PLANSPONSOR - January - February 2024 - 24

FEATURE
Still, plan sponsors can consider several ways to provide guarRetirement
MoneyManagement
Confidence
Almost half of survey respondents ages 50
through 75 are slightly or not at all confident
they can manage their own investments
throughout retirement. Female retirees
and respondents with net worth at or below
$250,000 are even less confident.
Slightly or Not at All Confident About Managing
Investments
anteed income to their employees:
In-plan fixed annuities. The most straightforward version of
a fixed annuity is a single-premium immediate annuity, in which
the participant pays a lump-sum amount at retirement and from
there on receives fixed payments for life. These work similarly
to traditional defined benefit pensions, making them easy to
explain to participants who understand that model.
Another version is the deferred-income annuity, in which
the participant pays a certain amount either over time or in a
lump sum to receive lifetime payments starting at a later date.
The qualified longevity annuity contract is a deferred annuity in
which payments start much later in life, but before age 85.
Fixed annuities may make the most sense for sponsors whose
priority is maximizing participants' income, Maffei says. This type
may offer a death benefit, where, if the annuity owner dies within
a certain period after the purchase, his heirs receive a benefit.
In-plan index annuities. Traditional variable annuities,
47%
All
respondents
56%
Pre-retiree
females
Need and Solution
Disconnect
Almost half of the people without an annuity
know nothing about them. A majority, 83% of
those surveyed, believe a guaranteed monthly
income source is very or extremely important in
retirement. Yet, only 66% agree that annuities
can provide that.
83%
BELIEVE ...
... having a guaranteed
monthly income source
is important
ONLY
YET
66%
AGREE ...
... annuities provide
guaranteed income
Source: Western and Southern Financial Group, " Income Outcomes:
Retirement Planning Confidence Study "
55%
Respondents
with <$250k
_
which involve investing in funds that are later sold to produce
an income stream are riskier than some other types of annuities,
says Michelle Richter-Gordon, co-founder of Annuities Research
Consulting in New York City. The primary benefit of these annuities
is their tax advantages. Since investments inside a plan
already enjoy such advantages, variable annuities are typically a
poor choice for an in-plan option. However, some plans might
consider a registered index linked annuity, which provides a floor
for potential losses plus a cap on potential gains.
" The RILA could have an application within the 401(k) because
you're adding some level of principal protection, " says David
Lau, founder and CEO of DPL Financial Partners in Louisville,
Kentucky. " As they get closer to retirement, participants who can't
afford the risk might migrate assets to a product like that, particularly
if they still need market exposure for upside. "
The RILA also provides a death benefit. If the owner dies
before receiving back the principal, the balance goes to the heirs.
Some plans may additionally offer a fixed index annuity,
which guarantees income but caps earnings, typically lower than
the cap on a variable annuity. Some plan sponsors offer index
annuities through a managed account option due to the products'
complexity and reliance on investments.
" I really like the RILA or FIA because they can bring in some
protection for a retirees during those five years pre- and post-retirement
that are really subject to sequence-of-returns risk, where you
really need some protection, " Lau says.
Guaranteed lifetime withdrawal benefits-embedded in the
default fund. Most commonly available in target-date funds or
collective investment
trusts,
including qualified default
investment
alternatives, GLWBs create a guaranteed income stream that
target-date fund owners may turn on at a certain age.
Typically, these products offer a guaranteed minimum
payment level, which could increase if the market goes up. A GLWB
24 PLANSPONSOR.COM January - February 2024
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PLANSPONSOR - January - February 2024

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