For decades, the in-plan retirement industry has been saying, “the time is now—things have changed.” Yet there has been precious little adoption by defined contribution plan sponsors, participants, record keepers and advisors. At the recent gathering of the 4th annual RPA Retirement Income Roundtable & Think Tank, CIOs and product managers from aggregators, record keepers and broker dealers, along with product manufacturers and connectivity companies, gathered to ponder the question of how and when this industry “will give birth” as described eloquently by Micruity’s Head of Partnerships & Consulting Strategy Elizabeth Heffernan.
There was much hope, progress and signs that we may see “interest turn into action,” noted Jennifer DeLong, AllianceBernstein’s SVP/managing director and head of DC in the Americas.
Big issues remain, led by risk and liability that make plan sponsors reluctant. Lew Minsky, CEO and president at DCIIA, said while many plan sponsors are eager to offer retirement income, they generally get shut down by the C-Suite who see little upside and lots of risk. UCLA professor Shlomo Benartzi asked whether PEPs could help as the more knowledgeable pooled plan provider might be willing, but Minsky was skeptical unless plans that join are held harmless. He said that maybe OCIOs or 3(38)s could make plans sponsors more willing.
When asked to write down their biggest opportunities and challenges at the end of day one, six noted the government seemed to favor retirement income. And while SECURE 1.0 helped, Minsky said SECURE 2.0 might be hindering because record keepers are distracted to comply.
All agreed that industry collaboration is required, echoed by Matthew Wolniewicz, president of IncomeAmerica, flexPath CIO Jeff Elvander and Kelly Rome, Empower’s head of product management and development. Wolniewicz noted there were encouraging signs with big firms like Fidelity, Empower, Blackrock and SSGA leaning in. He also commented that 4 years ago, he was getting a “hard no” from advisors and providers but now there is interest as he has shifted his focus to plan sponsors with multiple sessions at the upcoming SHRM national conference.
Lincoln Senior Consultant Katherine Moore provided a ray of hope noting that sales of retirement income at her firm increased 900% in 2023 with 2,000 plans adopting but upon further inquiry, many were implemented automatically. That lead Shawn Daly, head of MassMutual’s DC experience and product management to note that perhaps retirement income should be opt out, not opt in.
A big hurdle is record keepers and advisors compensation. Sales of out of plan annuities are booming, according to Daly, yet the institutional products are better and cheaper, blaming limited in-plans sales on the lack of proper incentives to advisors.
“Can retirement income become an advisor differentiator beyond the triple Fs,” asked John Faustino, head of retirement products at fi360/Broadridge while Daly wondered whether retirement income could be viewed as something great firms do because it’s what’s best for their clients.
Bottom line: people want the benefits of pension plans but DC plan sponsors do not want the liability. So how to reimagine guaranteed income within defined benefit plans in a DC world?
The glory days of DB plans were not all that great as just 18% of employees received the benefit at their height even though 48% of employers offered it according to EBRI. In any case, DB plans would not work with a mobile workforce—they were not portable, so why should they be in DC plans, something Principal’s Jeff Cimini asked at the RPA Record Keeper Roundtable.
Micruity’s Heffernan asked whether we should start with something simple, like a payout option or something out of plan and that we cannot expect record keepers to shoulder the tech burden. Leading Deb Boyden, Shroeder’s head of DC, to ask whether we should start with a non-guaranteed option that would not have transferability issues.
Language and complexity plague the entire DC industry, but especially retirement income as plan sponsors and participants are just beginning to understand target date funds and become comfortable with CITs. “Our messaging is too confusing,” noted annuity geek Tamiko Toland of 401(k) Annuity Hub. “For many, it is a bridge too far.” Certainly, it did not help that the White House denounced fixed annuities in the DOL fiduciary rule, noted Benartzi.
The group noted that participant need was the biggest opportunity 12 times in their end of day one recap with 11,000 people turning 65 every day, but we must translate need into understandable language, a project Toland is working on with DCIIA. Hub International SVP Justin Fisk said we must evolve from product to process. Perhaps the war for talent will induce plans to offer guaranteed options, especially since they are not transferable, to retain valuable workers, just like the “good old days” of DB plans.
Heffernan noted that union employees seem to know exactly what they need to retire—how can we translate that for DC participants?
Advisors are also a big issue—Jim Mascia, John Hancock Retirement’s AVP of digital advice, commented that advisors need to be trained to sell this product or process. Fisk noted that most advisors are waiting, not wanting to be first while others commented that they do not want to push something that participants do not end up using. Nick Cummings, director of sales strategy and execution at OneAmerica, stated that participant adoption of retirement income solutions is very slow. State Street’s VP DC Intermediaries Caroline Naylon noted that there is dissidence between advisors and CIOs while flexPath’s Elvander said there certainly is no lack of product and that advisors need an “easy button” like retirement income embedded within TDFs.
Participants are also a challenge, especially engagement, leading Morningstar Head of Advice and Financial Planning Raj Motay and iJoin SVP Chip Moore to suggest that managed accounts might be a great solution—both require engagement so perhaps it is more efficient for advisors. “Data tools allowing an advisor to see a client’s entire financial picture are needed,” said Envestnet’s Workplace Solutions Director Ravi Sodhani, whose firm also offers an annuity marketplace for fee-based advisors.
Collaboration is required within the complex DC ecosystem but especially for retirement income. DCIIA’s Minsky noted that TIAA was doing well, but it might be as 403(b) plans are more paternalistic and because they control the sale, advice, record keeping and product perhaps making them reluctant to collaborate—they choose not to participate in the Roundtable so we did not get their perspective.
Meanwhile Broadridge’s Retirement Income Consortium, which initially included nine product providers and more recently connectivity firms like iJoin and Micruity, is trying to foster more collaboration—Faustino said the Consortium will end when successful.
Academic research validating retirement income will help just as it did for auto features, which led to the 2006 Pension Protection Act. Benartzi shared research that showed people are happier, live longer and are healthier if they have DB-like protection. He asked, “What is the value of sleeping better?” Leading newly appointed Head of DC at Allianz Life Ben Thomason to aver that we need to judge retirement income on qualitative not qualitive measures.
AllianceBernstein’s DeLong asked whether retirement income should be viewed as another asset class like fixed income used for asset allocation.
Great discussion and ideas—the question is not whether but when and how retirement income will be made available to more DC participants, which will take large doses of patience, passion and fortitude, not for the faint of heart or those that want to fly solo trying to win a game that has not yet started.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.