Products & Services July 5, 2024

Broadridge Launches Retirement Income, Stable Value Evaluator

The new tool allows plan fiduciaries to evaluate the growing list of in-plan DC annuity options.

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Broadridge’s Fi360 is live with a retirement income and stable value product evaluation tool with the goal of providing plan advisers and sponsors a due diligence process for evaluating and selecting the plan offerings.

Fi360’s Retirement Product Evaluator, which launched last week, runs off a proprietary database of retirement income-related and stable-value-fund products through partnership with CANNEX, an annuity data provider. Pricing varies based on need, but the goal is for advisers, sponsors and home offices to be able to cater their analysis to plan and participant needs as they seek to help solve for retirement income security in particular.

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John Faustino

“It allows [a user] to select from 60 criteria to decide what is important to the plan and rank them high, medium, low,” says John Faustino, head of retirement products, Broadridge. “It can be catered for an adviser’s specific areas for them to evaluate or bring the findings to plan sponsors clients.”

The product offering comes amid ongoing discussion in the retirement industry of how to set participants up with the appropriate amount of income in retirement to supplement Social Security. In a recent PIMCO defined contribution consulting survey, 90% of large institutional clients put retirement income solutions as their top priority for plan design—up from 74% from just one year ago.

Faustino says the retirement income portion of the evaluator can compare about eight in-plan annuity products, with the ability to compare 15 to 20 coming soon. The tool allows for the comparison of three or more solutions at once, with the user being able to manipulate their core needs from the product, including “explicit fees, implicit fees, how accumulation happens or how decumulation happens.”

Demand for Analysis

The data head believes the market for the product will be strong, as the retirement industry seeks to understand and eventually put into plans retirement income solutions to help, in particular, with the decumulation phase.

“With the negative connotation that a lot of people have around annuities, it’s important to have a third-party evaluation tool that can be personalized to their needs,” Faustino says.

While there has been a proliferation in recent years of retirement income products that include annuities, uptake has been relatively slow due in part to fiduciary concerns and the ability and willingness of recordkeepers to offer the products on their platforms. Only 6.7% of plan sponsors offer an in-plan annuity option, and another 26% offer them via a managed account, according to the 2024 PLANSPONSOR DC Benchmarking Survey. PLANSPONSOR is a sister publication of PLANADVISER.

Faustino says Fi360 has been interested in creating a retirement income evaluator since the Setting Every Community Up for Retirement Enhancement Act of 2019 advanced the use of annuities to create a pension-like setup for 401(k)s—they have been used for many years in 403(b) plans to create a defined benefit-like system.

First, Faustino says, the industry had to come up with a standardized way of evaluating the products, because insurers defined them all differently. That need partly drove Broadridge to create the Retirement Income Consortium, which pulled together insurers, recordkeepers and asset managers. In part from that group’s work, Broadridge published a “prudent practices” guide for evaluating retirement income solutions.

Now the retirement income evaluator brings a product into the field that Faustino says has been on his mind since his earlier days at Morningstar Inc., when he saw target-date funds burst on the scene. At that point, he says, there was clearly a need for benchmarking and evaluation tools for the promising investment product, but he was slow to push for the solutions.

“I wasn’t going to make that same mistake again,” says Faustino. “We knew [retirement income] was going to be big, and we wanted to do something to get people engaged.”

Education Needed

In April, Morningstar put out a research paper on TDF products that include an annuity option. The firm concluded that, while the products have potential, more education and communication is needed to see them widely adopted in plan design.

Other Fi360 evaluation tools for investments such as mutual funds and exchange-traded funds provide users a score for evaluation. With retirement income and stable value, however, the solutions are more nuanced and require a deeper dive by users.

“There are a lot of nuances with figuring out the best interests of the plan,” Faustino says. “It didn’t seem appropriate for us to do a calculated hard score for stable value and retirement income solutions.”

Insurance-backed stable value products have a longer history of use in retirement plans, and Fi360’s evaluator has roughly 300 share classes listed. The solution has taken a hit due to higher interest rates that make them less attractive, but Faustino notes that with interest rates slated to drop, there is an expectation of demand for the investment, and therefore the need to analyze it, increasing in the months ahead.

As of now, Faustino says the stable value evaluator has a large broker/dealer client. The retirement income evaluator, meanwhile, is already being used by a large insurer and a handful of plan advisers.
Compliance July 3, 2024

Congress Searches for Ways to Increase Contractor Participation in Plans

The American Benefits Council suggested in a reply to Louisiana Senator Bill Cassidy that gig workers can benefit from increased awareness and legal certainty.

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The American Benefits Council responded to a request for information from Senator Bill Cassidy, R-Louisiana, providing recommendations on how retirement benefits can be improved for independent contractors, including so-called gig workers.

The RFI issued June 5 asked for “feedback from stakeholders on ways to modernize federal law to allow independent workers access to portable workplace benefits like retirement and health care.” According to the RFI, there are “at least 27 million Americans engaged in independent work.”

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Specifically, stakeholders were asked for their views on how to define independent contractor, how legal uncertainty undermines workers, what legal obstacles exist to offering contractors benefits, and what benefits they most value, among other items.

The ABC responded with a five-point plan to improve benefit access for contractors that seeks to build on the existing benefits system: “We believe that what is needed is not an overhaul of the system but rather specific fine-tuning of the excellent framework that Congress has already established.”

The council’s response included suggestions such as making better use of pooled employer plans, which were introduced for defined contribution plans in the SECURE Act 2.0 of 2022, and promoting policies to make individual 401(k) savings more attractive to independent or gig workers.

PEP Push

The first point that the ABC raised was leveraging pooled employer plans, which could be used by companies who hire contractors to organize them into a single plan. By using a PEP, which is administered by a pooled plan provider as opposed to the firm itself, a company could make contributions to the PEP by way of payroll deductions while not carrying the burden of the being the plan sponsor.

In order to maintain legal certainty, Congress may have to clarify that such PEP arrangements would not compromise the contractor status of the workers involved.

The ABC also suggested that PEP rules be revised to be more palatable to employers with independent contractors. PEPs typically require an audit from an independent qualified public accountant once they reach 100 participants; the ABC recommends that a PEP whose participating employers have less than 100 employees be exempted from this. Since contractors are considered businesses with a single employee, a PEP could conceivably have any number of contractors in it and still not require a costly audit.

 

Improving the System

In terms of individual saving options, the ABC noted that independent contractors can already make a 401(k) for themselves via a SIMPLE individual retirement account or a simplified employee pension plan. But in reality, many contractors are not aware of this or do not have the wherewithal to make one, the organization noted. Congress would have to push for agencies to promote these programs, as well as PEPs, on their websites and in other venues to increase uptake.

The ABC also proposed a similar change for contractors participating in a defined contribution group. DCGs allow plans with certain identical features to file a consolidated Form 5500. The ABC recommended that independent workers be allowed to file a consolidated audit as well.

The ABC’s last point was that Congress should increase the threshold at which a business owner is not required to file a Form 5500. Under current rules, a business owner can file a Form 5500-EZ, an abbreviated Form 5500, if the plan only covers the owner and their spouse.

But if the balance of the plan is $250,000 or less, the business owner does not need to file the form. The ABC wrote that this limit was set in 2007, but with inflation, it should now be about $375,000, a threshold that would permit more contractors to avoid filing if they chose to sponsor their own personal plan. The ABC recommended that Congress change the threshold to align with the current market.

Cassidy’s office, which will be reviewing responses, has not yet disclosed other responses it received.

 

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