PLANSPONSOR - December 2018/January 2019 - 25

from that. You could make the same argument about target-date
funds [TDFs]-and those have been a blessing. "
There is potential for legislative change in this fiduciary
matter at year end 2018 or soon afterward. Multiple bills in the
115th U.S. Congress-both House and Senate-have included a
new fiduciary safe harbor for sponsors to use when selecting an
in-plan annuity provider for their defined contribution (DC) plan.
Plan Design and Investment Options
Plan committees that want to help participants with retirementincome
issues, but without adding in-plan annuities, can go
beyond lump-sum distributions to offer systematic withdrawals
in addition to partial, or ad hoc, withdrawals.
" If you've decided you want retirees to keep their money in
the plan, allowing systematic withdrawals makes it easy for them
to get a 'paycheck' every couple of weeks, " Patton says. " It's easy to
do. It's just an administrative function [for a committee]: 'Have we
added it to the plan document? Then great, let's turn that feature
on and make sure people understand the option is there.' "
Ulmer characterizes systematic withdrawals as " an
outstanding built-in income source for your retired participants
if utilized correctly. " This design feature needs to be paired with
tools and resources to educate participants on an appropriate
withdrawal rate for them, he says. " What if the amount they're
taking out is not sustainable? What if they deplete their balance in
advance of their death? Are they going to come back and say, 'You
shouldn't have let me take this distribution'? "
401(k) Advisors Intermountain approaches educating about
a sustainable withdrawal rate by taking a step back, says M.J.
Goss, the firm's director, retirement planning and financial
wellness. " With a participant, we get down to the nitty-gritty of,
'What do you really need in retirement?' " he says, adding that the
advisory firm encourages participants to think about living more
leanly. He says that if retiring participants have put together a
realistic budget, face little or no debt in retirement, and take
Social Security when in their best interest, it becomes much
simpler to figure out a workable withdrawal rate.
Sponsors wary of using in-plan annuities can facilitate participant
access to an out-of-plan annuity marketplace. While it has
no sponsor clients that have taken this step officially, Schultheiss
says, Gate City Advisors has suggested utilizing a retail annuity, as
part of its participant-level fiduciary advice. " We have sometimes
used annuities for those who are risk adverse in their income planning, "
he says. " I believe they are a fit for some participants. "
Schultheiss sees promise ahead for the retail annuity
marketplace, in the next three to five years, as the products
continue to improve. Already, he has seen providers introduce
adviser share class annuities. " It's a new share class, " he says. " It
comes with a much reduced cost and shorter surrender period. "
Plan sponsors also can evaluate whether they want to add
a managed payout fund to the investment lineup. These investments
seek to provide a retiree with a consistent payout, but
they offer no guarantee as an annuity does. Cleveland advisory
firm Oswald Financial Inc. has a number of plan clients that
have added a managed payout fund. Some sponsors have done it
after participants expressed interest in an investment designed
to create a retirement " paycheck, " says David Kulchar, Oswald's
managing director of retirement plan services.
Participants who invest in a managed payout fund need
education about it. " We like to have anybody who wants to go into
that product talk to us beforehand, " Kulchar says. According to the
firm, a retiree invested in one of these funds still can experience
the impact of market volatility: If the market declines, someone
in a managed payout fund that distributes a set percentage of the
account balance will get a lower payout, due to his reduced account
balance. " We haven't seen a lot of uptake with this option, " he adds.
In theory, Nydick says, managed payout funds sound great.
However, he says, most well-regarded balanced funds have a
similar 60% equity/40% fixed-income target allocation to that of
managed payout funds, but substantially better returns. This is
because they are not bound as much by that target allocation as
are the managed funds. Further, sponsors have concerns about
vetting the long-term viability of fund providers that will be
aiming to pay a distribution for decades, he says. " The managed
payout fund could go belly up on you, years from now. "
Participant-Level Fiduciary Advice
Beyond plan design and investment options, much of the focus
on helping with retirement-income issues may come in the form
of offering participant-level 3(21) fiduciary advice.
Gate City Advisors provides on-site Social Security group
workshops for pre-retirees. Schultheiss says these have been a
huge hit. " We help pre-retirees understand things such as what
it means to them if they delay taking Social Security, " he says.
Pre-retirees also get advice in one-on-one meetings about
when to take money from their 401(k) or Roth account, versus
starting to take Social Security. Many previously misunderstand
how to make these complex decisions in a way that best helps
them maximize income in retirement, he says.
401(k) Advisors Intermountain sees substantial sponsor
interest in participant-level fiduciary advice, and the firm typically
does 30-minute individual meetings on-site. " With pre-retirees,
we will discuss what their savings and debt looks like, " Goss
says. " We also do considerable work on Social Security. We want
to make sure participants take that when it will provide the most
benefit for their situation. "
After tackling these topics, the advisory firm talks to these
participants about investment risk, and utilizes the analysis tool of
financial technology company Riskalyze to help them gauge their
risk tolerance.
Industrywide, it remains to be seen how many employers
will pay for participant-level fiduciary advice as an employee
perk. " The issue is, does the employer want to pay for it? " Nydick
says. " Sometimes, paternalistic employers will do that. But many
employers are trying to mitigate the cost of employees' health
insurance. You can't look at this issue in a vacuum. " -Judy Ward
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