Unlocking the Door to Broader Adoption of Guaranteed Lifetime Income in 401(k)s: Matt Gray and Todd Levy

Brian Anderson

9 months ago

Guaranteed lifetime income remains a hot topic in the workplace retirement plan market and there are plenty of factors at play these days that are helping these solutions—such as annuities gain traction—and more widespread adoption—in 401(k) plans.

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Brian Anderson: [00:00:00] This is 401(k) Specialist editor-in-chief Brian Anderson and this is the 401(k) Specialist Podcast. Guaranteed lifetime income remains a hot topic in the workplace retirement plan market and there are plenty of factors at play these days that are helping these solutions gain traction and more widespread adoption in 401(k) plans.

Between all the annuity friendly provisions in the Secure Act and Secure 2.0, and ramped up demand from a wave of peak 65 401(k) participants, the market’s ripe for significant growth of these solutions and the products are evolving to fit the needs of the 401(k) market. Today, we’ve got a couple of subject matter experts who are going to talk about what’s happening right now in the lifetime income in the DC space.

We’re going to jump right in right after this brief message.

To talk about trends in in plan guaranteed lifetime income solutions, we’ve got Matt Gray from Allianz Life and Todd Levy from The Retirement Plan Company, one of the country’s leading independent providers of account record keeping, third party administration, and [00:01:00] actuarial services for qualified retirement plans.

Todd’s a first mover for lifetime income in DC who is passionate about bringing it to the market. Based out of Miami, he is the Managing Director of RIA for The Retirement Plan Company and has over 30 years of experience in the retirement industry. Todd oversees fiduciary services and provides wealth management guidance for clients.

He’s very involved in product development as it pertains to personalization and guaranteed lifetime income solutions within the defined contribution business. Welcome, Todd.

Todd Levy: Thank you for having me, Matt. I look forward to it.

Brian Anderson: All right. And Matt Gray is the Assistant Vice President of Workplace and Middle Markets at Allianz Life.

And he’s based out of San Diego. Since 2019, Matt has led the company’s expansion into employer markets. He’s focused on retirement income strategies, managing risk in retirement planning, product innovation, and Allianz Life Thought Leadership Studies. Welcome, Matt. [00:02:00]

Matt Gray: Thank you, Brian.

Brian Anderson: All right. Well, let’s go.

Let’s jump right in here to the discussion and Matt, we’re going to start with you. Retirement security is a growing concern across the industry with studies showing that significant percentages of seniors are worried about running out of money in retirement. What are some of the specific strategies that advisors can utilize to guide participants towards a more financially secure retirement?

Matt Gray: Advisors want to do the right thing for their clients, and they understand the risks that plan participants are facing leading up to and in retirement. But they also know that every participant situation is unique. So many of them are starting to embrace this concept of personalization combined with protection.

And by personalization, I mean talking about things like personalized advice available, you know, through in plan, through managed accounts or advisor managed accounts or personalized target date funds. And what I mean by protection is using strategies like modern in plan, [00:03:00] lifetime income solutions. So, combining those two personalization and protection.

Advisors can help participants improve their outcomes. And we’re seeing over 15 percent increases in the probability that a participant’s savings will last to a typical planning age and more than 20 percent improvements in the level of income that a participant’s portfolio can generate in retirement.

And that’s without the participant saving any more or spending any less or planning to work any longer. So that’s a pretty powerful, new strategy and approach combining those two that advisors are embracing.

Brian Anderson: Well, Todd, you’ve made guaranteed lifetime income solutions available on the retirement plan company platform.

What prompted you to add GLI to your offerings and what benefits can advisors and their clients gain from actively engaging in conversations around these solutions?

Todd Levy: Sure. But before I get into that, I just wanted to thank Matt and Brian, both of you for having me on the podcast today on behalf of TRPC. We’re real excited about this.

This is a topic that’s near and [00:04:00] dear to my heart and one I’m certainly passionate about and enjoy really talking about and thinking about the evolution of investing within retirement plans and how we can kind of improve and move the ball forward. Uh, by way of background, I’ve been kind of working on these types of solutions behind the scenes for the last five or seven years and really have been meaningfully pursuing bringing personalization guaranteed income to the D. C. Space. And thankfully, over the past 6 to 12 months, you know, the momentum and impact that we’ve been ramping up over this period is really starting to pay off and we’re starting to see some some meaningful benefits. So, I look forward to sharing those with you today.

You know, I would be remiss if I didn’t mention that, in my current role at TRPC, I feel real fortunate because I’m in an organization that has the ability to bring scaled solutions, but is yet nimble enough to appeal to early adopters and disruptors and effect change agents, in the marketplace.

So, this is a real topical conversation and, you know, more specifically what prompted TRPC to offer lifetime income is really quite simple. [00:05:00] We’re hyper focused on listening to our sponsor, advisor, and most importantly, our planned participant community. And what they clearly told us over and over again is they want three things.

