JP Morgan Launches TDF With Guaranteed Income Annuity

J.P. Morgan Asset Management announced on Thursday a retirement income investment leveraging a target-date fund with a guaranteed annuity payout in retirement.

The firm’s SmartRetirement Lifetime Income TDF is designed to provide a stream of income payments in retirement through annuities from participating insurance companies, according to the announcement.

Equitable and Prudential are expected insurers for the product, which will be supported by multiple insurers and use “familiar target-date funds and then transition to a personalized retirement income strategy,” according to the announcement. The firm is in “active dialogues” with potential plan sponsors but has none signed up currently for the product, according to a spokesperson.

J.P. Morgan’s entrance into the in-plan annuity market via a TDF marks another major financial firm targeting the market for a pension-like setup for defined contribution retirement plans. Other firms with annuity-backed products in the market range from asset manager AllianceBernstein LP to BlackRock Inc. and State Street Global Advisors and TIAA’s Nuveen Investments.

J.P. Morgan has built its SmartRetirement Lifetime Income to “minimize recordkeeper requirements,” according to the spokesperson.

“Retirement savers want a solution that turns complexity into clarity, allowing them to have the certainty of a source of income they cannot outlive, without giving up control of their savings,” said Steve Rubino, head of retirement for J.P. Morgan Asset Management, in a statement.

According to J.P. Morgan’s announcement, the lifetime income feature would allow electing participants to draw down a stable value balance over an expected time horizon that correlates with their average life expectancy, with annuity income coming directly from the supporting insurers.

Equitable’s likely partnership on the product with J.P. Morgan adds to annuity-backing the firm has with BlackRock and AllianceBernstein’s in-plan annuity offerings. The firm’s goal is to be a major player and “thought leader” in the in-plan guaranteed space as it has the “knowledge and wherewithal to work with asset managers,” says Keith Naimot, head of institutional markets for Equitable.

The other reason, he says, is to expand guaranteed income options to savers within the DC space.

“This leverages our skillset in a way that delivers for the American people the opportunity to take advantage of guaranteed income that has really only been possible in the IRA market or nonqualified market until fairly recently,” he says. “It gives us the ability to reach more folks early on than we would have if we were solely looking at it from the retail space.”

With the new offering, participants will get the protection of stable value that bond investments may typically give in the TDF glidepath, but with any offsets in gains being made up for with the pension-like guarantee of retirement income, notes Namiot of Equitable.

“In the old days many people had defined benefit plans and that provided them with a stable income in addition to Social Security,” he says. “That guaranteed component of retirement has been in decline and we are collectively—as insurers and asset managers—trying to bring that back.”

Rob Massa, a plan adviser and the managing director and Houston market retirement practice leader for Prime Capital Retirement, says benchmarking the various products currently in market is one of the challenges in assessing the option, as “there isn’t a lot of data to work with.”

When talking with plan sponsors about these options, Massa says he focuses on education components such as what retirement income is as compared with lifetime income, the pros and cons of offering income options and fiduciary considerations, among others.

“It’s a daunting agenda, really,” says Massa. “Yet, this is what you need to cover just to educate your plan fiduciaries enough to be able to have an informed conversation about in-plan income solutions.”

In terms of reviewing the product offerings, Massa says he uses some of Morningstar’s requirements, as well as in-plan income certification program guidelines laid out by the National Association of Plan Advisors. He then integrates those into a “more standard fiduciary processes we might use when conducting” a TDF request for proposal.

Assessment of offering such a product for a plan sponsor should consider factors including the participant pool demographics, risks or problems the solution is trying to solve for, and a cost-benefit analysis to compare the solutions versus other, more traditional options, Massa says.

The product was designed by the J.P. Morgan team that oversees the firm’s SmartRetirement Target Date Funds, including Daniel Oldroyd and Daniel Yem, both portfolio managers in the target-date and retirement income fields, according to the announcement.