PA: What’s the role of target-date funds (TDFs) in today’s retirement plans?
Sarsynski: Target-date fund usage has increased close to 40% since 2009, though the devil’s always in the details. When we look at the flows for our Generation Y population, close to 50% are going into target-date funds. When you look at the Baby Boomers, it’s significantly less, because they grew up outside of the target-date era.
The other important demographic aspect is that women tend to invest more in target-dates than do men. It’s something around an 80/20 split, so women would put 80% of their assets in target-dates and maybe 20% in a risk-based custom account, and for men it’s something like 60/40. As an adviser, when you’re looking at the demographics of a plan, you really want to ascertain whether you have more Millennials there that are probably going to be using more technology and mobile applications, or if you have more Boomers, or perhaps you have more women or more men in the plan. It’s good to look at those demographics.
We’re really pleased because we do see the managed accounts and the custom choice accounts. We recently launched MassMutual Managed AllocationsSM, powered by BlackRock®, where we are doing the recordkeeping, and BlackRock is providing the 3(38) fiduciary services on the glide path. Based on the specifics of the plan, together with the plan sponsor, you can select the glidepath that appropriately reflects the plan’s demographics and populate the asset classes with funds already in the plan.
At about one-third the cost of a managed account, MassMutual Managed Allocations, powered by BlackRock, provides a terrific option for advisers who are unable to or prefer not to serve as the fiduciary on the glide path.
PA: We’ve heard lots of discussion about moving to the decumulation phase. What’s the future of retirement income?
Sarsynski: At a macro level, there are three things about retirement income that everyone should focus on. First, should it be in a plan within a target-date? Second, should you have an income option as a stand-alone plan investment option? And third is the at-retirement or rollover decision—will you have a variety of annuities on your platform of which your participants can take advantage?
At MassMutual, we are offering an investment option, Lifetime Income, which is a product where a participant can buy a share of Lifetime Income. One unit is worth $10 in retirement, so participants can determine whether or not they want an average cost into units of income over their working lifetime or if they want to buy a block of this unit. This is having quite a bit of traction, primarily for plans that are smaller in size, but we have about a 50% uptake of advisers putting this in their investment lineups.
We’re also seeing a lot more interest and discussion around providing a deferred annuity to protect the decumulation period. If you can buy longevity protection, that is certainly something that advisers should be focused on discussing.
PA: What’s next for participant communication?
Sarsynski: We are beginning to hear more discussion around workplace benefits being looked at holistically. Therefore, we may have to start looking at optimizing, at the employee level, a portfolio of workplace products, including health, retirement and perhaps life, disability and dental insurance, to provide comprehensive benefits for participants.
We’ve been very active in looking at developing guidance tools that can maximize, based on the individual, the right benefit package for them. We have to think about disruption in our industry and traditional ways that we’ve been providing services and solutions to our employers and our sponsors. n
Heard at the 2014 PLANADVISER National Conference
PA: What are you seeing in the defined benefit (DB) space?
Sarsynski: In the DB market, it’s a little bit like Mark Twain saying, “The reports of my death have been greatly exaggerated.” Even though new flows into defined benefit plans have diminished, the $18 trillion retirement arena is split almost equally among DBs, 401(k)s and individual retirement accounts (IRAs). Defined benefit is a wonderful niche opportunity for advisers in the market, together with other niche areas.
If you can marry the defined benefit with a terminal funding vehicle and have a discussion with a chief financial officer (CFO), that will open the door for the adviser 99.9% of the time. CFOs are looking to diffuse the liability of the defined benefit plan on their balance sheet. I would encourage folks, as you’re thinking about differentiating your practices, to think about a niche strategy, including defined benefit servicing and terminal funding products.
An ERISA section 3(38) investment manager is a fiduciary who has the power to manage, acquire or dispose of plan assets. For Managed Allocations, BlackRock serves as an ERISA 3(38) investment manager solely for purposes of glidepath construction and rebalancing.
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