Kelli Hueler, president and CEO, Hueler Companies, says the number one reason defined contribution (DC) retirement plan sponsors should make lifetime income solutions available to plan participants is that they are facing one of most difficult financial decisions they will have in their lifetime: how to pay themselves without running out of resources in retirement.
“Longevity is a gift, but an expensive gift,” she explains. “A huge number of employees do not know how to move forward. By giving them access to a competitive, objective, low-cost platform, plan sponsors are giving them an education tool and access to the market they cannot get anywhere else—they can purchase an option for as low as $10,000.
Plan sponsors are hesitant to offer income solution within their plans because of concerns about fiduciary responsibility and portability issues, Hueler tells PLANADVISER. In addition, when Hueler entered the market in 2004, most plans had stopped offering participants the option of taking their distributions in the form of annuities. When plan sponsors looked at their plan data, they saw participants were not selecting this option. Probably, Hueler says, because participants did not want to lock up all their money—their only choice was to take an annuity or take a lump sum.
“So, we responded to what the market was telling us. We had to come up with an out-of-plan option for participants to set up lifetime income and it had to be voluntary, because fiduciary responsibility guidance at the time did not provide much comfort to plan sponsors,” she notes. “Participants want lifetime income, but not in the form provided before—partial annuitization is more practical.”
Hueler’s Income Solutions platform offers participants who are allowed early, in-service distributions from their DC plans to purchase annuities with a portion of their DC plan account balance. Participants can purchase income starting at age 65 or, with the recently added qualified longevity annuity contract (QLAC) option, they can purchase income starting at age 85.
But, Hueler says she sees programs evolving in which younger participants can sign up for an income option and accumulate assets inside their DC plans to buy lifetime income in the future. She anticipates accumulation programs will start to become more readily available and will become a more natural part of the plan participation process.
“[The industry] has to figure out a way to offer lifetime income through DC plans because employers are such an important outlet for information and education to employees, and plan participants need an institutionally priced alternative for lifetime income,” Hueler says.
Hueler is one of the founding board members of the Defined Contribution Institutional Investment Association (DCIIA) and is active on its Lifetime Income Committee. She says there are a lot of different views from committee members, but one consistent theme is that there is no one best way to solve for DC plan participants’ income needs. “Plan sponsors need to know there is not one best solution and should look at multiple alternatives to build a suite of services and capabilities for different demographic groups in their plans,” she contends.
Though there is no one best way to address the lifetime income issue, there are some fundamental principles the committee believes should guide solutions— they should be institutionally priced, efficient and easy, and there should be an opportunity for annuitization to become part of the natural default process, just like investment options are. “This is influencing product design, and how policymakers and everyone else are thinking about lifetime income,” Hueler says. “We see a lot of smart, dedicated folks working on new products for each demographic group.”