While the accumulation phase of retirement saving has traditionally been the focus of most plan advisors, ensuring the adequacy of retirement income throughout the decumulation phase is garnering more attention these days.
With that in mind, the cover story of the Summer 2015 issue of NAPA Net the Magazine highlights the ways advisors can introduce the idea of retirement income options to plan sponsors and lists the five issues that should determine whether or not one is right for their participants.
Author Judy Ward notes that most retiring participants in a DC plan simply take their money in a lump sum, giving them an influx of cash without any specific guidelines or restrictions on using it and creating a situation in which retirees could easily blow through their savings long before their health declines.
Ward quotes several advisors who suggest that the advisor’s first task is to figure out whether this kind of situation is troubling to the plan sponsor or not. “That’s the philosophical question,” says Martin Schmidt, a consultant at Tejera & Associates, LLC. “Does the sponsor want to be looking out for participants’ best interests not just when they are employed by the company, but in the longer term?”
While some employers will be turned off by annuitization options because they create more work on their end, Ward says that retirement income products are popular among sponsors who are transitioning away from defined benefit plans. In that circumstance, retirement income offerings level the playing field in a sense, with DC and DB participants both receiving an annuity payment upon retirement.
Ward also adds that these products may not be right for employers with a high number of either high-wage or low-wage workers; the high earners may already have a trusted advisor, while lower-income workers will likely have to rely on Social Security upon reaching retirement age no matter what. Ben Yahr, a manager at Ernst & Young, says the “sweet spot” is employers of many middle-income earners, who likely would have enough money saved to benefit from these offerings, with a lower likelihood of them actually seeking it out on their own.
The cover story also addresses issues related to portability, whether or not to wait for the government to issue new safe harbor guidelines, and the benefits (and drawbacks) of using managed accounts or payout funds. The plan advisors Ward interviewed recommend having plan sponsors answer questions about these issues fully before deciding whether in-plan annuitization is the right choice for their employees.
In addition to Ward’s cover story, the Summer 2015 issue of NAPA Net the Magazine highlights what the new generation of plan advisors are thinking — including the 2015 NAPA “Young Guns” list — along with a recap of this year’s NAPA 401(k) Summit in San Diego. The Summer issue also features regular contributors Jerry Bramlett, Warren Cormier, David Levine, Brian Graff, Don Trone, Steff Chalk, Nevin Adams, Fred Barstein and NAPA President Joe DeNoyior — and marks the debut of a new column on financial wellness by Jania Stout. To view a pdf of the full 48-page issue, click here.
