PLANADVISER - March/April 2018 - 53

however: Retirees face competing priorities, and this
makes for complicated, far-reaching decisions. " Preparing
for living in retirement is far more complex than what the
defined contribution industry has focused on for 30 years, "
says David Gray, senior vice president at Fidelity Investments
in Boston. " It's so personal, and it isn't just about
the retirement plan but about what people are going to do
with themselves every day, where they are going to live,
and when they will start drawing on Social Security. "
" Given the differences in family and health care situations,
two people who might have the same amount saved at
retirement could be in very different positions, in terms of
financial security, " echoes Patrick Murphy, president of John
Hancock Retirement Plan Services, also in Boston.
" Employees trust their employers, which puts [the latter]
in the ideal situation to give unbiased and skilled guidance,
whether on their own or with the help of advisers, " says
Steve Vernon, a retired pension consultant and actuary,
now a consulting research scholar at the Stanford Center
on Longevity. " We're all aware of the power of defaults, so
sponsors should put themselves in the shoes of an older
worker wondering whether he has enough to retire on.
Absent any other information, the default response may be
to keep working, and employers may wind up with a work
force management issue-a growing cohort of older workers
hanging on and on. "
Sponsors understand the underlying need but are
lagging. " In mainstream corporate America, there is a lot of
hand-wringing about retirement income for DC participants,
but foot-dragging when doing anything about it, " observes
Martha Tejera, head of plan consulting firm Tejera & Associates
and a board member of the Institutional Retirement
Income Council, speaking to PLANADVISER from her winter
headquarters in Tucson, Arizona.
In the 2017 PLANSPONSOR Defined Contribution Survey,
57% of plan sponsors reported offering no retirement
income products to participants at all, while just 20% said
they provided some sort of product or access, whether in or
out of their plans.
Rather than rush to offer products, advisers might take
a step back to consider sponsors' goals. One crucial issue is
whether a sponsor's wish is to keep participants and their
assets in the plan after they retire. " There's a big shift in
thinking, from wanting people to leave the plan when they
retire, to doing what's best for them as employees and then
post-termination, " Tejera says.
" There's a strong trend toward having a line of sight for
keeping assets in plans, " Latham notes. " There are many
reasons, but after the fiduciary rule, the controversy about
conflicts of interest raised the bar. Sponsors said, 'It gives us
scale and buying power; it keeps participants in a narrow
and vetted investment solution set that we monitor on their
behalf, and there is a lower cost profile.' "
If there is a desire to keep retirees on, advisers should
ensure that plans are flexible as to money flow. " For instance,
there are plans that allow participants to leave their money
invested but don't permit partial distributions, " Tejera says.
In such cases, sponsors should instruct the recordkeeper to
pay the participant in quarterly amounts he has specified.
Next, she counsels, retiring employees should be enabled
to roll assets into the plan from other individual retirement
accounts (IRAs) or 401(k)s.
Advisers can also help sponsors better understand the
demographics and motivations of their participants. " We
see plans where 50% of the participants are retirees, but the
conversation in the board meetings is about investments for
accumulation rather than retirement, " Murphy says.
With a fresh affirmation of plan goals, advisers can
suggest approaches for generating retirement income. To
sponsors' credit, many have offered some sort of planning:
About 75% of those responding to a 2016 Willis Towers
Watson survey provided retirement planning tools or education,
or expected to add them within a year.
Based on her experience with investor focus groups,
Latham has found that the preferred form of advice
varies by age cohort. " [Baby] Boomers want someone to
sit down with. Millennials lean toward robo-advisers,
and Gen[eration] X is somewhere in between. The adviser
community is going to have to be nimble with a solution
orientation and not just a product, " she says.
But there is a role for investment products that systematically
distribute income, and it brings yet another complicated
decision. One route is to offer structured payout strategies;
some target an annual return, while others spend
down assets over a defined time frame. Household-name
asset managers have brought a few such products to market
in the last 10 years, but so far they have gained little traction,
and some have been withdrawn or reformulated. " The
idea is often to move all of a retiree's money into one fund,
but these are new, and, with only short track records and
such an uncertain fixed-income environment, I can understand
investors' hesitation, " says Leo Atcheson, a senior
analyst of multi-asset funds at Morningstar in Chicago.
In addition to investment accounts meting out structured
payouts, Tejera says she is an advocate of fixed annuities,
particularly for retirees with lower balances. " That
view shows my bias as an actuary, but participants draw
the most income for the least amount of investment, and
payments are guaranteed by an insurer. " -John Keefe
KEY TAKEAWAYS
* Decumulating plan assets is more complex than
accumulating them, but few plan sponsors offer
retirement income options.
* If plan sponsors fail to address the need for retirement
income, they risk having an older work force
uncomfortable with the idea of retiring.
* With plan sponsors increasingly wanting to keep
retirees' assets in the plan to achieve cost efficiencies,
it behooves them to offer retirement income
solutions such as draw-down strategies or annuities.
planadviser.com march-april 2018 | 53
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PLANADVISER - March/April 2018

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