PLANSPONSOR - September/October 2024 - 2

INSIGHTS
PUBLISHER: Alison Cooke Mintzer
alison.mintzer@issmediasolutions.com
Deeper in the Weeds
I
n my last column, I wrote about the challenges a new retiree
encountered in taking distributions and how she was unable
to pull from only her Roth, instead of also her pre-tax, " bucket "
of assets. After that, I heard from people that there are more
issues regarding distributions from defined contribution plans.
Specifically, some industry professionals wrote to say they
were concerned that plan sponsors didn't understand that, often,
some plan provision prevented their participants from accessing
their funds in the way they wanted. Plan sponsors responded, too, with concern about
what that pro rata rule meant for them, as participants in their plans. As one sponsor
said to me, " Why wouldn't I want to pick from the pool that is best for me at the time? "
What I learned is that, not only are particiAs
one adviser
told me, with most
recordkeepers,
there is no way
for participants
to choose or
designate from
where their
distributions come.
pants in plans precluded from choosing which
tax bucket they pull assets from, but that the
pro rata rule applies to investments as well. If a
participant perhaps wants to withdraw funds
from stable value or a money market during
a time of volatility, or, alternatively, wants to
take from a particular equity fund at a market
high, she may not. Any withdrawal would be
taken equally from all investments.
Unfortunately, this has no easy solution.
As one adviser told me, with most recordkeepers,
there is no way for participants to
choose or designate from where their distributions
come. A few recordkeepers can accommodate
this, I was told, but it must be done
fairly manually-on a paper form, and with
special handling through a plan adviser to ensure the request is routed to the right person
inside the recordkeeper to handle.
This is obviously a less than positive situation for any participants who have spent
time planning ahead about their withdrawal strategies and figured they would have
more control. The industry has also been talking about the need to get decumulation
right, in one way or another, for more than 15 years. That is partly why we are seeing
retirement income products being launched on what seems like a monthly, sometimes
weekly, basis. But the distribution problem for every participant needs a solution beyond
a single product. If we want to create plans that work for people long into retirement-
for all the reasons we all have previously discussed-we have to ensure they actually
work as income vehicles.
As an industry, we have been focused on coverage and accumulation for a long
time. And for good reason. Although the 401(k) plan gets a lot of negative press, the
reality of the program is that it has helped millions of Americans save in ways they probably
would not have previously. That's why retirement plan coverage matters so much-
because coverage leads to better savings outcomes.
Creating better solutions for decumulation of those savings is something that
needs more attention, and I think it needs to be given soon. Otherwise, I worry that the
negative press will get louder, if retirees who have amassed significant sums of money
feel they are unable to access or use their savings in the way that makes the most sense
for their financial situation. -Alison Cooke Mintzer, Publisher
2 PLANSPONSOR.COM September - October 2024
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