Strategies for Navigating Retirement Income for Participants

Panelists at the PLANADVISER 360 conference in Scottsdale, Arizona, discussed on Monday strategies for advisers and plan sponsors to consider guaranteed income solutions for participants, while balancing flexibility and cost transparency.

Sri Reddy, a senior vice president of retirement and income solutions at Principal Financial Group, emphasized that for lifetime income solutions, eliminating optionality—or the flexibility for participants to alter their plan—could reduce costs by mitigating risks associated with varying utilization rates.

“When you have optionality,” Reddy said, “utilization will tilt toward those who will use it most, making it challenging to manage costs effectively.”

He highlighted that a significant portion of fees—about 50% to 70%—covers future claims risk, while the rest address administrative, capital and investment expenses. Reddy underscored that financial advisers play a crucial role in guiding plan sponsor clients through these intricate decisions.

In-Plan and Out-of-Plan

Grant Ellis, a managing principal in Ellis Retirement Services and the session’s moderator, pointed out the value in clear frameworks for retirement income options that help simplify things for clients. He talked about the distinction between “in-plan” and “out-of-plan” solutions—options either embedded within a participant’s existing retirement plan or taken independently at retirement.

This in-plan approach, such as embedding income features within target-date funds, enables a gradual shift into managed accounts as participants approach retirement. Ellis said this framework allows advisers to provide customized recommendations aligned with clients’ financial situations and risk tolerance.

Matthew Wolniewicz, president of Income America LLC, added that the choice between in-plan and out-of-plan options hinges on individual circumstances, suggesting that transitioning into managed accounts later in life might work well for complex cases. He emphasized that advisers have the best understanding of their plan sponsor clients’ needs and can offer tailored advice that goes beyond simple fee and fund comparisons.

Tamiko Toland, a principal in Toland Consulting LLC, said different pricing models for income solutions can cause confusion. While some products, like fixed annuities, offer implicit pricing without an overt fee, others disclose fees directly. This discrepancy leads some plan sponsors to favor products with explicit fees, even if net returns are lower. Toland said that addressing such misunderstandings is essential for improving participant outcomes.

Costs and Fees

Expanding on the pricing conversation, Reddy underscored that “there’s no free lunch in financial services.” Transparency in fee structures, he suggested, should be prioritized, as hidden fees in stable value products can sometimes mask higher costs to participants.

Vikrant Arya, managing director of defined contribution consultant relations lead at Nuveen Retirement Investing, stressed the importance of looking beyond explicit fees when evaluating retirement income solutions, emphasizing that both implicit and explicit costs affect participant outcomes. He compared the decision to choosing a certificate of deposit, or CD: Participants often go with the best rate without scrutinizing the bank’s profit margins. Similarly, in retirement products, Arya advised plan sponsors to focus on the net crediting rate and overall returns.

Arya noted that while some products disclose fees directly, others bundle them into the structure, which can create confusion. However, he argued that the real value lies in net-of-fee returns, rather than fee amounts alone. “A higher-fee product might still yield better returns,” he said, underscoring that plan sponsors should prioritize products that enhance participants’ savings.