Building retirement income has peaks and valleys. What features are emerging in that dynamic geology?
In a Sept. 18 session of the EBRI Virtual Policy Forum, two industry experts offered their take on what’s hot regarding investments that will result in growth of retirement plan accounts so as to increase retirement income, as well as how the resultant revenue is being accessed. Katie Hockenmaier, Partner and US DC Research Director with Mercer’s US Wealth Practice, and Kevin Crain, Executive Director of the Institutional Retirement Income Council, shared their insights.
The Landscape
Crain and Hockenmaier outlined the overall landscape concerning and affecting retirement income and the options that help bring it about. Primary features of that terrain include the following.
Systematic withdrawals. Both speakers identified systematic withdrawals as a common plan feature relevant to retirement income; Crain remarked that 70% of plans make them possible.
Stable value funds. “We’ve seen a lot of plan sponsors reframing investment menus — especially through stable value accounts,” said Hockenmaier. Crain added that a stable value fund feature is often paired with the ability to make systematic withdrawals.
Target date funds. But not just target date funds (TDFs) — TDFs with a twist. Both panelists cited hybrid TDFs as part of the retirement income world; specifically, TDFs that incorporate a retirement income feature such as an annuity or a systematic withdrawal feature. “We’re seeing more target date funds with annuities embedded in them,” observed Hockenmaier.
Managed accounts. They arose, said Hockenmaier, in part because of the increase in personalization — and now they also incorporate a conversation about decumulation. Crain cited the rise of hybrid managed accounts that now also involve a retirement income portion, an annuity, or a systematic withdrawal feature.
Participant engagement. A lot concerning retirement income depends on participant engagement, said Hockenmaier. The problem, she said, is that many participants wait to be involved until late in the game. “Many don’t engage until they’re 10, maybe 15 years out from retirement,” she remarked.
Emerging Trends
Crain identified a variety of themes he says have emerged concerning retirement income.
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Election vs. default. Should it be a participant election regarding how much to put into the retirement income part of the equation, or should it be a default? “That’s still in discussion mode,” Crain said.
Portability. How does it affect portability if plans change recordkeepers? And how would that affect participants?
Innovation and customization. “There’s a lot of innovation and customization,” said Crain, adding that the continued interest in customization “is not unexpected.”
Recordkeepers. Recordkeepers are coming into the equation, said Crain, and they are implementing retirement income solutions. Hockenmaier commented that Mercer tends to advise clients to look for recordkeepers that use open architecture.
Middleware technology. Crain said that the increasing implementation of such technology is part of the growing involvement of recordkeepers. He added that consideration of how to make the process seamless for participants is “quickly evolving.”
A Look Ahead
What lies ahead concerning retirement plan funds? Hockenmaier and Crain took a look into the crystal ball.
The visions Hockenmaier saw included TDFs, which she thinks will be adopted to an increasing extent as time goes on.
As for Crain, he said that hybrid accounts “will have the early lead.” He added that he expects that the ability of investors to remain long-term will be very attractive. But Crain was not finished, remarking that he also thinks that a stable value fund combined with a withdrawal feature will be “something to watch.”
And there is also a need for improved pre-retiree education, Crain said.
When asked whether they envision defaults at a particular age into an annuity, Hockenmaier was doubtful, at least in the short term; she said that in her view, plan sponsors would want to see some regulation before they are comfortable with that. Crain agreed, saying that would be “a bridge too far” without regulatory or safe harbor guidance.
Big picture, Crain cautioned that it is easy to overwhelm plan sponsors about choosing retirement income options, and that the hardest aspect of that choice is “trying to keep it as simple as possible.”