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Retirement Income Still a Work in Progress

As DC plans move full steam ahead in adopting DB-like features for their participants in the accumulation phase of planning for retirement, they have hit the pause button when it comes to retirement income, according to a report in Pensions and Investments. DC plans have adopted some of the best features of DB plans with auto-enrollment (and reenrollment), auto escalation and the use of managed investments, which is moving to more customization based on the demographics of a plan or even the participant. But even for those participants fortunate enough to have accumulated enough assets, if they even know how much is enough, the issue of how to spend in retirement without outliving their nest egg still looms large.

One option to make distribution in DC plans more like DB plans is to offer lifetime income products that guarantee a certain amount of income for life. But DC plans sponsors have been slow to adopt this option for a number of reasons, including costs, complexity, interest from participants and portability. The biggest issue may be liability, with many waiting for the DOL to provide guidance and a safe harbor -- which could take years.

Smaller and mid-size plans have been quicker to adopt than larger companies in a market where products are sold, not bought. Though the DOL has announced plans to provide lifetime income illustrations in participant statements, there is widespread debate on how to project that stream of income.

The results from providers to larger plans are bleak. Genworth exited the business in 2011 after making 40 sales in five years -- which is better than the combined results from UBS, BlackRock and Alliance Bernstein. Prudential has had more success, with nearly 2,000 clients but only $1.3 billion in assets. Financial Engine has sold their Income+ product to 45 plans averaging $1.8 billion.

At some point, we will have to tackle the distribution phase of retirement, but clearly the buying (and selling) market has yet to find the right solution.

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