Peter Stephan and Jim Norman have joined QBI LLC, a provider of administration and consulting services for qualified retirement plans, to lead business development in Orange County, California.
Stephan,
QBI’s new executive vice president, focuses on small- to mid-market pension and
401(k) plan design opportunities. Norman, QBI’s chief consulting and finance
officer, adds technical expertise on tax-focused strategies offered in defined
benefit, cash balance, and other advanced plan designs.
They
will work in tandem in supporting financial advisers, CPAs, and other
professionals interested in growing and improving their retirement practices. They
will be based in QBI’s Orange County offices.
Both
Stephan and Norman bring more than 30 years of experience helping employers,
financial advisers and tax professionals improve the performance of qualified
retirement plans.
Stephan
and Norman previously co-founded the Pension Group in Laguna Hills, California,
and grew the firm until selling to United Retirement Plan Consultants (URPC) in
2008. Both stayed on as business executives with URPC before joining QBI.
More information about
the firm is available at www.qbillc.com.
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Structured income solutions should be a part of DC
retirement plans, according to a paper from the Stanford Center on Longevity
and the Society of Actuaries’ Committee on Post-Retirement Needs and Risks, and
the qualified default retirement income alternative (QDRIA) is one possibility.
DC plan participants face another important challenge as
they approach and enter retirement—turning their savings into a reliable source
of retirement income. A good solution would be implementing some form of income
product within DC plans, according to the two groups’ joint research paper.
Last fall, the two organizations concluded in another paper
that it would be desirable for DC plans to include an organized approach to
providing retirement income with the potential to last the lifetime of a plan
participant. (See “Actuaries
Encourage Offering Retirement Income Solutions.”)
This year, they outline actual methods in “Foundations in
Research for Regulatory Guidelines on the Design and Operation of Retirement
Income Solutions in DC Plans.” The paper gives an overview of existing and
proposed regulatory guidance, including background on ERISA 404(c)
requirements. Researchers also examine safe harbor guidance on programs that
offer retirement income. The paper considers three distinct core retirement
income options, along with details on systematic withdrawals and annuity
purchases, among other topics.
With the prevalence of DC plans, participants bear the
responsibility for deciding how much to save and how to invest their
contributions while they are working, the paper points out. In recent years,
plan sponsors have implemented features such as auto-enrollment, auto-escalation
of contributions, design of the investment lineup of funds under Section 404(c)
of the Employee Retirement Income Security Act (ERISA), and qualified default
investment alternatives (QDIAs) to address these challenges. Recent legislative
and regulatory guidelines provided significant encouragement to plan sponsors
to adopt these features and are widely credited for improving the performance
of the DC retirement system.
How
to convert savings into a reliable source of retirement income is another
emerging challenge for many DC plan participants. Many workers lack the
sufficient financial literacy to generate effective retirement income
strategies, which can be a complex retirement planning task.
The paper outlines some of the advantages of having plan
sponsors take part in helping workers use their DC accounts to generate
sustainable retirement income. First, large employers or their plan
administrators may have the resources needed to conduct the due diligence to
select, implement and communicate retirement income programs—tasks that are
difficult for untrained individuals. Plan sponsors or plan administrators can
significantly increase the odds that retirement solutions will be adopted if
they make it easy for retiring employees to elect and implement a solution.
Next, plan sponsors can be the unbiased institutions that
act solely on behalf of their plan participants, without regard to financial
compensation that might depend on participants’ elections. It’s the
responsibility of plan fiduciaries to act in the best interests of plan
participants. Institutional pricing and competitive annuity bidding platforms
available to plan sponsors can significantly increase retirement incomes,
compared with retail solutions.
In short, plan sponsors can deploy bargaining power, scale,
ability to standardize, and distribution efficiency to improve the retirement
security of plan participants.
Employers and plan sponsors have benefited from safe harbor
guidelines under ERISA 404(c) and for QDIAs that apply to the investment menu
in the accumulation phase. If there were analogous safe harbor guidance for the
design and implementation of a program of retirement income that applies during
the decumulation or retirement phase, employers and plan sponsors would be
encouraged to implement such programs, the paper contends.
The
plan sponsor that complies with such safe harbor guidance in the design,
implementation and disclosure of a program of retirement income would be
protected against claims of fiduciary breach in the event that a retiree
experiences unfavorable outcomes, including outliving assets, reduction in the
amount of retirement income after it has commenced, and/or the drawing of
retirement income that does not keep pace with inflation. The safe harbor would
be a defense against participants’ allegations that an inappropriate form of
retirement income was offered by the plan or that the plan selected the wrong
specific product to implement the retirement income strategy.
Such safe harbor guidance would not require a plan sponsor to
implement a program of retirement income. Putting in retirement income would be
voluntary, and plan sponsors could still offer a lump sum payment as one of the
payment options.
Three general methods for generating retirement income from
savings are outlined, with distinct characteristics regarding the amount of
periodic retirement income, the length of time the income is expected to be
paid, access to savings, guarantees of lifetime income, and the circumstances
under which the amount of income could change:
Systematic
withdrawals: Invest assets and draw down the principal and
investment earnings with a formal method intended—though not guaranteed—to
make the money last for life.
Annuities: Transfer
savings to an insurance company that guarantees a lifetime retirement
income. Note that some insurance company products provide this guarantee
but do not use the name “annuity” in their disclosures and marketing
materials.
Period-certain
payouts: Invest assets and make periodic payments over a fixed
period, after which the assets devoted to this solution are exhausted and
payments stop.
The paper explores safe harbor guidelines for a program of
retirement income somewhat modeled on the structure and content of the safe
harbor guidelines under ERISA 404(c) for the investment menu. For example, safe
harbor guidelines for a program of retirement income could, among other things,
require that a plan:
Offer
at least three core retirement income generators that have distinct
characteristics regarding the amount of periodic retirement income, the
length of time the income is expected to be paid, access to capital,
guarantees of lifetime income, and the circumstances under which the
amount of income could change. These options could be offered in the
period leading up to retirement, at retirement and after retirement.
Designate
a default retirement income solution that complies with requirements for a
QDRIA, should a participant fail to make a positive election of a
retirement income solution or a lump sum payment.
Enable
the participant to allocate funds freely among the retirement income
generators offered, at the time the participant chooses the retirement
income solution.
Provide
sufficient disclosure to enable participants to make informed decisions to
select a retirement income solution.
The plan sponsor would still be responsible for conducting
the necessary due diligence to select financial institutions, products and
services that are appropriate to implement programs and features after choosing
the design of the retirement income program, and to monitor such products and
services on an ongoing basis to ensure that they continue to meet the needs of
plan participants.
“Foundations
in Research for Regulatory Guidelines on the Design and Operation of Retirement
Income Solutions in DC Plans” can be downloaded from the website
of the Stanford Center on Longevity.