Welcome to The PLANADVISER Interview, an online series bringing you the most influential people in the industry discussing the trends and issues of the day—in their own words. 

When Colbert Narcisse was an undergraduate at New York University, he had a job at Macy’s Herald Square location selling small electrics like toasters and blenders. That job, as he recalls it, was in the cellar of the store that had plenty of people coming in for the “one-day” sales—but no air conditioning. “It was difficult,” Narcisse recalls. But beyond helping to pay for his tuition and books, he says the job made him efficient with his time as he juggled classes, work, studying and commuting to and from home. “I think it was a blessing to actually have to do that for four years, and so I remember those times fondly—at least now I do.”

As we’ve been reporting at PLANADVISER, getting retirement income annuities into defined contribution retirement plans has thus far been a difficult push for the industry. With issues such as first-mover hesitancy, portability hurdles, regulatory challenges and overall public backlash against annuities, the market has been a bit stifling. Narcisse, chief product and business development officer at TIAA, believes that in time, the retirement income solution will take hold. The longtime wealth manager—who took his Macy’s job to Harvard Business School, Merrill Lynch and then Morgan Stanley before joining TIAA—says the New York-based firm is making investments now to be at the front of an industry boom. We spoke with him about the opportunities and challenges of in-plan annuities.

PLANADVISER: TIAA took its model of providing retirement income annuities in not-for-profit 403(b) plans to the 401(k) space relatively recently. Can you talk about that evolution and decision?

NARCISSE: Historically, we focused on the not-for-profit market. That has been our heritage and legacy for the past 100 years. Because of the catalyst of the SECURE Act [of 2019], which allows annuities to be more easily added to 401(k) plans, we’ve also extended our reach into the 401(k) market. … For the first time in our 100-year history, we put one of our guaranteed lifetime income products on a third-party recordkeeper platform, which was a huge effort—I would call it an enterprise effort—because that’s something that we historically had not done.

As we’re moving into the 401(k) space, there are huge opportunities. There’s a velocity of conversation around lifetime income which I think is accelerating, particularly with plan sponsors and plan consultants. That’s a good leading indicator. These things take a long time to develop, but we’re putting in place the right foundation to compete effectively in that market. One is products. The other is that we’re engaging with what I call the retirement ecosystem: sponsors, consultants, recordkeepers and asset managers. We’re working with them to see how we can partner effectively and allow our solutions to really address some of the significant retirement issues we have in this country.

PLANADVISER: What was the decision making process of moving into the 401(k) space?

NARCISSE: It was a huge transformation full of risk, because we had operated in the not-for-profit market—the 403(b) market—since our creation. Whenever you decide to move into a different market, that comes with risk, it comes with a lot of investment and it comes with a lot of transformative thinking within the organization.

Our view is that the retirement crisis is significant. Forty percent of Americans will run out of money during retirement. … When Andrew Carnegie created [an insurance-backed retirement income product], there wasn’t any safety net. There was no real defined benefit program; Social Security was not in existence. To us, this is just an extension of our mission, because there is a society-wide issue that we can help address. It’s not necessarily just savings, but it’s also guaranteed income for life that can never run out in retirement.

Our products give us the flexibility to both be on platform—meaning we can be the recordkeeper—or off-platform, in which we are going to partner with a third-party recordkeeper.

PLANADVISER: Can you break that down for us?

NARCISSE: We’ve really developed three distinct products, but the products can also be combined together, so we have a number of different permutations that can be used.

Essentially the three products are: 1) In our TIAA Secure Income Account suite, we have a solution called SIA Target that can be inside a target-date or target risk fund structured as a collective investment trust fund or separately managed account. That can be offered through Nuveen [an investment management company owned by TIAA] or in partnership with other asset managers who have similar solutions. We can be the recordkeeper or we can use a third party “on- or off-” platform. A solution for the target-date market is important, because 80 cents out of every dollar going into retirement plans are target-date-fund-related.

We have another solution which we call Secure Manage, which can live inside a managed account … The plan consultant who is the 3(38) provider or providing the model asset allocation can include a number of different things within that managed account, including how much of those contributions go into the Secure Manage portion of the overall asset allocation.

We have a third solution for those retirement savers who have not accumulated a fixed annuity. … They can convert a portion of their retirement savings into an annuity at the time they choose retirement. If you’re 65, and you’ve accumulated, say, $100,000, and you want to convert a portion of that into an annuity, we allow that to be converted into our group immediate annuity program.

PLANADVISER: Is this strategy portable? What about people who are moving around jobs, or who may be semi-retired who return to the workforce?

NARCISSE: In general, portability can work in a couple of different ways, and it also depends on the plan design. Some plans allow you to maintain what you’ve accumulated in the plan even if you’ve switched jobs. If you move to another institution, you can keep it there, depending on asset size restrictions. … The other option is to roll it into an IRA.

I think over time, as the use of in-plan institutional annuities becomes much more prevalent, then you will see an increased ability to port between plans.

Running parallel to the development of those three products [at TIAA] that I mentioned is also an IRA that has that same annuity that you can then roll it in to should you change jobs.

PLANADVISER: OK, but the challenge remains in terms of getting plan advisers and plan sponsors to start implementing these offerings. How do you get around first-mover fears?

NARCISSE: The plan consultants are critical. Almost ninety percent of the time, a plan sponsor will hire a plan consultant to help them identify what is the best solution. When we think about the retirement ecosystem, you have to attack it from all angles. You have to engage with the plan consultants so that they can understand what it is that we are offering. The 401(k) plan consultants have not historically had as much exposure to lifetime income. … Obviously, we’re also engaged directly with plan sponsors in terms of making sure that they understand that this is a significant opportunity for them to differentiate themselves if they can create a situation where they offer pension-like benefits to their employees.

For the recordkeepers, it’s a very technology-intensive process to engage with them. These are not things that that are done easily. There’s no standardized format like you would have when trading other securities. So there is a lot of engagement in terms of how you exchange information to make sure that your products are appropriately displayed on statements,. the valuations are appropriate, etc.

PLANADVISER: What are your goals for in-plan annuities this year and in the future in terms of uptake?

NARCISSE: We put out our first tranche with our initial third-party recordkeeper, as noted. There are additional investment opportunities with that first partner. Then, over the course of this year, we would like to execute a number of partnerships with other recordkeepers, as well as other asset managers. And we want to do this now, while the momentum is there. Let me explain what I mean by that.

The last time there was significant retirement legislation was the Pension Protection Act of 2006. Target-date funds accounted for $73 billion. The Pension Protection Act allowed for target-date funds to serve as a QDIA, and now they account for $3.5 trillion dollars. There was hardly any growth for the first three or four years [of TDFs], because everyone was assessing ‘What is this target-date fund thing, and should I be using it?’ And then all of a sudden, you saw this tremendous acceleration—that J-curve was like a hockey stick. There were four firms that focused on it, right? They invested in it. That oligopoly continues to exist today.

That is why it is critical that, when there is a catalyst like regulatory change, you make sure you lay the foundational elements so that you can compete, because when adoption takes place and accelerates, if you haven’t made those investments, then you’ll be shut out. That’s why it’s so important to meet these major milestones over the next couple of years.