Products October 21, 2015

The Principal Launches Guaranteed Income Option for Plan Participants

Principal Pension Builder offers participants an income stream for life.
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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.

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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.

NEXT: Plan balances as well as projected monthly income can be viewed online or in statements.

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.

Compliance October 20, 2015

DOL Explains Current Focus

Phyllis Borzi revealed some of the thoughts behind certain DOL initiatives, and asked for help from the industry.
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According to Phyllis C. Borzi, assistant secretary of labor for the Department of Labor’s (DOL) Employee Benefit Security Administration (EBSA) in Washington, D.C., the agency is focusing on two things: expanding retirement plan coverage and improving adequacy.

“There are about 68 million Americans with no access to a retirement plan at work,” she told attendees of the American Retirement Association’s 2015 ASPPA Annual Conference. “The industry has been trying over the past 40-plus years to expand access to these workers.” Borzi noted that 40 years ago, about 50% of Americans had access to a retirement plan at work, and while the industry has made great strides in improving the participation of workers with access, the percentage with access has not improved.

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In recent years, states have started efforts to address the access problem, and earlier this year, President Obama tasked the DOL with providing guidance for them to do so. Borzi said, as the agency worked on the guidance, it considered the Employee Retirement Income Security Act (ERISA).

“The way I see it, there are two approaches—avoid ERISA or embrace ERISA,” she said. According to Borzi, while the early adopter states were trying to craft legislation similar to the federal automatic IRA proposals to get into the payroll deduction safe harbor and avoid being subject to ERISA, other states are realizing that if they avoid ERISA, they will still eventually have to address consumer protections built into ERISA.

So, the EBSA is working on two initiatives to address both approaches. One will create a new payroll deduction safe harbor to address some issues brought up by early adopter states, Borzi said. The second will create mechanisms by which states may offer a prototype plan or multiple employer plan (MEP). “In essence, states will be service providers,” she stated.   

Borzi said the DOL also supports the Treasury’s myRA initiative to expand retirement plan coverage.

NEXT: Retirement plan adequacy

One way the DOL is working on improving retirement plan adequacy is through its initiative for including lifetime income projections on participant statements. Borzi told conference attendees the agency needs help.

“The comments we received [from our request for information] were not extremely helpful,” she said, explaining that some said statements should include a snapshot of “this is what your balance translates to in monthly income,” while others said statements should include a projection “based on continued savings and return on investment.” According to Borzi, the EBSA wants to know what behavioral change will occur among participants using one or the other or both approaches.

“We want anyone with data about this to share their data with us,” she urged conference attendees.

Of course, Borzi also commented about the DOL’s conflict of interest (or fiduciary definition) proposed rule. She said with all comments and discussions, the agency learned things. It was looking for constructive suggestions about how to simplify and streamline the rule, and it found some. “I think what you’ll say when the rule is released is ‘They listened; they learned; they made changes,” Borzi commented.

Finally, asked about the change to the Form 5500 deadline, Borzi said the DOL wants to convince Congress to move it back. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236), signed by President Obama on July 31, provides that the maximum extension for the returns of employee benefit plans filing Form 5500 shall be an automatic 3 1⁄2-month period ending on November 15 for calendar year plans. Currently the extension deadline is October 15.

In a previous discussion, Brian H. Graff, Esq., executive director and CEO of the American Retirement Association, explained that the bill extended the deadline for filing with the Internal Revenue Service (IRS), but not the DOL. “We felt blindsided by this, and we think it was a move in the wrong direction, especially since the Government Accountability Office and Office of Inspector General have asked us to get the information sooner,” Borzi said.

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