One, participants really want to know exactly how much they’ll need to achieve a successful and dignified retirement. They’re saving money, but they really don’t know where the goal is complimentary, kind of in a complimentary way, advisors and sponsors want to know in aggregate, has that goal been defined? And what is the progression or, movement, to achieve those goals, you know, for their population, from a paternalistic standpoint, secondly, individual participants, they do want specific investment advice during the accumulation phase of retirement to help them meet their retirement goals.

I mean, one can change one’s own oil. Not everyone has the, uh, time, interest, and wherewithal to do it every 5, 000 miles, uh, to make sure that their car runs effectively over, on, and on time to get them to work every day. So, you know, getting advice is something that we hear over [00:06:00] and over again. And then for near retirees, or current retirees, they want to know, What to do with their money to make sure they don’t outlive it in retirement, right?

They don’t want to go back to work. So, you know, just listening, is really a key role in, how we got here today. We know that saving for retirement is really hard. It’s hard enough, but being prepared for retirement is something totally different. and so record keepers and traditional asset managers, they’re very capable.

We’ve been very capable in helping during the accumulation phase. However, solutions to solve for lifetime income. You know, they’ve been underwhelming to say the least. Hence the reason for adding guaranteed lifetime income to the platform was a no brainer for us.

What kind of benefits can advisors derive from engaging clients around these solutions? Again, kind of a close second to listening to our clients is our focus on differentiating our platform and the record keeping space is, you know, somewhat difficult to differentiate. For that reason, we were trying to find ways that benefits [00:07:00] our advisor partners and allows them to position themselves as the trusted resource to solve not only for the problems of today, but provides them a visionary perspective and equips them to address tomorrow’s challenges as well.

More specifically, it’s critical for the advisor community to operate from a mindset that if they’re not bringing meaningful solutions to their clients in a continuous and ongoing basis, that their competition likely will. So ultimately it’s natural for a good record keeper to align with solution providers like Allianz and bring best in class guaranteed lifetime income solutions to market.

So that’s kind of how we got here.

Brian Anderson: Thanks, Todd. Modern GLI products, offer significant advantages over traditional annuities. Are there still some outdated perceptions regarding complexity and cost and flexibility? Matt, how have modern in plan annuities address these concerns and how are they evolving beyond your grandfather’s annuity image?

Matt Gray: Yeah. You know, you mentioned that I was sitting in a [00:08:00] recent conference at a table that had a CIO of a firm, it had a director of benefits for a large employer and she was responsible for the retirement plan. And there are a few others at the table that supported large plans. And they were saying the exact things that you mentioned, that annuities are inflexible. They’re costly, complex. So I shared how in plan Annuities have really evolved to, many of them allow money to move in and out without penalty, you know, how the income is flexible in when and how it is taken by the participant or how the costs are in line with the other investments that they have in their plan lineups, you know, well below the 100 to 200 basis points of the past.

And some of these solutions also offer growth potential with protection on the downside for those participants like, like Todd was mentioning that are nearing that retirement phase and can’t afford, you know, a market correction with everything that they’ve accumulated, so diligently, in their working years.

And once that income begins, those lifetime withdrawals begin, some of these solutions offer the [00:09:00] ability for that income to increase each year, the opportunity for it to increase even after the account balance has been fully depleted. So my table mates agreed that, you know, this is a whole new breed and, probably warranted a fresh look to dispel some of the things that they, had in their minds about what they were, you know, beyond the product design itself, though, in some of these solutions have also been seamlessly incorporated into the in plan experience, like what TRPC has done, and they’re currently offering it through multiple plans in a managed account, that gives advisors and plans that combination of personalization and protection that we talked about.

Brian Anderson: All right. I think it would be fair to say that today’s G. L. I. Products are certainly modern, but they aren’t necessarily new. Many have been on the market for a few years now. Todd, what are you hearing from advisers? And what do you think may be preventing them from taking action?

Todd Levy: The conversations that Matt’s having with executives is probably very similar to the ones we’re having with advisers and maybe those that are [00:10:00] circulating at the public and large and, you know, really, we’re fighting a little bit of a battle, in the short term, with some negative stigma from the past.

And, I think inside the industry, it’s kind of twofold. One, you know, it’s competitive out there in the investment product space. So, those that have certain benefits try to downplay those who have other benefits and, providers and competing asset classes often can claim that they can deliver a lifetime income without the perceived costs or limitations that come along with an explicit guarantee in a, solution such as the one Allianz has brought to market. I think there’s also some legacy negative stigma that’s partially attributed to the misuse or maybe the human nature or greed factor associated with, what were high commission products in a retail space, that were potentially overused or misused in certain cases, that has, persisted. But I think if you really have a realistic approach and you kind of look at things in totality, you know, in reality, all [00:11:00] investment types, if misused, can lead to negative outcomes, not just annuities. And more importantly, I think that most advisors are quite smart, well intended, and really looking to put their client’s interests first.

