The passage of the SECURE Act in 2019 removed the last barriers facing plan sponsors’ adoption of “in plan” guaranteed income features.
With the SECURE Act providing safe harbor to include annuity products within 401k plans, the floodgates are opening and advisors are scrambling to gauge plan sponsor and participant interest in adding guaranteed income options—and figuring out the best way to do so.
This timely topic was the subject of the opening keynote presentation at the Wealth@wor(k) conference in Nashville, Tenn., on Monday morning.
“This is going to change things. We know when there’s change, there’s always opportunity. Some advisors are going to look at this and think, ‘this is the biggest prospecting opportunity of my life,’” said keynote speaker Glenn Dial of American Century Investments.
In his keynote, titled, “In-Plan guaranteed Income: Will the Secure Act Spark a Transformation of the 401k Industry?” Dial explored participant demand, the different types of guaranteed solutions offered, and how to implement the three-step process outlined in the SECURE Act when evaluating guaranteed income solutions.
Dial pointed to survey after survey showing increased interest from both plan sponsors and participants in utilizing guaranteed income solutions in their plans, and pointed out the need for advisors to work to educate plan sponsors on the change in the law and how to open the dialogue and gauge interest with specific plan sponsors.
Dial mentioned research showing that 9% or more of participants will outlive their savings without a guarantee in place, using the old standard 4% withdrawal rule – and noted that percentage climbs significantly for anyone taking more than 4%. Are participants OK with that risk, and should plan sponsors do more to protect against it by offering in-plan guaranteed income? Or will they pay a little extra to insure against running out of money in retirement?
Dial emphasized that the SECURE Act has no requirement to choose the lowest-price product, but that plan sponsors must consider the cost of the guaranteed retirement contract in relation to its features and benefits. Much of the presentation went into the nuts and bolts of determining what kind of product would be the best fit for a specific plan, be it a Guaranteed Withdrawal Benefit (GWB), a Single Premium Immediate Annuity (SPIA) or a Deferred Income Annuity (DIA).
While the GWB typically has the most flexibility, is that flexibility worth giving up for a potentially higher rate of income with a SPIA or DIA?
Dial offered up a few sample participant polling questions to help you find out. Among them:
• What percent of your total 401k balance would you like guaranteed?
• Would 5% guaranteed income in retirement be attractive?
• How important is the flexibility to move your money in and out of the guarantee without limitation?
Knowing the answers to questions like these can help determine the best fit.
But the important part is starting the education process to make sure plan sponsors are aware the law has changed because these options are often highly desired by participants once they know they are available.
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