By: Randy Myers
Since the debut of the 401(k) plan four decades ago, retirees and near-retirees have fretted over
how to convert their savings into a reliable stream of retirement income. Recently, their options
have begun to broaden, thanks in part to passage of the SECURE Act in late 2019. The new
law includes several provisions that make in-plan income products, including annuities, more
attractive to plan sponsors, plan advisors and plan participants.
Among the new offerings is Income America 5ForLife, a series of collective investment trust
portfolios structured like target date funds and incorporating a guaranteed lifetime withdrawal
benefit. Plan participants who invest in one of the portfolios are guaranteed to receive,
beginning at age 65 and continuing as long as they live, an annual payout equal to 5% of their
“income base.” That income base is the larger o f the market value of their account at age 65 or
their total contributions to the account to that point. Investors retain the right to cash out their
account at any time without penalty, although that would terminate their payout guarantee.
America 5ForLife is offered by Income America, a consortium that includes global asset manager
American Century Investments, Wilmington Trust N.A. (trustee for the collective investment
funds), Lincoln National Life Insurance Co. and Nationwide Life Insurance Co. (they insure the
product’s guarantee and serve as recordkeepers), Prime Capital Investment Advisors, SS&C
Technologies Holdings (the fintech company supports distribution and servicing o f the product),
and Wilshire Advisors LLC.
Speaking at the 2021 SVIA Spring Seminar, Income America President Matt Wolniewicz said
retirement plan participants are eager for in-plan retirement income solutions, but often have
felt that many of the offerings available to them have been overly complex or unproven. They
also were concerned about not being able to move their income product to a new savings plan
if they left their employer mid-career. For their part, plan sponsors were w orried that if they
offered an in-plan annuity or similar pr oduct, and insurer backing its guar antee later failed, the
sponsors themselves could be liable for the promised payments.
Today, most of those concerns have been addressed. America 5ForLife was designed, for
example, to be easy for plan participants to understand and use. The SECURE Act addressed
plan sponsors’ liability concerns by creating a fiduciary safe harbor for them as long as the y take
certain basic precautions in choosing an insurance carrier. And technology has now advanced to
the point that product portability is becoming less of an issue, says Glenn Dial, senior retirement
strategist at American Century Investments, who joined Wolniewicz during a panel discussion
moderated by Marie Mastro, a portfolio manager with Goldman Sachs Asset Management.
Also participating in the presentation was Jeff Cimini, senior vice president of the retirement
experience and solutions team at Voya Financial, a financial services firm that has introduced
a variety of retirement income solutions over the past decade. Sharing some of the lessons
its learned, Cimini advised plan sponsors to consider three things when contemplating the
introduction of an in-plan retirement income product: plan design, operations, and the
participant experience.
Plan design
To offer any income solution, Cimini noted, an employer’s plan document must allow for partial
account withdrawals by plan participants. In addition, the plan’s investment policy statement
must accommodate the inclusion of an income product. Plan sponsors also may want to think
about creating a “retirement tier” of income products within their plan, Cimini said, since
different plan participants will have different needs and the sponsor ma y want to offer them a
choice of products.
Operations
“From an operational perspective, these (income products) are a little bit different than a
traditional, net-asset-value mutual fund or collective trust,” Cimini said. “Often, the y look more
like a managed account program.” He said recordkeepers must be able to share information
every day with the product’s asset manager, insurance company, or middleware vendor about
plan participants who have selected or been defaulted into these types of products.
Cimini also said it will be important for plan sponsors to know who will field questions from
participants. “Do we have a specialized group take the questions? Do we have a generalist
group? Do the questions go t o the product manager or a third-party? T here are a lot of things
on the operational side of the plan that make this a little different than what we’ve experienced
over the last 40 years,” Cimini said.
Participant experience
Plan participants will have to see the value in income products if the products are going to
succeed in the marketplace, Cimini said. That means participants have to be shown the value
of income guarantees, what they’re accumulating in terms of future income over time, and how
that fits in with the rest o f their assets. And, he added, the number the y see has to make sense
when shown alongside other data they may be receiving, such as the projected future monthly
benefit their account could provide, which the Department of Labor is now requiring plans to
share with them. In most cases, the two numbers will be dramatically different, since the one
satisfying DOL requirements will be based only on the participant’s existing balance without
taking into account future contributions or investment earnings.
“There’s a lot to think about, but these are incredibly valuable programs,” Cimini concluded,
referring to the various income products on the market. “We’re leaning into this with our clients
at Voya because they are driving the inclusion of these types of programs in their plans.
But it takes a little bit of work early on for us, as a recordkeeper, to bring these products to life—
and to be able to support them in a way that the asset manager and the insurance company and
the plan sponsor all get what they need.”
