pa|nc | PLANADVISER November/December 2016

2016 PLANADVISER National Conference

By Lee Barney, John Manganaro and Rebecca Moore | November/December 2016
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Income Options in Retirement Plans
Glenn Dial, head of U.S. retirement strategy at Allianz Global Investors, said common reasons cited by plan sponsors for not including retirement income products in their defined contribution (DC) plans include portability, technology and fiduciary liability issues. However, he said the bigger issue is that DC plans started as supplemental retirement plans and plan sponsors have been traditionally focused on selecting investments for their plans so participants can accumulate wealth.

Annuities in the past have been used in money purchase pension plans and 403(b) plans, so one would think these issues have been addressed, Dial noted. The government feels it has given plan sponsors what they want in the Internal Revenue Service (IRS) guidance about choosing annuity providers, but plan sponsors want a better safe harbor. He believes target-date funds (TDFs) are the starting point for introducing lifetime income options in DC plans.

Donald Stone, director, DC strategy and product development, and senior consultant at Pavilion Advisory Group, says there is a need for decumulation with TDFs or managed accounts. Even though many of these products carry through retirement, they do not address the fact that participants do not know how to create a paycheck in retirement. Retirement income products would help, but with plan sponsors reluctant to use them, Stone encourages advisers to work with clients to allow for systematic withdrawals from their plans.

Timothy J. Pitney, senior director, institutional investment strategist, TIAA, noted that retirement income options address longevity risk, market risk, interest rate risk and cognitive decline. “Participants want this; they have a genuine fear of running out of money,” he said.

He noted that 403(b)s have been using annuities for years, and though there are still portability issues, he believes these products will come back. TIAA is working on a solution to include retirement income options in TDFs, as well as an arrangement in using liability-driven investment strategies for DC plan participants.

Stone pointed out that there are a number of products available in the retail market, and all can be recordkept if recordkeepers would commit to programming their systems, but recordkeepers are reluctant to spend the money because they are not sure there is demand. “Advisers need to get plan sponsors focused on creating retirement income for participants,” he said. “They can introduce just one product, and add more as they become comfortable.”