PLANSPONSOR - September/October 2024 - 33

Vanguard research indicates that hybrid annuity TDFs can
benefit less engaged participants, who may not actively manage
their retirement portfolios. Says Brian Miller, senior investment
specialist at Vanguard,
in West Chester, Pennsylvania,
" Embedding an annuity into a TDF can address the needs of
investors who lack the desire or ability to construct their own
asset allocations. "
Like traditional TDFs, the hybrid annuity type start by allocating
assets toward growth during the participant's working
years and gradually shift toward more conservative investments
as retirement approaches. However, with a hybrid annuity TDF,
at a set point, a portion of the assets is used to purchase an
annuity, providing guaranteed income. " In essence, you're taking
less risk, or getting that guaranteed income and addressing that
longevity risk, " Miller says.
Despite the potential benefits, Miller says, the widespread
adoption of hybrid annuity TDFs is uncertain. " It remains to be
seen " whether this strategy will become a trend, he says, adding
that companies familiar with defined benefit plans are more likely
to adopt such strategies. The challenge lies in balancing the appeal
of guaranteed income with the need for growth, especially in the
early stages of participants' retirement planning, he says.
BlackRock's LifePath Paycheck is an example of a hybrid
QDIA. This product allows participants to annuitize a portion
of their assets as early as age 59 1/2 and offers flexibility and
a pension-like income. Nick Nefouse, global head of LifePath
at BlackRock in New York City, stressed the product's goal of
converting traditional 401(k) assets into a pension-like income
stream. " We've embedded a huge amount of choice into the portfolio, "
said Nefouse at an April 24 press briefing. Participants are
not forced into annuities and can treat the product like a bond
fund if they opt out of its guaranteed income feature.
Avangrid, winner of the 2024 PLANSPONSOR Plan Sponsor
of the Year Award in the Corporate Defined Contribution
>$1 Billion category, has the product in its plan lineup. Paul
Visconti, senior director of the Orange, Connecticut, company
praises LifePath for addressing cost, complexity and continuity
for the plan.
" Avangrid's cost for adapting the product was alleviated
because BlackRock ... was generous enough to give very marketcompetitive
pricing for the fund we're in, " he notes. Embedding
the solution into a TDF kept it simple, as 75% of Avangrid's
participants are already invested in TDFs. This integration
reduced the administrative burden and has provided participants
with a familiar investment vehicle that now includes the option
of guaranteed income, Visconti says.
Jason Fichtner, chief economist at the Bipartisan Policy
Center, in Washington, praises LifePath for combining a definedbenefit-like
paycheck to retirees that comes out of their DC assets-
helping them budget-while still letting them maintain access to
the market. " Research shows that people who have an annuity ...
spend up to that [budget] and let their assets continue to accumulate, "
he says. This behavior underscores the psychological comfort
and financial stability that guaranteed income can provide.
PLANSPONSOR.COM September - October 2024 33
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