Will a new generation of lifetime income products finally gain traction in the market? In the cover story in the latest issue of NAPA Net the Magazine, Judy Ward has answers from some industry thought leaders.
While retirement income offerings are an integral component of defined benefit pension plan design, they have struggled to gain a place in most defined contribution programs. Indeed, it’s long been said that 401(k)s were never intended to be a retirement plan, and the lack of even the most rudimentary in-plan decumulation solutions is a stark testament to that reality.
Even when those options are available, participant take-up is something well short of tepid—and that has been found to be true even in defined benefit programs when participants have a choice. Sadly, it’s not hard to see why. The products are complex, comparatively expensive, and generally require (or are positioned so as to seem to require) the kind of “all or nothing” choice on which individuals are reluctant to commit.
During his time leading the Pension Benefit Guaranty Corporation (PBGC) from 2007 to 2009, Charles E.F. Millard saw the continued erosion of defined benefit plans—and the guaranteed monthly income they provide retirees. More than a decade later, today’s defined contribution plans often provide few if any ways for participants to generate that income.
But the changes made in the SECURE Act, which became law in 2019, have led Millard to feel optimistic. “The SECURE Act encourages the creation of an income solution for defined contribution plan participants that is similar to defined benefit plans, and that’s incredibly important,” says Millard, New York-based former director of the PBGC and a senior advisor for Annexus Retirement Solutions.
And a new generation of lifetime income solutions embedded in target date funds marks an important step forward, Millard thinks. “Any company that is already focused on retirement outcomes for its employees should consider this as the default investment,” he says. “We have a retirement-income gap for participants. In my view, the vast majority of plan sponsors are going to need to think about this as a QDIA (qualified default investment alternative).”
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