PLANSPONSOR - October-November 2022 - 32

INVESTMENTS | RETIREMENT INCOME
earlier products' problems by providing
decreased complexity, lower costs-
due to lack of guaranteed income-and
increased liquidity, with more flexible
withdrawal options.
It
probably will require
another
year or so to evaluate the new products'
success, says Muse. " What we have in
a situation like this is a long runway of
market acceptance, market adoption and
plan sponsors being able to change their
thinking to accommodate these types
of products. Many of the products are
recordkeeper-specific; that's a whole new
journey for some plan administrative
committees or plan sponsors to take. Am
I ready to change recordkeepers simply to
get access to this amazing income product
I just fell in love with? "
Other solutions are coming to market
as well. In June, Edelman Financial Engines
announced its Income Beyond Retirement
program. According to the company's press
release, " IBR is a personal experience, not a
product " that combines portfolio management
and technology-enabled analysis
with financial adviser support to create
" personalized, flexible retirement income
plans and investing strategies " designed
for individual employees. The program is
already being offered by dozens of companies,
the press release says.
Implementation Challenges
And Possible Fintech Solutions
There are still obstacles to implementation
with an important one being a gap between
product developers-i.e., asset managers
and
insurers-and
recordkeepers.
SEI
reported that 44% of asset managers noted
a significant challenge in getting recordkeepers
to add their income products.
SEI also cites recordkeepers' reluctance
to include the new solutions on
their platforms as a major obstacle and
says that reluctance stems from several
factors. First, annuity trades do not clear
through Fund/SERV®
, which acts as the
U.S. industry standard for fund companies
and distributors to process and settle
CITs, mutual funds and other pooled
investment product transactions. Second,
many recordkeeping systems cannot
accommodate
fixed-amount,
automatic
monthly distributions-participants typically
must request each distribution.
In-Plan Income Products Launched Since 2020
Multiple in-plan solutions have reached the market in the past two years, and they take several
approaches to providing participant income. SEI groups them into three types:
Product Type
In-plan annuity: Fixed or variable annuity
designed to accept periodic investments in a DC
plan and, based on these investments over time,
pay out guaranteed income at retirement.
Target-date fund with annuity options:
Traditional TDFs including an allocation to annuities-or
the right to purchase an annuity later. The
annuity typically replaces some or all of the allocation
to fixed income.
Target payout fund: Mutual funds that target a
specific payout, such as 5%, but without the guarantee
of an annuity. Income is generated by investing
in credit funds or buy-and-maintain strategies.
Recently Launched Products
* Allianz Lifetime Income+
* Nationwide Indexed Principal
Protection
* BlackRock LifePath Paycheck
* Income America 5ForLife
* Nationwide Lifetime Income
* Builder TDF
* JP Morgan SmartRetirement Plus
* JLegal and General Retirement
Income 2040 Fund
* Schroder Income Plus
Source: SEI, " Innovations for In-Plan Retirement Income " ; reprinted with permission
Cost is another factor. The
Rethinking In-Plan Retirement Income
survey asked recordkeepers to estimate
the cost of adding a new annuity-based
product to their platform. Twenty-two
percent estimated it would cost $100,000
to $250,000 per insurer; 34% pegged the
cost at more than $500,00 per insurer.
Several fintech companies are looking
to close the product/recordkeeper gap.
According to the website for Micruity, " We
are the data infrastructure for the communication
of defined contribution plan
participant data among life insurers, asset
managers, recordkeepers and other third
parties ... we're building the infrastructure
to pensionize the retirement income
ecosystem. " The appeal to this technology
is that
it would save development costs,
particularly for recordkeepers. Micruity's
site lists Allianz, Franklin Templeton and
Pacific Life among its investors.
iJoin uses its technology to offer
participants personalized education
and
financial
planning
by
considering
multiple factors such as income,
plan assets and outside savings. A year
ago September, iJoin and Allianz Life
announced a joint effort in which the
latter would offer a guaranteed income
option on the iJoin platform via the
Allianz Lifetime Income+ annuity.
As SEI's Muse points out, it will
take more time to learn which of the new
income products will achieve viability
and sufficient scale. Nonetheless, in-plan
retirement income solutions appear more
likely than their predecessors to succeed.
" We have seen a lot of development
in the marketplace, and it's just going to
be a matter of time to show the quality
and the insights these solutions might be
able to provide, " says Sue Walton, senior
retirement strategist with Capital Group
in Los Angeles. " I think we're getting
there, and it's going to take a village in
this industry to rally around many of the
things that are already available to make
these solutions more efficient and more
likely to be adopted from the participant
base. " -Ed McCarthy
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