Retirement income initiatives in 401(k) and other types of defined contribution (DC) plans have increased in recent years, according to the June 2023 issue of The Cerulli Edge—U.S. Monthly Product Trends.
According to a 2022 Cerulli survey of DC plan consultants, 58% of asset managers’ plan sponsor clients now actively seek to retain participant assets post-retirement, or prefer to do so. The survey includes both retirement-focused registered investment advisor (RIA) aggregator firms and institutional consultants.
Plan sponsors served by these advisory firms represent the largest DC plans by assets under management (AUM) in the U.S. market. As a result, asset managers have responded to this demand, and perceived asset-gathering opportunity, with increased decumulation product development and distribution efforts.
Managed payout funds—multi-asset-class investments that aim to produce regular, and predictable, income for their investors—currently are among the least offered solutions by asset managers (17%) but saw the greatest percentage increase in use compared to 2021 survey results (10%).
Target-date funds (TDFs) that include investments geared toward producing investment income have received much attention, as have annuities and insurance guarantees of various types.
According to a 2022 Cerulli survey of DC plan recordkeepers, the retirement income products most offered on their platforms are TDFs with a retirement income vintage (67%) and an investment product with an annuitization component (50%), including a TDF.
Of DC asset managers, 57% surveyed offer a TDF with a retirement income vintage, and 20% offer a TDF with an annuitization component.
However, other activity has been directed toward the development of nonguaranteed solutions constructed outside a TDF structure.
Other approaches to the DC plan retirement income challenge include a liability-driven investment product (Retirement Income 2040 Fund) introduced by Legal & General Investment Management America (LGIM America) in 2022 intended specifically to generate income during an investor’s early-to-mid years of retirement, as well as an expansion into tontines for the Canadian DC plan system.
In September 2022, Guardian Capital, in partnership with academic Moshe Milevsky of York University, announced that it would begin accepting investors for its GuardPath Modern Tontine 2042 trust. Tontines are risk-pooling vehicles that operate like income annuities but offer no guarantees.
“As asset managers continue to navigate around the desires of the participants and plan sponsors they serve in addition to volatility in capital markets and interest rate policies, the ecosystem of retirement income solutions within DC plans will continue to evolve,” the Cerulli Edge article concludes.
SEE ALSO:
• 3 Shocking Facts You Should Know About Target Date Funds
• More Large 401k Plans Seeking to Retain Retiree Assets
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.