PLANSPONSOR - October-November 2022 - 31

INVESTMENTS | RETIREMENT INCOME
income. These solutions failed to catch
on. According to the SEI report, as of early
this year, only Prudential's IncomeFlex
Funds were still operating, but less than
$25 million was saved in each vintage of
the product's target-date funds.
The SEI report cites interviews
that the Retirement Leadership Forum
conducted with retirement plan executives
in 2018, to learn why these products
largely failed. The executives cited five
primary reasons: cost, complexity, portability,
liquidity and fiduciary concerns.
Despite the early products' failures,
still express
plan sponsors
interest
in
in-plan retirement income options. A 2021
BlackRock survey found that 96% of 225
sponsors of large 401(k) and 403(b) plans
said they feel responsible to help participants
with retirement income. Among
sponsors that did not offer an income
option such as an annuity, 82% said they
would likely add one in the next 12 months.
The leadership forum's 2021
Rethinking In-Plan Retirement Income
survey, fielded in 2020, found that 54%
of defined contribution investment only
asset managers had a retirement income
solution, and 39% were building one.
SEI cites several reasons for the
renewed interest:
* More plan sponsors are actively
working to keep retired participants'
assets in the company plan-36% in 2020
vs. 14% in 2015. More assets can provide
better pricing for plans, and retired participants
can benefit from institutional
pricing and product access.
* 2019's Setting Every Community
Up for Retirement Enhancement Act
created a safe harbor for plans looking to
include annuity options, addressing sponsors'
concern over fiduciary-status-related
litigation. A reported 90% of retirement
executives said they believe this legislation,
referred to now as SECURE Act
1.0, will increase demand for retirement
income somewhat or significantly.
* The bond and equity markets' volaparticipants
tility
this
year
reminded
and
retirees of the difference between
projected investment portfolio income
and guaranteed income. Retirement assets
lost an estimated $3 trillion-plus in value
due to the market downturn from January
to mid-June, according to the Center for
Retirement Research at Boston College.
The widespread use of collective
investment
trusts is another factor
driving retirement income product design,
according to Robert Muse, president of SEI
Trust Co. in Oaks, Pennsylvania. Muse
cites CITs' ability to deliver asset management
at a lower cost: High costs contributed
to the early products' failure, and CITs
help newer products overcome that hurdle.
CITs' flexibility makes it easier to
include annuities with equities and fixed
income in the same product. The SEI
report notes that BlackRock and Income
America both use a CIT structure, as do
the periodic payout funds from Legal &
General and Schroders.
The Retirement Leadership Forum
survey found that 53% of asset managers
offering in-plan retirement income products
used CITs compared with 20% that
used mutual funds and 13% each for
managed and separate accounts.
Their specific features vary, but SEI
says the TDF-based approaches address
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