Technology Integration ‘Linchpin’ for In-Plan Retirement Income

Getting in-plan retirement income options to take hold will in large part rely on the technology making it possible, according to a recent recordkeeping survey by the Defined Contribution Institutional Investment Association’s Retirement Research Center.

RRC found that recordkeepers are working on implementations of the SECURE 2.0 Act of 2022 to make annuity-driven retirement income options available on their platforms. However, the work will require them to “develop and code high amounts of new software to provide” different solutions, according to the researchers.

How that technology implementation goes, including middleware providers, will play a “force multiplier” role in making annuity-backed options available and portable, the research group wrote, which included representatives of middleware providers, such as Micruity and SS&C Technologies, along with recordkeepers, asset managers and consultancies.

“Middleware providers allow for connectivity between product provider and multiple recordkeepers, but different recordkeepers could use different middleware providers for that connectivity,” RRC wrote by emailed response. “Middleware, technology companies will work together to connect the products and recordkeepers so that products can be portable even if one RK’s primary connectivity is with a different technology/middleware provider.”

According to the survey, most recordkeepers are now offering proprietary retirement income products, with 53% leveraging external providers, 47% using strategic partners and 39% using both.

Plan Sponsor Demand

Technology integration will be a “linchpin” in enabling the solutions to work at scale, but the top driver for recordkeepers is ultimately plan sponsor demand, according to the findings.

Plan sponsor demand was the primary driver for recordkeepers to adopt solutions at 86%, as followed by technology requirement at 57% as matched by 57% waiting to see how offerings evolve.

Researchers also noted, however, that plan sponsors are considering retirement income against the loss of plan assets via rollover and withdrawals.

The highest driver of recordkeeper prioritizing implementation of retirement income is also plan sponsor demand at 82% as matched by internal strategy decisions, according to the report. That was followed by:

• 71% technical support
• 71% regulatory landscape
• 65% participant demand
• 59% consultant demand
• 18% solution manufacturers

Currently, 61% of recordkeepers surveyed offer at least one annuity (33% offer only one and 28% offer two or more) and 39% do not offer any annuities. Among those offering annuities, 39% offer an annuity with a guaranteed lifetime withdrawal benefit, or GLBW, 33% offer an income annuity—single premium immediate annuity, deferred income annuity, or qualified longevity annuity contract—and 22% offer a fixed annuity.

In terms of nonguaranteed solutions, 94% offer a fixed dollar withdrawal, 76% offer a fixed percentage, 65% offer life expectancy distributions and 18% offer interest or dividend-only distributions.

Make it Simple

Finally, the participant experience will be a focus area for recordkeepers. Eighty-two percent of them prioritize that experience when making a decision on whether to include or exclude income solutions, according to RRC.

“Across the board, practitioners aim for a streamlined, well communicated, and simplified experience for participants,” the researchers wrote. “A well-rounded retirement income program provides resources and regular touchpoints to guide the final income activation decision.”

Current participant fees and exemption of those fees for retirement income products were also topics of interest for the recordkeeper. At the moment, roughly half or more recordkeepers charge for withdrawals from nonguaranteed investments from their retirement accounts, depending on the type.

But 61% of recordkeepers would consider exempting fees if the distribution was being made through a packaged retirement income solution.

In this case, recordkeepers “would be more open to waiving distribution fees if the plan/participant is already paying for the packaged solution by the [recordkeeper]/provider,” the research team wrote by email. “Since the [recordkeeper] would already be making money on the solution, they could forgive the distribution fee.”

RRC’s “Retirement Income Solutions: Recordkeeper Study” surveyed 18 recordkeepers with plan assets ranging from $1.2 billion to more than $300 billion and plan pools ranging from 225 to 400,000-plus plans.