An intriguing “consortium” of retirement plan providers have teamed up on a new QDIA offering that incorporates a retirement income solution.
The product—tagged Income AmericaTM 5ForLife—is a collaborative undertaking by American Century Investments, Lincoln Financial Group, Nationwide, Prime Capital Investment Advisors, SS&C Technologies, Wilmington Trust, N.A. and Wilshire. It’s a new in-plan target date series with guaranteed income for life designed to help retirement plan participants transition from the accumulation phase of retirement investing to the decumulation stage.
What it Is
According to a press release, Income America is a series of portfolios built on a target date glide path designed by American Century, held in a portable, non-proprietary, multi-manager Collective Investment Trust (CIT). It is available as both a traditional series of target date portfolios (Income America), and as a companion series of target date portfolios with an in-plan Guaranteed Lifetime Withdrawal Benefit (GLWB) (Income America 5ForLife)—either of which can be used as a plan’s QDIA, or apparently melded with an existing set, if desired.
Income America 5ForLife is designed to be “SECURE Act-compliant and to meet ERISA 404 and 3(38) fiduciary requirements, relieving plan sponsors of liability for the screening of GLWB providers, fund managers, stable value managers and glide path managers,” according to the firms.
How it Works—at Retirement
When a plan participant moves accumulated retirement assets to Income America 5ForLife, the initial value of the account plus ongoing contributions (less withdrawals) is used to establish an "income base" on which an annual five percent guaranteed lifetime payment will be based (once the income feature is activated when the participant reaches age 65 or older).
If the market value of the participant’s account has appreciated and is more than the sum of net contributions at age 65, the income base will “step up” to the higher market value amount (a one-time event) when the participant turns age 65. Alternatively, if the market value of the account at age 65 is lower than the amount of net contributions to date, the income base that determines the payout amount will remain set at the net contribution level (a joint option is also available but will lower the payout percentage, according to the press release). Essentially, at age 65 things are locked in, and when you retire, you get 5% for the rest of their life—even if the market dips (that’s the insurance component).
An example on the website lays out a situation in which a participant contributes $145,000 over their career, and has an account balance accumulated of $440,000 at age 65—that amount ($440,000) “locks in” and becomes their income base, and they would get 5% of that amount ($22,000) every year for the rest of their life.
Now, say that same participant contributed $145,000, but at age 65 their account was only worth $125,00? Their income base would be $145,000—the amount they contributed, even if their account value is less at age 65.
How Much?
The “all in” fee for the non-insured version is on average 32 bps; for the 5forLife, the average is 130 bps.
Déjà vu?
If this sounds familiar, it is reminiscent of previous offerings in the retirement space that looked to integrate a complicated product (lifetime income with guarantees) with a simpler platform (managed accounts or target-date funds). However, those offerings seemed to fall short of expectations in terms of take-up/adoption.
What’s Different?
The partnership itself[i] is an obvious difference, and one that promises to resolve portability concerns (the press release notes that “Income America 5ForLife is portable among major recordkeepers where Income America 5ForLife is available”) and provide distribution beyond a single provider’s network.
According to the press release, the “pricing power of the consortium firms allows Income America to deliver a cost-effective Collective Investment Trust vehicle, resulting in lower fees for participants.” Participants (and plan sponsors) will also likely relish the fact that “both series are fully liquid, and participants can withdraw their Income America account balance from the series at any time without penalty” (that’s from the product itself, withdrawals outside the plan balance would, of course, be subject to the usual taxes and penalties for early withdrawal, if applicable).
The SECURE Act’s focus on lifetime income solutions won’t hurt, nor will the positioning within a QDIA/target-date fund (though other industry offerings have embraced similar approaches).
And, lest we overlook perhaps the most obvious difference “this time”—demographics.
[i]As for who does what in the consortium:
- American Century Investments: Target date glide path provider and underlying fund manager; firm’s glide path is designed to provide greater certainty of outcomes for a broader number of participants.
- Lincoln Financial Group and Nationwide: Stable value fund management; recordkeeping platform providers; guaranteed income providers with S&P life insurance company ratings of A or better.
- Prime Capital Investment Advisors: Product consultant responsible for product design, including sourcing consortium partners and providing the investment universe for Income America 5ForLife.
- Fidelity Investments, Vanguard and Prudential: Serve as underlying fund managers.
- SS&C Technologies: Provides the Retirement Income Clearing and Calculation Platform (RICC), a middleware application designed to facilitate the efficient distribution and servicing of in-plan guaranteed income products across various recordkeepers and participating insurers.
- Wilmington Trust: Serves as trustee of the collective investment trust and ERISA 3(38) investment manager fiduciary.
- Wilshire: Investment advisor fiduciary under ERISA 3(21) responsible for recommending the glide path manager, GLWB providers, underlying fund products and stable value offerings to the trustee from an investment universe selected by the product consultant for each category.
