The Principal Launches Guaranteed Income Option for Plan Participants

For retirement plan participants who want to lock down a guaranteed amount of income before they retire, Principal Financial Group has introduced Principal Pension Builder, an option that allows them to purchase a deferred income annuity while still in the plan.  

Offered as an option in a defined contribution (DC) plan, Principal Pension Builder lets participants grow a steady stream of guaranteed income for life by directing a portion of their retirement plan contributions into a deferred income annuity. They can transfer part of their retirement plan account balance to purchase guaranteed income, or direct a portion of their plan contributions toward such a purchase.

According to Jerry Patterson, senior vice president of retirement and investor services at The Principal, the product allows pre-retirees to buy future guaranteed income in advance. “Participants are able to decide when, how often and how much they wish to transfer via lump-sum transfers or future contributions,” Patterson tells PLANADVISER. Up to half of a participant’s total account balance (minus outstanding loans) may be transferred, and up to half of contributions may be directed. The minimum transfer amount is $10 per investment transfer.

Participants have 90 days to change their minds, Patterson says, and may transfer funds out of the Pension Builder for the full original purchase amount. A surrender charge may apply to annuities that are surrendered more than 90 days from the date of purchase.

The balance can be viewed at any time on the participant website, Patterson says, and so can the projected amount of monthly guaranteed income. The information will also be on retirement plan statements.

Patterson says The Principal will provide guidance to teach participants about guaranteed income, including the impact it can have on their retirement. “Each participant’s financial situation is different,” he says.

Because Principal Pension Builder is offered within the existing retirement plan, participants don’t have to move funds out of the plan to start building guaranteed income. They also benefit from the increased buying power of group pricing, and the funds are protected from market fluctuations. In addition, purchasing guaranteed income over time helps smooth out the effect of changing interest rates on the amount of income purchased.

Adding Principal Pension Builder to a retirement plan helps plan sponsors manage their fiduciary responsibility to offer a range of investment choices, The Principal says. Participants get an opportunity to diversify their in-plan retirement savings and to play an active role in planning for retirement income, allowing them to build a guaranteed income stream, much like Social Security or a pension plan.

“Guaranteed income is a key factor in creating a reliable base for retirement,” Patterson says. Principal Pension Builder can be thought of as a way for people to supplement Social Security by adding an additional portion of guaranteed income.

“Nobody wants to outlive their money, and everybody wants to know they can meet their core financial needs once they stop getting a paycheck,” Patterson says. “This product allows pre-retirees to set the stage for the moment of retirement by purchasing future guaranteed income ahead of time.” 

Plan sponsors can add Principal Pension Builder to their retirement plans later this year, and plan participants can begin contributing to it in March 2016.