Products October 27, 2009

Prudential “Redefines” Retirement

Prudential Financial has been talking about a new kind of retirement – now the firm has rolled out those ideas as a product design.

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Prudential says that “Redefining Retirement” is a “new model for the design, management and administration of workplace-provided retirement plans.”  The concepts underpinning the design were outlined in a whitepaper recently published by Prudential (see Prudential Suggests DC Plans Design Improvements). 

Prudential says their new model creates a retirement “glide path” that carries participants “not only to retirement, but through retirement” with auto-pilot plan features—such as automatic enrollment, automatic contribution escalation, and automatic asset allocation—combined with Prudential IncomeFlex Target, a guaranteed minimum withdrawal benefit product, “to help ensure adequate savings and a guaranteed stream of income in retirement.”  

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For plan sponsors, “Redefining Retirement” offers plan sponsors streamlined processing, leading to greater cost efficiencies – as well as “additional levels of fiduciary risk support and enhanced levels of indemnification,” according to the announcement. 

 “Today, more than ever before, running a successful retirement program has become increasingly difficult for plan sponsors,” said Christine Marcks, president of Prudential Retirement, a business of Prudential Financial Inc.. “Our’ Redefining Retirement’ model stands apart by mitigating risk, by helping sponsors meet their fiduciary responsibilities, and by offering protective pledges, or commitments, that indemnify sponsors for certain losses.” 

The Prudential program includes four key elements:  

  • Smart plan design—which it says optimizes plan participation through auto-enrollment and better matches. It boosts savings with an automatic contribution accelerator, maximizes savings by helping participants follow a thoughtful planning strategy, encourages continuous saving by discouraging loans, maximizes accumulations with catch-up contributions and eliminates costly inactive accounts by allowing small-balance rollovers;
  • Streamlined processing—which Prudential says helps to gain cost efficiencies and automates data exchange, lightens the administrative load with outsourcing, and simplifies processing by automating all transactions;
  • Investments and guaranteed income—which the firm says deliver differentiation through qualified default investment alternatives, including Prudential’s target date funds, as well as an option that delivers guaranteed income for life. The model also offers investment flexibility through Prudential’s sub-advised options and access to retail mutual funds, as well as Prudential’s Stable Value offerings; and
  • Lifelong education and support—which Prudential claims offers convenient and effective education through powerful online capabilities.  

“The market is hungry for solutions that work,” said Jamie Kalamarides, senior vice president, Retirement Solutions. “We believe that ‘Redefining Retirement’ is the beginning of a broader, long-term shift in the design, management and administration of retirement programs, and we also believe that Prudential is one of only a few providers in the industry that can deliver this kind of bold solution for the systemic problems facing the U.S. retirement system.” 

Data & Research October 27, 2009

401(k) Participants Hung in during Downturn

Despite the Wall Street turmoil and the economic downturn, the number of employees joining 401(k) plans serviced by Charles Schwab actually increased.

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A Schwab news release said participation rates in its 401(k) plans jumped from 73% at the end of 2007 to 77% a year later with the stepped-up rates seen in all plans—particularly at small- and mid-sized employers. Auto-enrolled plans went from 77% to 84% by year-end 2008.

“The good news is that most employees are sticking with their 401(k) plan, which continues to be one of the best vehicles to save for retirement,” said Catherine Golladay, vice president of 401(k) participant education and advice at Charles Schwab. “The even better news is that people are also contributing to their accounts at almost the same level as they were prior to the market downturn. In fact, the average contribution rate in our plans stayed around 7% from 2007 to 2008 which is a reflection of people getting more serious about saving.”

According to Schwab, relatively few sponsors eliminated their 401(k) match among Schwab 401(k) plan clients. As of July 31, 9% stopped making matching contributions.

Sponsors in industries that were hardest-hit by the economic downturn, including manufacturing and retail, were more likely to suspend their match. Comparatively, no companies in the health care or wholesale industries suspended their match, according to the Schwab plan data. Overall, 69% employers are currently offering a 401(k) match.

“Our plan sponsor clients tell us that the employer match is one of the most important 401(k) plan features for employees and eliminating it is a last resort even in difficult economic times,” said Robyn Alcorta, vice president of 401(k) client services for Charles Schwab. “Matching employee 401(k) contributions is important in keeping the 401(k) benefit competitive and driving high participation and savings rates, and employers tell us that these factors lead to a more productive and loyal workforce.”

Finally, Schwab said the number of people taking loans from their 401(k) plan decreased in 2008 to 5.67% from 5.91% in 2007. The number of people taking hardship loans increased slightly, to 0.91% in 2008 compared to 0.8% in 2007, according to Schwab.

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