PLANADVISER - March/April 2021 - 19

says. " Now the worry for these sponsors
is, they did all that, and it's heartbreaking
for a human resources [HR] director to
see a pre-retiree who desperately needs
help but a broker sells him a retirementincome
solution that's clearly not in the
participant's best interests, " he says. " We
are seeing more sponsors say, 'We don't
want our plan to be a place where we grow
big account balances so that brokers can
make a big commission off of a rollover.' "
* See the value of guaranteed income.
* Identify the sponsor's goals
" Something
people
probably don't
understand
about this is
Once a sponsor decides it is worthwhile
to address decumulation needs, then the
issue becomes seeing value for retired
participants in guaranteed income. It
helps to talk with sponsors about how
the value of an income guarantee relates
to the risks that retiring participants
face in trying to make their account
balance last, Ashton says. " They have a
pot of income, and they're asking, 'Now
what do I do?' " he says. " These retirement-income
contracts remove most of
the risk from that issue. "
Ashton understands that some sponsors have perceived
'What are your participants getting for that fee?' " he
that it's a safe
harbor for the
selection of the
provider, not
the selection
of the product. "
lifetime-income products as expensive. " But I think the
issue of being 'expensive' needs to be put in the context
of,
says. " Participants are receiving a guarantee that they'll be
getting retirement income for life. When you put it in that
context, I think the cost seems reasonable. "
To educate a sponsor about
the value in guaranteed
retirement income, Daley suggests that an adviser make the
concept of longevity risk more understandable. " One of the
problems with a DC [defined contribution] plan is that there
is no collectivization of longevity risk, like there is in a DB
[defined benefit] plan, " he says. " So, if individuals are responsible
for managing their own longevity risk, the issue is, how
can they do that, and what products are available to do that? "
Most plans offer no assistance, he says, and that is a problem.
It can help to show sponsors an illustration of the volatility
a participant's payout can experience in retirement
because of market swings, Daley says. It could show a hypothetical
retiree with a 60% equity/40% fixed-income portfolio
who takes 4% out of his account annually. Using data from
previous market cycles, a simulation can project the volatility
in the retired participant's expected withdrawals each year.
" It can project, what would the volatility of that 4% amount
be expected to be over the years, and with what frequency
would you expect to have a bad outcome? " he says.
Helping sponsors see value in a retirement-income guarantee
is not a one-time, brief conversation, Daley says. " You're
having what are really pension and actuarial conversations
with a DC plan committee that really hasn't thought of its
plan in that way, " he continues. " If you do it correctly, it's a
year-plus-long process for a committee to get there. "
and participants' needs. Retirementincome
products' fees differ substantially
because the products' underlying
features differ substantially, Roberts says.
" Some carry more of a guarantee than
others. Some are much more liquid than
others. Some are much more forgiving
in terms of a participant's ability to
transfer out of the product, " he says.
" With a myriad product offerings come
a myriad different fee levels. It's up to
the plan fiduciary to decide, 'Within this
universe, which product and features
make the most sense for our plan, given
our participant demographics?' "
Lyday recommends looking at the big
picture before identifying which specific
product features a sponsor wants. " You
need to ask sponsors, 'What are your
goals in offering a retirement-income
product?' If their goal is to just protect
against longevity risk, they can offer a
longevity rider[-i.e., a type of insurance
that kicks in only at a later, predetermined
age-]which is less expensive than a guaranteed-income
product, " he says. " If they want a product that annuitizes a
participant's balance and provides lifetime income, that's a
whole other set of products. It's critical to work with clients to
answer the questions: 'What are you looking to accomplish?'
and 'What are your participants' needs?' Then you find products
that match those needs and goals. "
* Get comfortable with fee reasonableness. Currently,
retirement-income products are offered mostly on a proprietary
basis on the provider's recordkeeping platform and
usually at fees closer to retail than institutional levels,
Delaney has found. " Can you find it at an institutional price,
versus a retail price? That's very difficult, " she says. " We've
done such a great job of getting everything institutionally
priced for our sponsors and participants. Now we need
to offer in-plan annuities at institutional prices, with no
commissions. Are we there yet? No. But I think we will be
there in the next few years. "
It is likely that the perceived value-for-fees formula of
retirement-income products will improve over the next few
years, Lyday says. Amid fee compression for their traditional
products and services, he says, both recordkeepers and asset
managers are looking for a new way to earn fees-ideally in
the " sticky " way that lifetime income products do because
they are long-term products. He predicts there will be new
entrants, as well as upgrades in existing products, that will
offer better features for the same price. One example would
be a guaranteed minimum " floor " benefit and the ability for
participants to ramp up their contributions and, once retired,
receive a larger monthly benefit. " You'll not necessarily see
a dramatic drop in fees, but, over time, you'll see both better
product features and lower costs, " he says. -Judy Ward
planadviser.com March-April 2021 | 19
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PLANADVISER - March/April 2021

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