Interest in retirement income is rising among plan participants and plan sponsors, according a variety of experts who participated in panel discussions at the recent SPARK Forum held in Palm Beach, FL.
Participants’ Perspectives
Participants are saying that not running out of money is important to them, Pensionmark Managing Director Jim Lyday told attendees. Jeremy Stempien, Principal, Portfolio Manager and Strategist at QMA, expressed a similar sentiment, remarking that surveys show that participants really want guaranteed income.
Michael Schafer, Principal Client Relationship Executive at SS&C Retirement Solutions, told attendees at the session he was moderating that the idea of a paycheck for life appeals to participants; Doug McIntosh, Vice President, Investments at Prudential Retirement, part of Schafer’s panel, agreed, remarking that participants want access to a more secure source of income. And Schafer sees that as a bottom line, remarking that ultimately it’s the participant who needs to be comfortable.
“I think the guarantee gives them [participants] peace of mind,” said Scott Colangelo, Chairman, Prime Capital Investment Advisors, arguing that there is a need for a guarantee component. Matt Condos, Vice President at Lincoln Financial Group, agreed that the guarantee is important. “Lifetime income has to be part of the equation,” said And Tim Pitney, Managing Director, Institutional Investments Distribution, TIAA, at the session he led.
Lyday attributes this trend to two factors: the aging of the population and the shift from the predominance of defined benefit plans to defined contribution plans. Stempien made similar observations, noting that the working population continues to age and that longevity risk is growing. He also notes that DB plans continue to shrink while the amount of money in DC plans is growing substantially. The resulting focus on outcomes, Lyday said, “has been very, very good.”
But it’s not just on participants’ minds, panelists observed. “We as an advisor community have begun to understand what this trend looks like,” said Lyday. And it has not escaped Washington’s attention, Marc Pester, Vice President at Prudential Retirement noted, commenting that “[Washington] is also taking notice of the shifting landscape,” and citing provisions in the pending SECURE Act as an example of federal recognition and interest.
Plan Sponsors
The trend may be clear, but that doesn’t necessarily translate to a clear course of action for plan sponsors, panelists said. There is “still a huge disconnect between plan sponsor wants and needs,” said Lyday. And there’s more to it than that, Pester argued, remarking that “a lot of plan sponsors are still sensitive to the process of fiduciary review,” and that they are turning to predictable income sources that mitigate risk.
Not only that, said Lyday, arguing that it is “an incredible challenge” for plan sponsors to address the desire for retirement income, since they have “so much to digest.” He said that he is not seeing a lot of takeup of different options by plan sponsors “because they are overwhelmed.” Stempien agreed that “it is complex,” but “that complexity is not enough for a plan sponsor to say ‘I’m not doing this.’”
Taking Action
Panelists argued that participants need direction in getting to the goal of retirement income, and that employers have a key role in that. “Participants do trust their employers,” said McIntosh. Pitney made a similar remark at the session he led, saying, “People have an overwhelming trust in their employer” and that employer activity “gets more people involved.”
Matt Condos, Vice President at Lincoln Financial Group, argued that there should be options for participants within a single plan. “Participants are ready, but it’s just not there,” he said. Colangelo said that participants will adapt if there is an auto feature from the start, arguing that such an arrangement “will take a big stressor off the table” and help participants focus on other things.
McIntosh agreed with the strategy of starting with a default, but added that he considers it important to keep participants engaged and to communicate with them “in an engaged fashion.”
Condos suggested that a way to assist participants is to consider “what can be done for participants that they can’t or won’t do for themselves,” including:
- asset allocation and rebalancing;
- hedging;
- addressing longevity; and
- behavior.
K.I.S.S.
Several panelists indicated that the expression, “keep it simple, stupid” (KISS) is applicable in this case. Any effort that involves communicating a new concept to participants “needs to be simple out of the gate, but we started with the complex,” said Colangelo, adding that participants don’t understand the options for achieving retirement income. “We have to make it simple and automatic for ordinary Americans,” argued Pitney, “so they are confident” when they make choices concerning their retirement plans.
Simplicity will be good for more than participants, said Lyday, remarking that it also benefits plan sponsors.
Shared Opportunity
“We as an industry have a responsibility, together with plan sponsors and providers, to address this,” remarked Snezana Zlater, Senior Vice President at Prudential Retirement, who served as moderator of one of the panels. And, said Lyday, the participant experience must be at the center of design.
“You have an ability to have a massive impact” for participants and the final outcome, said Colangelo. “We have shared responsibility and a shared opportunity here,” remarked Condos.
