For decades, the pension industry within the plan has said, “the time is now – things have changed.” However, there has been precious little buy-in from defined contribution plan sponsors, participants, record keepers and advisors. At the last meeting of 4th Annual RPA Retirement Income Roundtable and Think TankCIOs and product managers from aggregators, registrars and broker-dealers, along with product manufacturers and connectivity companies, gathered to ponder the question of how and when this industry will “be born” as eloquently described by Micruity Head of Partnerships and Consulting Strategy, Elizabeth. Heffernan.
There was a lot of hope, progress and signs that we might see “interest turn into action,” noted Jennifer DeLong, AllianceBernstein's SVP/managing director and head of DC Americas.
Big problems remain, driven by risk and liability that make plan sponsors reluctant. Lew Minsky, CEO and president at DCIIA, said that while many plan sponsors are eager to offer retirement income, they are generally shut down by the C-Suite who see little upside and too much risk. UCLA professor Shlomo Benartzi asked if PEPs can help as the most knowledgeable pooled plan provider might be willing, but Minsky was skeptical that pooling plans are not held harmless. He said that perhaps the OCIOs or 3(38) could make the plans more willing sponsors.
When asked to list their biggest opportunities and challenges at the end of the first day, six noted that the government seemed to favor retirement income. And while SECURE 1.0 helped, Minsky said SECURE 2.0 may be hindering because recordkeepers are confused about compliance.
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 that there were encouraging signs with major firms such as Fidelity, Empower, Blackrock and SSGA. 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 focus to planning sponsors with multiple sessions at the upcoming SHRM national conference.
Lincoln Senior Consultant Katherine Moore offered a ray of hope by noting that her firm's retirement income sales grew 900% in 2023 with 2,000 plans approved, but upon further investigation, many were applied automatically. That led Shawn Daly, MassMutual's head of DC experience and product management, to note that perhaps retirement income should be withdrawn, not opted out.
A major hurdle is the compensation of record keepers and advisors. Out-of-plan annuity sales are booming, according to Daly, but institutional products are better and cheaper, blaming limited in-plan sales on a lack of proper incentives for advisers.
“Can retirement income become an advisory differentiator beyond the triple Fs,” asked John Faustino, head of retirement products at fi360/Broadridge as Daly asked if retirement income could be seen as something that firms do excellent because it is the best for their customers.
The bottom line: people want the benefits of pension plans, but DC plan sponsors don't want the liability. So how do you reimagine guaranteed income within defined benefit plans in a DC world?
The glory days of DB plans were not so great as only 18% of employees took the benefit up to their height even though 48% of employers offered it according to EBRI. In any case, DB plans wouldn't work with a mobile workforce – they weren't mobile, so why should they be on DC plans, something Director Jeff Cimini asked at the RPA Recordkeeper Roundtable.
Micruity's Heffernan asked if we should start with something simple, like a payment option or something off-the-shelf and that we can't expect record holders to shoulder the burden of technology. Deb Boyden's lead, Shroeder's head of DC, to ask if we should start with a non-guaranteed option that wouldn't have transferability issues.
Language and complexity plagues the entire DC industry, but especially retirement income as plan sponsors and participants are just beginning to understand target date funds and get comfortable with CITs. “Our messaging is very confusing,” noted annuity expert Tamiko Toland of 401(k) Annuity Hub. “For a lot of people, that's a bridge too far.” Of course, it didn't help that the White House denounced fixed annuities in the DOL's fiduciary rule, Benartzi noted.
The group noted that participant need was 12 times the greatest opportunity in the final summary of the first day with 11,000 people turning 65 every day, but we need to translate the need into understandable language, a project on which Toland is working with the DCIIA. Hub International SVP Justin Fisk said we need to evolve from product to process. Perhaps the war for talent will drive plans to offer guaranteed options, especially since they are non-transferable, to retain valuable workers, much like the “good old days” of DB plans.
Heffernan noted that union workers seem to know exactly what they need to retire—how do we translate that to 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 the first, while others commented that they don't want to push something that participants don't 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 DC broker Caroline Naylon noted that there is friction between advisers and CIOs while flexPath's Elvander said there is certainly no shortage of product and advisers need a “soft button” like retirement income embedded within TDFs.
Participants are also a challenge, especially commitment, leading Morningstar Head of Financial Planning and Advisory Raj Motay and iJoin SVP Chip Moore to suggest that managed accounts can be a great solution—both require commitment, so perhaps it is more efficient for advisers. “Data tools that allow an advisor to see a client's entire financial picture are needed,” said Envestnet Director of Workplace Solutions 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 may be because 403(b) plans are more paternalistic and because they control sales, advice, recordkeeping and product perhaps making them reluctant to cooperate – they choose not to participate in the roundtable so we didn't get their perspective.
Meanwhile, Broadridge's Retirement Income Consortium, which originally 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 it succeeds.
Academic research proving retirement income will help as it did for auto features, which led to the Pension Protection Act of 2006. Benartzi shared a study that showed people are happier, live longer and are healthier if they have DB-like defenses. He asked, “What is the value of sleeping better?” Newly appointed head of DC at Allianz Life Ben Thomason to assert that we should judge pension income on qualitative not qualitative measures.
AllianceBernstein's DeLong asked whether retirement income should be viewed as a different asset class than fixed income used for asset allocation.
Great discussion and ideas – the question is not if, but when and how retirement income will be made available to more DC participants, which will require large doses of patience, passion and courage, not for the willing to fly alone. trying to win a game that hasn't even started yet.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.