PLANSPONSOR - November/December 2024 - 15

Lastly are fixed annuities-pure,
spread-based insurance products, without
explicit fees. " We expect ... interest on
the investments, so we'll credit a certain
amount of interest, " Maffei says. " Then
what's left is used to build capital and
reserves and pay investment expenses. "
'Similar to an Indexed TDF'
Some models combine the above
approaches. BlackRock's LifePath
Paycheck target-date fund allocates the
nonequity portion of participants' portfolios
to a pool of annuity contracts, which
acts as a bond fund would in a traditional
TDF. Starting at age 59.5, participants use
that portion of their portfolio to purchase
a traditional, fixed annuity that starts
paying lifetime income immediately, with
implicit, spread-based pricing.
" Participants pay a fee, similar to an
indexed [TDF], and there are no commissions
or surrender fees when they elect to
purchase the annuities from insurers, "
says Rob Crothers, head of U.S. retirement
at BlackRock.
LifePath Paycheck may be used as a
qualified default
investment alternative.
Currently, annuity purchasers will receive
lifetime income from insurance companies
Equitable or Brighthouse Financial.
T. Rowe Price also has a target-date
income solution, gratis to its participants,
the company says. That product, a nonguaranteed
managed-payout fund, targets an
annual 5% withdrawal rate. Launched in
2019, it has 59 sponsors enrolled, representing
$20 billion in assets.
" We've anchored [on] a pricing methodology
that seeks to be consistent with
the target-date experience, " says Jessica
Sclafani, a global retirement
strategist
with the company. " But I understand that,
for plan sponsors, as fiduciaries, cost ...
should not be considered in a vacuum. "
So T. Rowe Price has published a " fivedimensional
framework " to help sponsors
evaluate retirement income solutions
for their participants. The dimensions are
longevity-risk hedging, level of payments,
volatility of payments, liquidity of balance
and unexpected balance depletion.
Sclafani classifies fees under " level
Millennials Have the Edge on Saving
Compared With the Other Cohorts at 31 - 41
Late Boomers
Number of kids
Two-earner households
Median real household income
1.5
40%
$67,286
of payments " -keeping fees down might
require sacrificing in one of the other four
dimensions, likely liquidity, she says.
Annuities in target-date funds make
sense, and their cost is easy to benchmark,
says Barbara Delaney, founder of SS/RBA,
a division of Hub International, but they
present challenges if the sponsor decides
to switch providers or the participant leaves
the plan. Such situations could become a
fiduciary liability issue. " The attorneys
will jump in and say [participants] paid for
TIDBITS
Millennials Appear Stronger
When compared with late Baby Boomers and Generation X at ages
31 through 41, Millennials look better situated for retirement, though
researchers advise some caution with their findings.
Median Net-Worth-to-Income Ratio, by Wealth Quintile,
By Cohort at Ages 31 - 41
100%
200%
300%
400%
500%
-100%
0%
Lowest
Second
Middle
Fourth
Highest
n Late Boomers n Gen Xers n Millennials
something they never used. "
She says income products need to
keep evolving, with plan sponsors and the
industry focusing first on helping participants
project their financial needs in retirement,
then helping them solve for those.
Another issue Delaney cites is recordkeepers
still charging participants for
individual distributions; this can add up
quickly in a drawdown strategy. " They're
almost forcing retirees to get out of the
plan, " she says. -Beth Braverman
Gen Xers Millennials
1.6
1.3
37%
$74,026
46%
$78,000
Source: Center for Retirement Research at Boston College, " Is the Retirement Picture for Millennials
Looking Better? "
PLANSPONSOR.COM November - December 2024 15

http://www.PLANSPONSOR.COM

PLANSPONSOR - November/December 2024

Table of Contents for the Digital Edition of PLANSPONSOR - November/December 2024