PLANSPONSOR - April/May 2021 - 21

cited T. Rowe Price survey of 200 large sponsors, 61% said the
provisions of the SECURE Act had failed to motivate them to
add or consider retirement income solutions. " We've still got
some work to do, " Latham observes.
" The SECURE Act helps from the sponsor's point of view,
but that's only one aspect to be overcome for acceptance of
annuities, and that's a shame, " Porteous says. He contrasts the
recent legislation with the impact of the Pension Protection Act
of 2006 (PPA), which approved target-date funds as a plan's
qualified default investment alternative (QDIA). Sponsors
were enthusiastic over target-date funds' easy implementation,
and the reduction in fiduciary responsibility. As for annuities,
Porteous says, " the hard part is educating participants on a
potentially irrevocable decision. There's lots to consider. "
Income, Not Assets
But another feature of the SECURE Act may get the annuity ball
rolling with participants: the requirement of a lifetime income
disclosure on DC account statements at least once a year.
" That's going to shock some people into realizing they haven't
saved enough, but it's a start, " says Dietrich.
" It requires showing the conversion of a participant's account
balance in an estimated income stream, " says Eric Levy, executive
vice president with AIG Retirement Services in Houston. Many
recordkeepers already publish such estimates, but the new law
standardizes the calculations and makes them universal.
" What's important is that annual retirement income will
be out there, front and center, Levy says. " Instead of thinking
in terms of what level of assets a person needs to retire, it will
get them thinking of the income they'll be receiving to cover
expenses. That's the real value of the SECURE Act. "
" It will take a lot of education, and I don' know if that will
come from the traditional advisers, or sponsors, " Dietrich says.
" That's a lot more complicated than for prior generations. "
Product Solutions
Product and service providers are working to make guaranteed
retirement income more attractive to both participants and
sponsors. Insurers and asset managers are moving away from
traditional immediate annuities to products that look more
like conventional investments. The prototype is Prudential
Financial's IncomeFlex Target Fund, which integrates a TDF
with a lifetime income guarantee, known as a guaranteed
minimum withdrawal benefit, or GMWB.
A more recent entrant is Income America, developed by
insurers Lincoln Financial Group and Nationwide, along with
asset managers American Century, Prime Capital, SS&C,
Wilmington Trust and Wilshire Associates. In each case,
participants contribute to a target-date fund, which, at retirement,
sets a value for drawing guaranteed income. Participants
may stop contributing and withdraw assets-a lessening of the
illiquidity constraints of immediate annuities.
Still, these hybrids are rather complex and, owing to the guarantee
features, carry fees that far exceed those for conventional
target-date funds. " GMWBs are expensive, inflexible and convoluted
for the average participant, " says McIlveen. " The stack of
material given to participants to explain them isn't very good. And
portability to another plan or recordkeeping platform is an issue. "
" I see interesting product development that incorporates
the features of a GMWB within a target-date fund structure, "
says Marla Kreindler, a partner in the Chicago offices of law
firm Morgan, Lewis & Bockius. She describes TDFs in a collective
trust format, where the annuity contract is one asset among
many in the portfolio-rather than an insurance product with
features of a target-date fund.
In this format, the participant buys an interest in a collective
trust, where there are investments in registered funds
or separate accounts investing in conventional asset classes,
Kreindler explains. In the purchase's earlier years, investments
are focused on the markets, but as retirement approaches, the
strategy starts buying annuity contracts. Their guaranteed
return is later, paid out through the collective trust, she says.
" Some sponsors are uncomfortable with having to act as
the fiduciary on an insurance contract they add to their plans,
but, with a target-date fund in a collective trust, there would
be professional independent fiduciaries making the insurance
decisions, " she says.
Interoperability Is Essential
Collective trust structures would also give greater portability of
participants' assets to other plans-a crucial concern for sponsors
and across the industry. " The industry is adept at product development,
so that's never my concern, " Veneruso says. " More often, the
fly in the ointment is making things work operationally. "
" A DC plan is an asset management platform, and there
are industry standards for file formats and data exchange, " says
Dave Paulsen, senior adviser at financial technology innovators
Annexus, in Scottsdale, Arizona. " When you start to include
annuities and insurance products, that type of data exchange
doesn't exist. "
Recordkeeping is a low-margin business, and firms lack
the capacity to spend significant amounts on technology,
Paulsen says. " Our firm has built its own data exchange platform
to connect to the insurance companies, the recordkeepers
and the asset managers. "
" Retirement income is poised for significant growth, "
predicts Levy, " but what people don't think enough about is
making it easy. We need a cross-section of insurance companies,
investment managers and recordkeepers, and I'm looking
to the fintech community to bring it all together. " -John Keefe
PLANSPONSOR.COM April - May 2021 21
http://www.PLANSPONSOR.COM
PLANSPONSOR - April/May 2021

Table of Contents for the Digital Edition of PLANSPONSOR - April/May 2021
