BlackRock unveils a new in-plan retirement income option—and five large plan sponsors are already “in.”
According to a press release, those five large plan sponsors (which include the Tennessee Valley Authority Retirement System and represent more than $7.5 billion in target date investments) have opted to work with BlackRock to implement its LifePath Paycheck solution as the default investment option in their retirement plans (subject to plan-specific timing and other implementation considerations). BlackRock says that with initial plan adoptions expected in 2022, this will provide “the option and opportunity for over 120,000 U.S.-based 401(k) plan participants to obtain a guaranteed income stream in retirement.”
The LifePath Paycheck solution embeds annuity contracts issued by Equitable and Brighthouse Financial directly into a target date strategy. When a participant reaches age 59½, they get an option to purchase fixed individual retirement annuities from the insurers.
The Wall Street Journal reports that the product will also invest over time in a pool of annuity contracts. In addition, between the ages of 59 and 72, savers can also use 30% of their 401(k) balance to purchase their own fixed annuity. The Journal also notes that the new series of target-date funds, when offered through institutional accounts, will cost an employee roughly 0.1%, or $10 for every $10,000 managed. When the product starts to invest in group annuity contracts, the participant’s fees would rise but be capped at 0.16%. BlackRock said that plan participants won’t pay commissions, sales loads or distribution fees for the annuities, according to the Journal.
The LifePath Paycheck (LPP) solution is subject to insurance regulatory approvals, finalization of commercial agreements, and plan sponsor adoption and implementation. According to the press release, initially the LPP solution will only be available to Code Section 401(a)-qualified U.S. employer-sponsored DC plans—but thereafter may be available to other types of plans, such as Section 457(b) governmental plans, that have an investment management agreement with BlackRock or its affiliates.
