participants retire, though, they need good quality spending plans, and retirement income is part of a holistic solution.
Marshall contended that income solutions will drive participants to make better savings and investment decisions because it gives them a tangible objective. Ferraro added that an income projection is good feedback for participants; they can see that as they save more, they will have more in retirement. They should be told they should insure their savings, just as they do other assets such as their home or car.Prescott suggested a very effective gap analysis statement for participants, with a summary for employers, is vital to an adviser’s practice.