So if that’s the baseline, I think as we’ve educated advisors and sponsors about the modern annuity, they’ve warmed really quickly to this type of alternative and realize that like everything else, annuities have grown up. They have evolved and they’re really, effective today because they’re smart, they’re nimble, they’re efficient, they’re tax efficient, they’re flexible and they’re super cost effective. So, you know, I think really what’s holding them back at this point is awareness that things have changed and availability where to find it. And those two things will take a little bit of time, but I suspect that, we’ve already move the needle in that direction. More specifically last year TRPC formally launched the availability of the Allianz Guaranteed Lifetime Income plus solution and you know what kind of emboldens or heightens my optimism [00:12:00] is that we’ve got continuous and ongoing kind of reversing query, interest in this type of offering and every time we brought it out on a proactive base, it’s really been well received.

I think the future is bright for these type of solutions in market.

Brian Anderson: Interesting. All right. Matt, from your perspective, what actions are product providers taking right now to try and overcome some of these hesitations and unlock a broader adoption?

Matt Gray: Right? I love your word unlock because when we can unlock the benefits that these solutions can provide and that participants are telling us they want, it is going to unlock that broader adoption. And like Todd said, we’re already starting to see that, you know, in addition to getting the product right one of the things we’re passionate about is ensuring that advisors and their plan sponsors and the participants have the education and the experience around these solutions that they need to fully unlock the benefits of where these show up.

Before we launched broadly in the market, we took a group of participants through the full experience, and they had a lot of good [00:13:00] feedback, but they rated it a 7 out of 10. We’re on a path to 10, you know, taking that feedback, continually investing, improving that experience so that those benefits really can be unlocked.

And, we recently launched with a mega plan on a new system and that sponsor gave us an unofficial nine out of 10. So we’re getting there, but we’re not going to stop until it’s a 10.

Brian Anderson: Technology obviously plays an important role in expanding access to and ultimately driving adoption of in plan annuity products.

Todd, can you elaborate on your experience with working with a middleware provider to launch GLI on your platform? Uh, what does the delivery and servicing of these products look like?

Todd Levy: Okay, here we go. So, there’s no doubt in my mind without the advancements in technology, particularly in the middleware space, guaranteed lifetime income and personalization within retirement plans simply wouldn’t be possible.

Also, not surprisingly, everything in the modern economy is dependent on technology from an evolution scale and stability standpoint so guaranteed [00:14:00] lifetime income is no different. You know, these middleware providers, they’ve really created this last mile architecture and infrastructure that connects, our legacy native record keeping systems with specialist providers like Allianz, and have really unlocked the treasure trove of benefits across retirement plan market space, more specifically and unique to Allianz, the Allianz middleware.

Now allows guarantees within an employer sponsored retirement plan to be applied individually. And I think that’s a big benefit. I mean, you’re getting an individual contract and what is generally a broad corporate type retirement plan. And why that’s important is that, one, you can size the investments based on the specific needs of any individual.

And I think equally as important when it comes time for retirement activating and, transferring or the portability aspect of an individual contract that starts in a plan and can live outside of the plan is a real meaningful benefit that is really the advent of [00:15:00] middleware providers, have been available to us.

So I think this is a critical junction. A major, major, turning point for the industry.

Brian Anderson: All right. It, sure seems like managed accounts have been gaining a lot of traction in the retirement market of late. Todd, can the design of a managed account contribute to the success of the guaranteed lifetime income solution in terms of improving participant outcomes?

Todd Levy: Yeah, again, this kind of goes back to listening to participants. And, you know, above all we hear from them is a desire for simplicity in one way or another. They’re really craving simplicity. Really what they’re telling us is they want us to do it for them more. Certainly there’s always a few that, that want to do it themselves.

But by and large, we’re hearing the do it for me crowd to be the loudest and largest. And they want it to be personal. I mean, if you think about the Netflix and Spotify modern technology experience in the world, it’s very personal, and they want their retirement plan to be the same. So when offered a choice between kind of do it myself or do it for me, most participants obviously are choosing they want a solution that’s done for them.

And for this reason, I think the [00:16:00] default or the QDI space is critical for the application of guaranteed lifetime income. The way we’ve developed guaranteed lifetime income in response is to follow the playbook of previous success we’ve known and loved in the QDI space, typically the target date kind of experience and replacing that with a managed account solution.

As the default, whereby participants are defaulted into a managed account. The managed account has, a unique asset allocation that would include an Allianz Guaranteed Lifetime Income. And now participants in their early 50s automatically receive an allocation to a lifetime income as a subcomponent to their traditional fixed income asset allocation.

