Speaking on a 2020 PLANADVISER National Conference panel titled “What’s Next for In-Plan Retirement Income?,” industry experts agreed that quite a lot is coming down the pike, thanks in no small part to the safe harbor included in the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
The panel also stressed that, because insurance products have so many features and participants have so many needs, retirement plan advisers will inevitably play a big role in delivering in-plan retirement income.
“We as an industry have done a very good job on the accumulation side of the equation,” said Dan Bruns, vice president, product and investment specialist, Morningstar Investment Management, during the virtual event. “Where we have fallen a little short is on decumulation. With the passage of the SECURE Act, I believe we are now at an inflection point where retirement income has a bright future and will prove to be a way to help millions of investors.”
Prudential Retirement offers a wide selection of in-plan retirement income choices to plan sponsors, said Doug McIntosh, vice president with the firm. “They are both branded and white labeled, single insurer and multiple insurer solutions,” McIntosh said. “There is a continuing evolution of guaranteed and non-guaranteed products, as well.”
In explaining the objectives of the SECURE Act, McIntosh said there are three primary goals. “The first is to expand retirement plan coverage,” he said. “The second is to increase the different ways that people have available to them to save, and third, is to improve access to lifelong income solutions. The law addresses the third point with the safe harbor and with a portability requirement. It does a lot to remove the fear about losing built-up guarantees.”
Gordon Tewell, principal with Innovest Portfolio Solutions LLC, said this safe harbor “is much better than the safe harbor that DOL [the Department of Labor] issued in 2008.” He called the related retirement income projection requirement “a very positive step, as there is a lack of understanding among participants about how much they need to accumulate.” He also said the ability for participants to transfer an annuity outside an employer’s plan “will be very helpful, because that was a big issue for plan sponsors.”
McIntosh explained how the SECURE Act includes a provision establishing that, starting next year, recordkeepers’ statements must include an interpretation of plan participants’ balances as an income stream. To use a simple example, McIntosh said that Prudential’s offering delivers 5% of the protected balance as each year’s income stream, so for someone who ends up with $1 million savings at the time of their retirement, that would translate to $50,000 a year.”
“These figures are going to be meaningful to participants,” he said.
Bruns agreed that with respect to in-plan annuities, the SECURE Act made significant steps toward addressing plan sponsor concerns.
“But, like most things in this business, it will take time for this to catch on,” he said. “Participants need to get educated about it, and plan sponsors and advisers need to get comfortable with it.”
Bruns noted that, because of the many different ways insurance products can hedge the many different types of risks that plan participants face, setting up a retirement income plan for each individual is very complicated.
“Personalization will be key for its success and there will need to be regular adjustments for each individual throughout retirement,” he said.
McIntosh said that this area is where advisers can play a significant role in helping participants understand the range of options available. He noted that the level of interest is up significantly among plan sponsors and advisers.
“If advisers are unable to answer plan sponsors’ questions about in-plan retirement income solutions, they will look elsewhere for help,” he warned.
Tewell suggested that one way to address participants’ tepidness towards annuities is by including these products in TDFs and managed accounts. Bruns said that because take-up of standalone guaranteed income products in retirement plan is so low, participants should be automatically enrolled into them, and these options should be part of the qualified default investment alternative (QDIA).
McIntosh agreed, saying, “If you want participants to do something, do it for them.”