Rethinking Retirement Plans

For some time now, employers who see the importance of guaranteed lifetime income for retirees have come up against a hard truth: traditional defined benefit [DB] plans can provide that benefit, but they can be too expensive and inflexible. Meanwhile, income solutions for defined contribution [DC] plans have yet to be widely embraced. PLANADVISER spoke recently with Peter Welsh, vice president, distribution, OneAmerica Retirement Services, about their offering.

PLANADVISER: Why haven’t guaranteed income solutions for the DC market gained much traction?

PETER WELSH: Annuities inside plans create additional fiduciary risk and uncertainty for plan sponsors. They also limit the ability of sponsors to switch providers should service issues arise—and information sharing agreements between providers don’t exist. Finally, annuities inside of plans require an affirmative election by the participant. With all these challenges, it’s not surprising in-plan annuities have had little success.

PA: What do you see as the better alternative?

WELSH: OneAmerica offers OnePension, which is a flexible retirement plan design that allows the employer to contribute to the plan without the constraints of a traditional DB plan. Assets are fully invested during the life cycle of the plan but only annuitized at the time when plan participants need it most: when the employee is ready to retire, they’ll have a lifetime income annuity available to them.

PA: Can plan participants contribute to this type of plan, too?

WELSH: Absolutely! OnePension gives the adviser and plan sponsor the flexibility to allow for participants to contribute to the plan, just as they would for other types of DC plans.

PA: How is this approach different than a typical DC plan?

WELSH: Too often, participants reach retirement age with no idea how to create an income. With OnePension, the participants know they’ll have a steady paycheck after they stop working. And plan sponsors know that taking care of employees at retirement could help them retire on time, thus reducing health care, sick time and other costs associated with an aging workforce.

PA: How do OnePension costs compare to those of a DB plan?

WELSH: OnePension can be considerably less expensive. Unlike a traditional DB plan, it has no mandatory contributions, no Pension Benefit Guaranty Corporation (PBGC) premiums and no need for actuarial services.

PA: Can participants predict how much income it will generate?

WELSH: Contributions are fully invested during the life of the plan. Participants can log onto the OneAmerica website and use its retirement income tools to estimate monthly income at retirement.

PA: Do you see this type of plan being used primarily as a stand-alone offering, or as a supplement to a 401(k) plan?

WELSH: The flexibility of the OnePension plan design allows for the adviser and plan sponsor to use only employer money or incorporate employee contributions. However, the ability for employees to defer is an almost sacrosanct feature in today’s world, so we would expect the majority of plan sponsors to choose to add a 401(k) feature.

PA: What motivated you to tackle the guaranteed income question?

WELSH: As an insurance company, we have offered guaranteed income solutions for years, which puts us in a unique position to bring this to the retirement industry. We had an opportunity to develop an offering that is not only appropriate for the DC world, but is an option we think retirement plan sponsors will appreciate.

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OneAmerica® is the marketing name for the companies of OneAmerica.

Products issued and underwritten by American United Life Insurance Company^® (AUL), a OneAmerica company. Administrative and recordkeeping services provided by McCready and Keene, Inc. or OneAmerica Retirement Services LLC, companies of OneAmerica which are not broker/dealers or investment advisors. Lifetime income is not the only annuity payout option and the individual should consider with care their specific needs and financial situation prior to annuitizing.