In a way that’s consistent for solving for that, aforementioned goal. Attainment and, you know, it’s complimented by the benefit of payments that they cannot live for the rest of their lives. So the beauty of this architecture is that, all participants within a QDIA receive the benefits of the lifetime income in a modest allocation that becomes more material as they near [00:17:00] retirement. And because of the unique flexibility of the Allianz vehicle, within the managed account at retirements, participants can further increase, decrease, their allocation to the lifetime income benefit and or decide when to activate those income benefits, to supplement their retirement income. So far, the results that we’re seeing using guaranteed income through a managed account lens or service are very complimentary to the data that we know from the target date experience over the last number of decades. We’re seeing roughly 94 percent of plan participants remain invested in the guaranteed income solution through the managed account, and, uh, that would equate to about 85 percent of planned assets. So again, numbers that were really consistent with the target data experience. So, that’s great.

Brian Anderson: That’s great. Uh, let’s talk a little bit about education now, beyond having the right technology in place to ensure a smooth participant experience, I imagine there’s also a good deal of education needed to get these participants familiar and more comfortable with these [00:18:00] products. Matt, as the product provider, uh, what do you provide in terms of participant education and how do you coordinate with the record keeper?

Matt Gray: Yeah, both Todd and I have touched on this point of like every participant is unique and that the same as when it comes to education, you know, summer actuaries or engineers, like me, and they want to understand every detail of the products. But, a lot of people spend less time planning for retirement, you know, much less on the investments that are available in their retirement plan than they do, planning for a vacation or, researching their next car purchase. So we can try to change all that but we also need to coordinate, like you said, very closely with the record keeper to ensure that we’re providing the education at the level that each participant is comfortable with. And also that we’re providing it seamlessly through that record keeping experience to meet each participant with where they’re at so they can get it when they want it, how they want it, go as deep as they want, but in many cases, like Todd said, you know, sort of just have it done for them and [00:19:00] look at it when they need to.

So, on the TRPC platform, participants can drill down, they can see, all the different elements of the solution and where they’re at relative to, their retirement goals, how to use the benefits and how on track they are and sort of what it might do for them in terms of income and protection in retirement.

So I think that’s, that’s critical to have that education there, but embedded in the experience, to reach them as they’re going through their experience with that plan.

Brian Anderson: All right. Todd, let’s wrap this up with one more for you. How did the retirement plan company decide who to partner with on this? And what might your roadmap look like moving forward?

Todd Levy: Yeah, I think I hinted on the roadmap. The roadmap is, you know, really deploying this elegantly, simplistically through a managed account solution, at scale, kind of across the book in a default capacity. but as far as picking the right partner, I’m happy to dig a little deeper there.

I think it goes without saying in business, picking the right partner is always critical. [00:20:00] Um, it’s even more critical when you’re doing something new and innovative, like bringing guaranteed lifetime income into the retirement plan and TRPC’s legacy business began with its roots in the defined benefit business well before ERISA, you know, so the concept of turning a defined contribution plan into a defined benefit plan on an individual basis, something that has long made sense to, our firm. The challenge to achieve this per to participants has three levels of complexity. One, you know, regulation. How do we introduce annuities into retirement plans and offer protection to advisors and sponsors who are well intended? I think we’ve unlocked that recently, which is a positive. Two, as discussed, we need the technology to deliver this at scale, through the middleware providers, which again, check, we’re there as well. And then three, we needed a world class product that stands above all, you know, on its own, and raises the level of our record keeping offering as a compliment to, what we’re offering to, to advisors and sponsors and participants in the marketplace.

[00:21:00] And for the past few years, we’ve been observing and analyzing and researching products as they’ve entered the marketplace. And in our opinion, the Allianz Guaranteed Lifetime Income solution really does stand above all from a product innovation standpoint.

Not only does it offer lifetime income benefits to participants, the benefits that they desire, but it acts like a traditional asset while in the accumulation phase and becomes highly flexible when it’s activated, in the, retirement phase of, participants life cycle. These features were fantastic fit for participants when accentuated by, the impeccable balance sheet of an insurance company like Allianz.

So we really can have that confidence to offer in the marketplace. Allianz was the ideal product, an ideal complement to the personalization platform that we built, that combines the managed accounts and the guaranteed lifetime income component. So together we’re super proud and excited to deliver what participants are really been looking for, which has the ability to retire in a dignified and confident manner and assuring them that they won’t run out of money, or outlive their retirement [00:22:00] savings.

That’s how we got here.

Brian Anderson: All right. This has been very enlightening. Todd Levy of the retirement plan company and Matt Gray of Allianz life. Thanks for joining us today and sharing your insights about guaranteed lifetime income solutions on the 401(k) specialist podcast.

Matt Gray: Thank you.