Prudential Financial announced Jan. 25 that it is collaborating with Fidelity Investments to address growing demand for a workplace retirement plan option that will convert participants’ retirement savings into a protected stream of income.
Named Prudential SimplyIncome, the new option provides a single-premium immediate annuity (SPIA) available from employer-based retirement plans administered by Fidelity Investments. The collaboration will expand access to retirement security for more than 100,000 plan participants, according to the firm’s announcement.
More specifically, Prudential is one of four insurers on Fidelity’s Guaranteed Income Direct platform (more below) offering an embedded distribution option for defined contribution (DC) plans like 401(k)s, 403(b)s and 457(b)s.
This issue was given momentum following enactment of the SECURE Act in 2019, which, among other things, provided a “safe harbor” to make it easier for annuities to be included as options in employer-based retirement plans. This prompted the financial services industry to expand in-plan income offerings to address consumers who are concerned that they will outlive their retirement savings.
Ann Nanda, head of Future Growth Initiatives and Distribution Enablement at Prudential Retirement Strategies, notes that the collaboration with Fidelity will help expand access to retirement security for more consumers and aligns with a key Prudential business priority to deliver retirement income in new ways.
“No one knows how long they’ll live, and it’s important for people to understand whether they will be at risk of running out of money in retirement,” Nanda said in a statement. “Prudential SimplyIncome provides a new decumulation option for plan participants looking for a predictable retirement income solution, delivered through a streamlined, tech-forward experience on Fidelity’s Guaranteed Income Direct platform.”
The SECURE Act also required DC plans to start disclosing to workers the amount of lifetime income their account balances could generate in retirement. This new annual illustration requirement reframed the risk for plan sponsors beyond just customary investment metrics to bring more attention to longevity risk, the firm noted.
“Prudential SimplyIncome is an example of how we are co-creating innovative solutions for employer-based retirement plans, in this case working with a top plan administrator to bring a protected income option to plan sponsors and participants within a system they already know,” added Nanda.
Guaranteed Income Direct
Along with Prudential’s announcement, Fidelity announced the broad availability of Guaranteed Income Direct, allowing employees to convert all or a portion of their DC plan savings into an immediate income annuity to provide pension-like payments throughout retirement.
In what may come as no surprise, retirement preparedness is a source of financial stress for most employees. Citing data from EBRI’s 2021 Retirement Confidence Survey, the firm notes that nearly 8 in 10 (79%) employees are worried they won’t have enough money to last their lifetime. In addition, a recent WTW survey found that 85% of employees feel employers should take more responsibility in helping them prepare for retirement. As such, guaranteed income solutions within workplace retirement plans have become increasingly popular, Fidelity suggests.
Fidelity research also shows the number of retirees and pre-retirees deciding to stay in plan past their retirement date has continually increased over the past 10 years, with 65% of participants expressing interest in having guaranteed income options in their workplace plans. Employers apparently are similarly interested, with 81% of plan sponsors saying they would prefer to give retirees the flexibility to stay in plan and withdraw assets throughout their retirement years.
“A key challenge for employees as they transition from saving for retirement to living in retirement is ensuring there’s enough predictable income to cover essential expenses,” said Keri Dogan, senior vice president, Financial Wellness and Retirement Income Solutions at Fidelity. “Through solutions such as Guaranteed Income Direct, individuals can move into retirement with a greater sense of financial security, knowing they’ll be better able to cover their everyday expenses.”
Guaranteed Income Direct offers access to lifetime income for employees at all savings levels, with the flexibility to convert all or a portion of one’s retirement plan savings—regardless of where their money is saved—into monthly income based on their personal needs. In addition, savings not converted can remain in the workplace savings plan.
Fidelity notes that one of its objectives for Guaranteed Income Direct was to create a seamless digital experience for all employees. To accomplish this, the firm worked with middleware provider Micruity, Inc. to create a cutting-edge, digital experience for participants. Additionally, employers can choose their preferred insurer to include in their Guaranteed Income Direct benefit, the announcement notes.
In addition to Prudential Financial, MetLife, Pacific Life, and Western & Southern Financial Group are the other three insurers currently available on the platform, with additional firms to be added in the future.
