Client Service November 5, 2020

Experts Discuss Participant Interest in In-Plan Annuities

The SPARK Institute led a panel with industry authorities who explained how they are drawing participants to in-plan annuity options.

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Industry experts reviewed what companies are doing to engage participants with in-plan annuity options during a webinar hosted by the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute.

The panel explored how professionals are addressing lifetime income product adoption, integration, scalability and customer experience with participants who may be reluctant about in-plan annuity options. Doug McIntosh, vice president of investments at Prudential Retirement, said the SECURE [Setting Every Community Up for Retirement Enhancement] Act’s provision to remove the 59.5 age barrier for service withdrawals is a relief to sponsors and participants alike.

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McIntosh said Prudential noted that most participants valued control over their assets, especially during the COVID-19 pandemic when access to emergency savings is critical. “We came to market with a vehicle that offers a living benefit; participants still have control of underlying assets but derive lifetime income for participants and spouses,” he said. 

Sherrie Grabot, founder and chief executive officer at GuidedChoice, said participants are more likely to show interest in in-plan options if they see potential income projections. When such projections are offered, Grabot said she has noticed a change in behavior among participants, including when GuidedChoice rolled out a product in 2011 that allowed participants to see their projected retirement income numbers. “You have to show the income coming out of the defined contribution [DC] plans,” she encouraged. “It increases savings rates when they see that income level.”

On the subject of retirement income, Mike Westhoven, product leader at Micruity, explained the cost of retirement and misperceptions when it comes to annuity fees. An affordable retirement has become synonymous with annuity fees, he said, and annuity pricing has long been regarded as pricey. However, Westhoven said, if a participant refuses an annuity, the future retiree will end up needing to save an estimated $20,000 to $30,000 more to afford the same retirement as one with an annuity. He encourages employers and advisers to ensure their participants and clients understand the misperception. Those who refuse an in-plan annuity option could potentially benefit from one.

The Markets November 5, 2020

Another Uneventful Fed Meeting Unfolds

As a highly contentious presidential election plays out in the U.S., the Federal Reserve is working to project a message of stability and consistency to support the markets.

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The Federal Open Market Committee (FOMC) announced Thursday that it would continue to hold interest rates at current levels, despite signs that the U.S. economy has made some much needed gains in the preceding months.

Of course, as noted by Federal Reserve Chair Jerome Powell, the COVID-19 pandemic is still causing tremendous human and economic hardship across the United States and around the world. During the past month in particular, economic activity and employment have continued to recover, Powell says, but they remain well below the levels seen at the beginning of the year.

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Helping to determine the Federal Reserve’s position is the fact that weaker overall demand and earlier declines in oil prices have been holding down consumer price inflation. As such, overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

As its mission is currently defined, the FOMC seeks to achieve maximum employment and inflation at the rate of 2% “over the longer run.” With inflation running persistently below this longer-run goal, the FOMC will aim to achieve inflation moderately above 2% for some time, so that inflation averages 2% over time and longer-term inflation expectations remain anchored at 2%. Moving forward, the FOMC says it expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. Though a different outcome is certainly possible, market experts anticipate accommodative policies to continue for at least the next three to five years, and potentially much longer.  

The FOMC also announced on Thursday that, over coming months, the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities “at least at the current pace, to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”

Another notable fact about the Thursday meeting is that the FOMC policy vote was unanimous, in a change from recent meetings.

In written comments reflecting on the FOMC update, John Vail, chief global strategist at Nikko Asset Management, says U.S. third quarter earnings have been “extremely good,” as costs continued to be pared and pricing power seems very strong in many industries.

“Advertising costs and product discounting seemed particularly reduced in many industries,” Vail says. “Tech hardware and software demand surged particularly impressively. Auto companies reported much better profits than expected, due to demand for high-priced models and curtailed costs. So far in the fourth quarter, there seems little reason to expect earnings to disappoint, and, in the end, corporate profits and their future outlook are the main determinants of equity performance.”

Vail says he feels one area of concern is the lack of market attention to the fact that many recent mega-mergers, particularly in the tech sector, could be blocked on anti-competitive grounds.

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