June 25, 2023

Just the Facts

Reported by PLANADVISER Staff

Art by Alex Eben Meyer

Consumers Keep Flocking to Annuities

After a record-breaking 2022, retail annuities surpassed all of their previous quarterly sales numbers since LIMRA began keeping track, in 2008, say preliminary results from the association’s U.S. Individual Annuity Sales Survey. Q1 2023 sales of the insurance investment products were $93 billion, up 47% from the year before.

State Programs Boost Employer Plans

Private employers continue to launch their own retirement plans in states that have added an automated savings program. The share of new private plans remains higher in those states than before the introductions of the state-facilitated programs.

Note: California’s pilot program began in 2018; it opened to all sizes of employers in 2019.

Share of New Employer Retirement Plans

Source: Pew Research Center

Investment Menu Design In Unprecedented Times

Historic rises in inflation plus accompanying interest rate hikes have been clamoring for attention from the characteristically staid world of investment plan design. Three advisers weigh in:

Sean Bjork, president of Bjork Asset Management Inc., says, “Within the context of the investment lineup, real assets have become a little more front-of-mind after being something of a back-burner item for a long time.”

Rising inflation has prompted Bjork to work with plan sponsors to add investments that hedge against rising costs by giving the client exposure to currencies, real estate and commodities.

“The real asset funds, while considered ‘other,’ are overall pretty conservative and are not taking up a lot of menu space,” he says. “Overall, we’re … very vanilla. If the DOL [Department of Labor] says a plan should exercise extreme caution, we do not see that as an invitation to begin exploring.”

Steven McKay, head of global DCIO [defined contribution investment only] and institutional management, Putnam Investments, notes that when interest rates were low, investment menus may have included riskier fixed-income options to capture growth. “Going back three to five years, [investment menus] had fixed-income strategies that were taking on a little more risk to capture yield,” McKay says. “Now, you can get that in high-grade corporate credit, so there’s a lot of de-risking going on in fixed income.

“You need to take a long-term, historical perspective and not try and chase short-term rates.” Stable value in DC plans protects against downturns in the market and preserves capital for participants, he suggests.

Jim Sampson, retirement plan adviser, Hilb Group Retirement Services, says, “I remember, for years and years, clients saying to us, ‘Why do we have this TIPS [Treasury inflation-protected securities] fund in here? It’s always negative, and no one’s got any money in it. I would say to them, ‘If we ever have any inflation, that’s going to be what protects you.’ Now, all of a sudden, people are saying, ‘Oh, that’s what that thing is in there for!’

“As to how we construct investment lineups, we’re pretty boring, and I’m OK with it,” he says. “The more stuff that’s crazy or new or different that we throw at people, the more we confuse them, so I’m less focused on offering people some new thing than on trying to get them to save more.”

Our ‘Adviser Value’ Findings

71% of plan sponsors that use a 3(21) adviser say their financial wellness program is very useful vs. 54% of sponsors that do not use an adviser.

8% of plans that use a 3(21) adviser and 0% that use a 3(38) adviser do not offer advice to participants, compared with 30% of plans without an adviser.

85% of plans that use a 3(21) adviser and 78% that use a 3(38) adviser provide financial education on saving strategies and prioritization, while 67% of plans without an adviser do so.

Source: 2023 PLANADVISER Adviser Value Survey

Money Worries By Income Level

Having a large income does not shield people from financial stress. For instance, 39% of those making over $200k a year say they worry about money.

<$55K

58%

$55K – $99K

51%

$100K – $199K

39%

>$200K

39%

Source: Salary Finance, “Inside the Wallets of Working Americans”

Participant Conundrum

Despite workers’ increasing requests for income solutions, only 7 out of 10 defined contribution plan sponsors have taken steps toward retirement income, with the majority still in the education stage.
Only 15% of sponsors are now evaluating income solutions.

Source: PGIM, study of 155 plan sponsors

States Closest and Furthest Away From Recommended Retirement Savings

Kansas is currently the state closest to meeting its retirement target of $543,409; the average resident holds $452,703 in savings, leaving a 17% shortfall.

Hawaii is the state furthest away from its recommended retirement savings amount of $1.8 million; residents have a shortfall of 80%. Meanwhile, Mississippi residents can expect to retire after saving a comparatively modest $505,346.

	State	Recommended Savings	Actual Savings	Savings Shortfall
1	Kansas	$543,409	$452,703	17%
2	Iowa	$583,851	$465,127	20%
3	Georgia	$570,767	$435,254	24%
4	Michigan	$600,504	$439,568	27%
5	New Mexico	$596,935	$428,041	28%
6	South Carolina	$627,861	$449,486	28%
7	Alabama	$560,062	$395,563	29%
8	Ohio	$600,504	$427,462	29%
9	Texas	$610,019	$414,328	29%
10	Kentucky	$621,914	$441,757	29%

41	North Dakota	$682,577	$319,609	53%
42	Utah	$692,093	$315,160	54%
43	Maine	$882,409	$403,751	54%
44	Rhode Island	$908,578	$392,622	57%
45	Oregon	$1,062,020	$452,558	57%
46	Massachusetts	$1,120,304	$478,947	57%
47	Washington, D.C.	$841,967	$347,582	59%
48	California	$1,205,946	$452,135	63%
49	New York	$1,277,315	$382,027	70%
50	Hawaii	$1,813,768	$366,776	80%

Source: DollarGeek, analysis from the Federal Reserve System’s Survey of Consumer Finances, Bureau of Labor Statistics, and Organization for Economic Cooperation and Development compared with national recommended savings benchmarks