IMHO: Making a List

Believe it or not, PLANADVISER Magazine is five years old this year.

 

As such, we wanted to commemorate our fifth anniversary by recognizing as “legends” five individuals who had made a “significant personal impact to the retirement plan industry and the advisers who support it”.

Now, perhaps you think that would be easy—but I can promise you it’s harder than it looks.  And over the past several weeks we have gone through our list—moving some off, bringing others on, and “sleeping on it” more nights than you might think.

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First off, we limited the list to five individuals (for five years), and we also tried to focus in on the past five years.  Limiting the list to five was hard enough (certainly once we got started), but trying to focus in on the period since we launched the magazine created an even more daunting task.  Sure, it was “only” five years ago, but it’s amazing how much has happened during that time.  That was the year the Pension Protection Act was signed into law, after all, not to mention the year that the first wave of revenue-sharing lawsuits was filed, and the year that the Securities and Exchange Commission (SEC), responding in the aftermath of the mutual fund trading scandal, introduced rule 22c-2.  In fact, the cover story of the first issue of PLANADVISER was titled simply, “Now What?”.

When it came to compiling that list, however, while some names were, IMHO, obvious, some were perhaps “too” obvious.  There are those who have had an impact, albeit a controversial one, while others have arguably had an impact, but one that is softer, quieter, or perhaps simply not as pervasive as others.

The discipline of a finite list forces you to make tough choices, but it also inevitably leaves you wanting to create a list that is longer, and perhaps more inclusive, if only to give full recognition to the many professionals who have had—and continue to have—that “significant personal impact.”  That said, we have chosen five individuals. 

They come up in conversation with advisers all the time, and for good reason.

They are people we have watched and are watching—and people who bear watching in the years to come.

They are, quite simply, legends—and tomorrow we’ll “introduce” them to you.

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The PLANADVISER “legends” will be featured in the fifth anniversary issue of PLANADVISER and will be honored at our annual Awards for Excellence celebration in New York City on March 24.  At that event, along with sister publication PLANSPONSOR, we will also be honoring our Retirement Plan Advisers and Adviser Teams of the Year, as well as our Plan Sponsors of the Year, as well as other retirement industry luminaries. 

Financial Engines Unwraps New Retirement Income Solution

Financial Engines has rolled out what it calls “the first retirement income solution designed specifically for 401(k) plans.” 

The offering, called Income+, is already in operation with Aon Hewitt, and, according to Financial Engines brings to bear a money management approach that doesn’t seek to maximize return, but rather to create a floor amount of income.  It does so via an income glidepath that, approximately five years before retirement, shifts the participant portfolio allocation from growth-focused to one that is income-focused. 

“We’ve all been told how to put money into our 401(k)s, but nobody’s helped us take money out of them until now,” explained Jeff Maggioncalda, president and CEO of Financial Engines.  “Any successful 401(k) retirement income solution must meet the needs of both employees and employers, so we designed Income+ to provide flexibility and safety for employees and still be safe and easy for employers to implement.” 

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Already Available 

The Income+ feature is available to participants in Financial Engines’ managed accounts program at no additional cost, and it does not require employers to add an annuity or change the fund line-up in their plan.  Additionally, as part of a managed account structure, it can continue to provide employers with a qualified default investment alternative (QDIA) safe harbor.  According to Financial Engines, the program gives employees control of their money, which stays in their 401(k) account and “doesn’t lock them into a particular investment or insurance product”.  Participants can start payouts, stop payouts, and take additional withdrawals at any time, and they can cancel at any time with no fee or penalty.

Dr. Jason Scott, Managing Director, Retiree Research Center at Financial Engines explained that in discussing product design options, participants expressed an interest in three basic concepts; payouts that were steady and didn’t run out, the potential for upside growth in their savings, and full access to their money – elements that are not always addressed in many current retirement income designs.

How it Works

Roughly five years before retirement, an “income checkup” is scheduled with an adviser to establish payout needs and requirements.  The payout range depends on current term structures available in the plan, Scott told PLANADVISER, noting that while that is now in the 4% range, that can change over time as circumstances warrant. 

As with its managed account offerings, Financial Engines constructs an income oriented portfolio from the options already available on the retirement plan menu.  The income portfolio is invested in bond funds (about 65% of the total portfolio at retirement), targeted at providing payouts throughout a participant’s retirement, or at least up until age 85, at which point the account could be annuitized.  Maggioncalda said that Income+ can even work with an in-plan annuity option, if one is in place, or added. 

Upside potential is provided by the 20% or so invested in equities, and gains are realized along the way to retirement, moving those proceeds to the floor portfolio, and layering on a new layer of bond investments.  If there is a market drop, and thus no increase in the value of the portfolio, you still have the value of the floor portfolio, according to Financial Engines.  The firm notes that those steady monthly payouts are designed to last for life and are “unlikely to go down when the market drops but are likely to go up when the market rises”. 

Financial Engines says that four large employers have agreed to offer Income+ to more than 200,000 employees, and that a FORTUNE 20 financial services firm administered by Aon Hewitt has been offering Income+ to its employees since the fourth quarter 2010.  In addition to Aon Hewitt, four other 401(k) providers have agreed to make Income+ available to their clients over the next year; ACS -- a Xerox Company, ING, J.P. Morgan Retirement Plan Services and Mercer. 

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