PLANSPONSOR - April/May 2020 - 47

INVESTMENT FOCUS
can articulate their work in culling funds
and in leveraging their scale and buyingpower.
And, if they want to provide retirement
income solutions, they can communicate
and phase those in sooner. "
But complex challenges such as
investing and withdrawing for retirement
call for complex solutions. Nobel Prizewinner
William Sharpe, financial economist,
innovator and creator of the eponymous
ratio for measuring risk-adjusted
return, calls solving for retirement
income " the nastiest, hardest problem in
finance " and has written a highly technical
700-page guide, which he offers
free to advisers and investors.
" People [have become] very different
when they reach the retirement stage
and have different wants and needs for
spending, " Lloyd observes. The level
of assets they bring to the challenge
varies widely, as does how they envision
spending their money and the levels
of risk they are willing to take. " One
product will not meet all of those needs,
and that's why there is no single solution
and why many solutions don't work. "
When plan sponsors were asked in
the 2019 PLANSPONSOR DC Survey:
Plan Benchmarking if they offer features/
options to assist in creating retirement
income, their three top responses were:
offer no such products (48%), offer
systematic withdrawals (44%), and offer
in-plan managed account funds that help
with retirement income (25%).
Income Products
The industry recognizes five categories
of retirement income solutions that
sponsors may offer in-plan: systematic
withdrawals; bond ladders, or funds with
a targeted maturity; managed payout
funds; managed account services; and
guaranteed income products such as
immediate annuities, investment products
with annuity features, and qualified
longevity annuity contracts (QLACs).
Each type places a different emphasis
on the security of income and growth
potential.
" The product types are all contrary
to one another, and that's something
our sponsor clients wrestle with, " says
Scott Boulton, a consultant with DiMeo
Schneider & Associates LLC in Windsor,
Connecticut. " Employees with a higher
net worth probably already have an
adviser, and for people with small
balances, there isn't much [savings] for
any product to work with. So sponsors
are looking for a good middle-of-the-road
product, and many would favor some
sort of guarantee. "
" There are a lot of products out
there, " says Lloyd, " and one or two have
gotten traction with sponsors. But many
are new and still small, and that creates
a head wind. "
Helping to move sponsors' retirement
income efforts forward is this past
December's enactment of the SECURE
[Setting Every Community Up for
Retirement Enhancement] Act. Among
other provisions, the new law simplifies
the process of selecting an insurance
company to provide income products and
expands such products' portability.
The turmoil brought to the financial
markets by the novel coronavirus early
this year should only focus more attention
on the need for retirement income,
from both sponsors and participants
nearing retirement, says Lloyd.
Due to the range of participants'
needs when they retire, and how those
needs can evolve over time, consultants
often propose creating a new retirement
tier within the plan. " Someone
might want to allocate 20% to a deferred
annuity, or to a stable value account to be
conservative, and still have access to his
assets, and place the rest in a managed
payout option to secure an income flow, "
NEXT STEPS
* The board should assess the company's interest in augmenting the
plan to retain retired employees, and examine the costs and benefits-
both to the sponsor and retired participants.
* If new plan features are adopted, articulate the value proposition to
retiring employees; communicate it well ahead of their departures.
PLANSPONSOR.COM April - May 2020 47
" What we're
learning is
that defaulting
everyone into
one option is
not going to be
the answer. "
Latham says. " What we're learning is
that defaulting everyone into one option
is not going to be the answer. This might
come down to a technology platform
where participants can express their
priorities and arrange a 'portfolio in
retirement' that goes beyond retirement
income. "
" If there's a gap in our discussions
with sponsors and participants, it's how
people get the guidance they need to
put those things together, " says Lloyd.
" Sponsors may put these products in the
lineups, but the participants have to start
using them. "
That calls for more communication,
he adds. " For 401(k) issues, participants
deal largely with plan recordkeepers, so
[the latter] need to integrate products
into their platforms and emphasize that
they're intended for retirement. Some
sponsors are concerned that the uptake
is slow, but if they haven't told anyone
about them, it's no wonder. Seeing their
plan sponsor advocate to get retirement
income products [added to their plan,
and then to offer them on their investment
menu] makes a big difference. "
-John Keefe
http://www.PLANSPONSOR.COM
PLANSPONSOR - April/May 2020

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