PLANSPONSOR - August/September 2021 - 29

'In-Plan Guaranteed Income'
The panel for " In-Plan Guaranteed Income " debated whether,
for one thing, provisions in the Setting Every Community Up
for Retirement Enhancement (SECURE) Act that make it easier
for retirement plans to offer annuities could lessen this option's
stigma in the retirement industry.
Matthew Wolniewicz, president of Income America, began
the discussion by underscoring the investment risks plan participants
assume, themselves, especially during times of market
volatility. These periods-the most recent being the market
instability early last year when the coronavirus pandemic hit
the U.S.-can cause investors to make impulsive and damaging
decisions that affect their portfolio's longevity, Wolniewicz said.
" We all know that investors do wrong things at the wrong time
and especially during market volatility, " he noted.
This is even more true for retirees and pre-retirees, who are
also mindful of their potentially 20- to 30-year longevity. As they
age, many people fear any financial decision that could hurt their
investment options, such as pulling their money out in a period
of market instability vs. keeping their money in, Wolniewicz said.
These participants say having a guarantee of income
throughout retirement would put them at ease and make them
less apt to withdraw funds from their 401(k) during volatility,
Wolniewicz said. Eighty percent said they would leave their
money in the plan if they knew that would contribute to their
having guaranteed income in retirement, he said, citing a 2019
Willis Towers Watson study.
As more participants show an interest in guaranteed income,
plan sponsors are taking notice. According to a recent BlackRock
survey, 96% of plan sponsors feel a newfound sense of responsibility
regarding offering annuity products, with 82% saying
they are likely to add an annuity solution in the next 12 months.
As sponsors realize the impact their plan has on a participant's
retirement, more are implementing features that allow for retirement
income, the panelists noted.
" Sponsors today are concerned about doing the right thing
for their employees, " Wolniewicz said. " The two [sure] ways that
any participant will have retirement income will be through
Social Security and plan savings, so sponsors are looking for
solutions that will provide income. "
Yet, as much as there is interest in annuity features, there
is confusion about the various solutions. Employers that were
skeptical of annuity products said the features were administratively
complex (75%), had high fees (61%), were too complex or
unproven (60%) or involved portability restrictions (58%).
" The pain points are longevity risk and sequence of return
[SOR] risk in retirement, " added Brian Seelinger, a senior portfolio
manager with Northwest Bank. " People don't know these
phrases in retirement, but they know the inherent risk and fear.
The primary barrier to implementing some type of income has
been the complexity and the fees, but also the potential risk that
a poor selection would expose the sponsor to liability. "
Eighty percent said they
would leave their money
in the plan if they knew
that would contribute to
their having guaranteed
income in retirement.
-MATTHEW WOLNIEWICZ
A typical reason that plan sponsors are uncertain about
annuities is the fees, Seelinger said. Insurance, separate
accounts and riders are part of the overall costs, which can be
hard to calculate or track.
While the SECURE Act has made it far easier to offer
annuities, plan sponsors are still unsure where to research their
options, Seelinger said. " It's so complex, with so many moving
parts, that it really requires special knowledge. "
Vidya Rajappa, vice president, portfolio manager and head
of portfolio management multi-asset strategies at American
Century Investments, explained how optional annuity riders,
including a guaranteed minimum withdrawal benefit (GMWB),
work. Adding a GMWB guarantees a steady stream of retirement
income by allowing participants to withdraw a percentage
of funds each year, regardless of market conditions, Rajappa said.
Aside from allowing access to account assets, a GMWB can
capture market upsides while avoiding any impact from down
markets. Additionally, any assets remaining upon death are
transferred to beneficiaries; income is paid from assets until
they are depleted; and sometimes income will continue even
after assets are depleted, Rajappa said.
The panel also suggested steps for employers wanting to
implement annuity products. First, define plan goals and vote to
add an in-plan guaranteed product to the plan. Second, update
any documents, including writing an in-plan guaranteed option
into the investment policy statement (IPS). Third, research
options and compare them to determine which would best suit
participant preferences. From there, sponsors can make their
decision and proceed with the implementation process.
The panelists stressed that plan sponsors should provide
consistent documentation and communication to participants
throughout the process, and especially once a decision is made.
Seelinger said he expects plan sponsors to increasingly
partner with financial advisers, as more employers look to add
annuity features. Many advisers will, thus, broaden their expertise,
he noted.
" We think there'll be a flight to more educated advisers who
may not just have a Chartered Financial Analyst [CFA] designation
but can also break down risk parameters, " he said. " It'll be
a situation where someone who goes through these steps will
really have to rely on independent third-party experts. " -AU
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PLANSPONSOR - August/September 2021

Table of Contents for the Digital Edition of PLANSPONSOR - August/September 2021

To Ensure All Are Well
2021 PLANSPONSOR National Conference
Equipped for Anything?
The Security of Savings
Take a Load Off
PLANSPONSOR - August/September 2021 - Cover1
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PLANSPONSOR - August/September 2021 - To Ensure All Are Well
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PLANSPONSOR - August/September 2021 - 2021 PLANSPONSOR National Conference
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PLANSPONSOR - August/September 2021 - Equipped for Anything?
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PLANSPONSOR - August/September 2021 - The Security of Savings
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PLANSPONSOR - August/September 2021 - Take a Load Off
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