SECURE Act to Prompt Nearly Two-Thirds of Advisers to Consider Adopting In-Plan Guarantees

For their part, participants say they feel the pandemic has make their retirement savings more vulnerable.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is prompting nearly two-thirds of advisers and financial professionals to say they are likely to adopt in-plan retirement income guarantees, according to Nationwide’s sixth annual “Adviser Authority” study. Already, 39% of advisers and financial professionals use in-plan guarantees.

The study also found that 72% of investors say the COVID-19 pandemic has had a negative impact on how long their retirement savings will last. Sixty-three percent of investors say they will need their savings to provide 20 to 30 years of income in retirement, but only 47% think their savings will last that long.

“We are at an inflection point,” Eric Stevenson, president of Nationwide Retirement Plans, in Westerville Ohio, tells PLANADVISER. Two important provisions of the SECURE Act are the provision that enables in-plan guarantees to be portable and the change that requires recordkeepers to display participants’ projected balances as a monthly income stream. “Those two things go a long way” to help promote the adoption of in-plan retirement income guarantees, Stevenson says. The SECURE Act also provides sponsors with a safe harbor in their evaluation of insurers, he adds.

“The whole industry spent years helping people save. We have done a poor job, until now, of turning that into income,” he adds.

Stevenson also says another important feature of in-plan annuity products is that “they provide a tax-efficient way to take what you have accumulated and turn that into a guarantee or consistent income. As these solutions continue to grow and more data is available, plan sponsors will become more comfortable providing them.

“Recent market turbulence and changing regulations have put a new lens on retirement needs,” Stevenson continues. “The pandemic is driving greater volatility, confidence in Social Security is eroding, access to defined benefit [DB] plans is on the decline, and systemic shifts continue placing greater responsibility—and greater pressure—on individuals to fund their own retirement. As defined contribution [DC] plans have become a predominant vehicle for retirement savings in the workplace, the SECURE Act will now help more plans to adopt in-plan guarantees, a crucial new solution with the potential to provide what Americans are looking for in the post-COVID world: a guarantee.”

Stevenson says the SECURE Act paves the way for 401(k), 403(b) and 457(b) plans to offer in-plan guaranteed income, calling the act the most comprehensive retirement legislation since the Pension Protection Act of 2006.

When advisers and financial professionals were asked which net worth segment of clients they are most likely to recommend in-plan guarantees to, they say it is “emerging high-net-worth clients,” i.e. those with $500,000 to less than $1 million in investable assets. As such, Nationwide is working on building a solution for these emerging high-net-worth investors that includes advice on which solution they should select, Stevenson says.

“Most people will need some level of guidance,” he says. “In 30 days, we will announce the name and the timing for the launch of a suite of in-plan guarantee products, with an eye toward rolling it out in the fourth quarter.” Following that, Stevenson says, Nationwide is planning to introduce yet another product in the first quarter of next year and an additional one in the second quarter. “By this time next year, we will have four to five solutions that we can offer to advisers and sponsors,” he says.

The survey also found that 70% of advisers and financial professionals say they will also increase their usage of annuities, but only 42% of the overall population of investors plans to increase their use of annuities due to the SECURE Act. However, that jumps to 70% of Millennials and 63% of Generation Xers. By comparison, only 25% of Baby Boomers plan to do so.

“The fallout from COVID-19 continues to challenge investors and threaten the security of their retirement, driving greater demand for guarantees both inside and outside of their qualified plans,” says Craig Hawley, head of Nationwide’s annuity distribution in Louisville, Kentucky. “In fact, months after the coronavirus was declared a pandemic, 85% of investors continue to say they can do all the right things to manage their finances, yet still be blindsided by outside events.”

Advisers’ and financial professionals’ top three solutions to help prevent participants from outliving their savings are to help them with Social Security (59%), explore dividend yielding stocks (55%) and explain variable annuities with living benefit riders (55%). 

Nationwide notes that a survey Willis Tower Watson conducted last year found 60% of employers said they would consider offering their employees lifetime income solutions.

The Harris Poll conducted the online survey for Nationwide between May 27 and June 25 among 1,768 financial advisers and 817 investors.

Tim Walsh, senior managing director at TIAA in Boston, says the 403(b) plans that his firm has managed for the past 100 years have always had an annuity component. With the passage of the SECURE Act, he says, “a lot of advisers and consultants are asking us about how to offer in-plan and out-of-plan retirement income solutions.” Their selection should be based on the plan’s goals and demographics, he says. “If the plan sponsor and adviser are really looking at the plan as a true retirement plan—and not just a supplemental retirement plan—they are looking at in-plan guaranteed retirement income products,” he says.

There are four main options available that sponsors can use within the plan or outside of it, Walsh says: managed payout funds, guaranteed minimum withdrawal benefits, longevity insurance and pure annuities.

However Walsh notes, if any one of these solutions is offered inside the plan, it can be offered at an institutional price which, he says, “is what the market is looking for.” TIAA’s institutional annuities, for example, cost one-quarter the price of retail annuities, he says.