PLANSPONSOR - May/June 2024 - 24

FEATURE
sure your plan is in that safe harbor. "
It is important to understand that this is a safe harbor specifically
for selecting a provider and not for selecting the retirement
income product, Campbell points out. The committee must still
go through an objective, thorough and analytical search to decide
on a specific product.
Further, committees beginning the process should recognize
that just providing one of these products alone will not resolve
pre-retirees' retirement planning issues, says Barbara Delaney,
founder and principal in StoneStreet Renaissance, part of Hub
International Ltd., in Pearl River, New York.
In Delaney's experience, to get significant uptake, a retirement
income option must be paired with a broader retirement
planning program for pre-retirees. That could include elements
such as group education on understanding Social Security and
Medicare benefits, as well as one-on-one advice from the plan
adviser on planning for budgeting and expenses in retirement.
" Once you've done that, then you solve for the product, " she says.
" The market has been flooded with retirement income products, "
she continues. " But we really need to educate employers
that this isn't about a product: It's about teaching the employees
a process that they need to go through to prepare for their retirement. "
For some retirees, that process likely will include choosing
to utilize a retirement income solution, Delaney says.
Committees
starting the process also should consider
whether it makes more sense to add a stand-alone solution or
utilize a target-date fund family that has one embedded. " Targetdate
funds increasingly are where the asset flows are gravitating, "
Roberts says. " So, for a lifetime income solution to be most effective
at gaining participant uptake, it can be helpful to incorporate
it in a target-date solution. "
Attorney Julie Stapel, a partner in Morgan Lewis in Chicago,
says she sees growing sponsor interest in such an arrangement vs.
in a stand-alone option. With the embedded approach, a portion of
a participant's portfolio shifts from the target-date fund into the
retirement income solution at a predetermined point.
Unlike with a stand-alone option, in this case the plan
sponsor can delegate fiduciary responsibility for selecting the
product to the target-date fund investment manager, if the
manager agrees to take on the 3(38) fiduciary role, Stapel says.
" The idea is that sponsors could insulate themselves from fiduciary
responsibility for selection of the annuity; that's why I think
some of these products are gaining some traction, " she says.
" The committee still does have the responsibility to engage in
a process to ensure that the investment manager they're hiring
has the expertise to pick an annuity provider. "
The committee must subsequently confirm that the TDF
investment manager it hired is doing everything necessary to
comply with SECURE's safe harbor on an ongoing basis, Stapel
says. " But in terms of the committee itself, there would be no
direct fiduciary responsibility for the ongoing monitoring of the
annuity provider. "
The Exploration Phase
When a committee decides to actively explore adding a standalone
income solution, if the committee itself lacks the expertise
to evaluate the various possibilities, it has a fiduciary obligation to
seek outside help, Roberts says.
" A plan committee is unlikely to have within [it] the needed
expertise about the workings of guaranteed lifetime income
ANTICIPATING THE DEMAND
Will many of your participants utilize a retirement income product if your plan offers one?
RETIREMENT income solutions see
the strongest demand in a plan that has
many long-term participants, as well
as consistently strong average deferrals,
since those things will lead to higher
ultimate accumulations, Erik Daley from
Multnomah Group says he has observed.
That phenomenon, in turn, motivates
more pre-retirees to actively plan
for what to do with their money in
retirement. A higher balance also would
produce higher monthly payouts in a
24 PLANSPONSOR.COM May - June 2024
retirement income product, which more
likely will appeal to retiring participants,
he says. " Retirement income products
are not relevant if your plan is not
developing outcomes that are sufficient
to meet your participants' retirement
needs, " he says.
Having a " well-funded " defined
contribution plan with high average deferrals
also is important as to the uptake of
a retirement income product, Daley says.
" If you have a plan with an average savings
rate of 7% or 8%, that is probably going
to be tough math. " That savings rate ultimately
would translate into a monthly
payout from a retirement income product
probably too low to appeal to most people,
he says. A consistent average deferral rate
in the 12% to 15% range will lead to bigger
pools of money accumulated, which more
participants may seek to protect in retirement.
" I think it will work out better, " he
adds, " if 85% of your population is saving
at that rate or greater. " -JW

PLANSPONSOR - May/June 2024

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