Retirement Income Is a Living Case Study

When some of the country’s top retirement plan advisers gathered last week to discuss retirement income, Jim Brockelman, Managing Director at Putnam, pointed out that the entire topic is still a case study.   

Brockelman was joined by Daniel Peluse, Corporate Retirement Director, Morgan Stanley Smith Barney, and Phil Fiore, Senior Vice President-Investments, FDG Institutional Consulting Group at UBS (named 2011 PLANSPONSOR Retirement Plan Adviser Team of the Year), at PLANADVISER’s Top 100 Retirement Plan Advisers seminar in New York City.  The three panelists agreed that although plan sponsors are very interested in the concept of retirement income solutions, adoption rates are still low.

Peluse said that out of the many sponsors who have shown interest in adding a retirement income solution to their plan, he had only one success story to share. It was at a privately owned company with about 800 employees, 400 of whom were unionized. Management had taken on a paternalistic role, as many employees had been working there for a long time; however, the company could not afford to maintain a defined benefit (DB) plan. The goal, Peluse explained, was to find a retirement income solution that felt like a DB plan. Peluse added an inccome product based on a target-date fund for employees over 55. The client is “very happy,” he said, but the adoption rate among participants is still somewhat low. It’s only being offered to participants age 55 and over, so he is anxious to see if more employees will add it to their plan as they reach 55.

Why is it that sponsors are being extremely cautious about adding retirement income solutions to their plans, even though the interest is clearly there? Fiore said sponsors are wary about how they work, as if “there’s something behind the magic,” he said. He suggested discussing retirement income in terms of “protecting assets;” sponsors are very receptive to this, he said.

Fiore received some pushback from other advisers at the seminar, who wondered why protecting assets is such a popular idea, when there are hardly any assets to protect! Low account balances are still the biggest issue, several advisers noted.

Fiore agreed with this and said accumulation should continue straight through retirement. But the reality is behavioral finance shows us that participants don’t often listen to reason – after many balances were nearly wiped out in 2008, protecting whatever assets have been regained matters most, Fiore said. “We need a product to fit behavioral finance, not make them fit us,” he added.

Peluse said that ultimately, plans will need to include something for the draw down phase.  Several retirement income products on the market today are better than nothing, said Fiore, and the industry can’t wait for regulators to provide guidance – Baby Boomers needs an retirement income solution now.

As for sponsor hesitation, Brockelman said advisers need to remember that they have a sales role as well. “These products do not work in the absence of advice,” he concluded.