Q&A with David Blanchett: Introducing PGIM RetireWell^TM Solutions

PGIM DC Solutions’ David Blanchett talks about why defined contribution plan sponsors need to do more to help participants get retirement-ready, what needs to improve in terms of saving and investing, and how PGIM RetireWell^TM solutions seeks to address those needs.

As the retirement industry strives to help individuals achieve financial security and well-being, new capabilities are being rolled out to address the challenges facing American workers as they prepare for retirement and the subsequent transition from saving to spending.

PGIM DC Solutions, the retirement solutions provider of PGIM, is bringing together its retirement income pillars and investment capabilities with Prudential’s financial wellness expertise to introduce PGIM RetireWell^TM solutions. PGIM is the global investment management business of Prudential Financial, Inc.

PGIM RetireWell^TM solutions include target-date portfolios, retirement income strategies and managed accounts. Through these innovative products and solutions, PGIM DC Solutions aims to help individuals estimate their goals and build a clear vision of their retirement lifestyle, and ultimately create a retirement income strategy to help them achieve these goals.

We could think of no one better to explain what’s behind the new offering than well-known industry subject matter expert David Blanchett, Head of Retirement Research, PGIM DC Solutions.

Blanchett, who has published over 100 research papers in a variety of industry and academic journals, sat down for a Q&A with 401(k) Specialist Editor-in-Chief Brian Anderson to talk about what led to the creation of PGIM RetireWell^TM Solutions, and why he believes DC plan sponsors need to do more to help participants get retirement-ready.

401(k) Specialist: Let’s start with a bit of an overview of the new PGIM RetireWell^TM solutions and the concept behind it. First off, can you tell us where the PGIM RetireWell^TM name came from and what principal goals it is meant to address?

David Blanchett: Some of the major issues facing American workers today are overall financial literacy and transforming accumulated savings into adequate retirement income. First, financial literacy is low—at least two out of three Americans can’t pass a basic financial literacy test. Second, because our defined contribution system was designed for saving and not decumulating, workers are finding it increasingly difficult to transform their accumulated wealth into an adequate income stream that will last throughout their retirement given the continued decline of defined benefit plans.

PGIM RetireWell^TM solutions seek to address both issues, with the goal of creating a holistic financial wellness plan to help individuals build a solid financial foundation while also helping them achieve their retirement goals. We hope the PGIM RetireWell^TM name conveys what we’re trying to achieve: retirement income solutions with a focus on holistic financial wellness.

401(k) Specialist: With that PGIM RetireWell^TM name, there seems to be at least an indirect link to financial wellness. Is that accurate and intentional?

Blanchett: Yes, definitely. Financial wellness programs can help individuals solve for broader financial issues, take a more holistic view of their financial picture and support smarter financial decisions, allowing individuals to save for retirement more effectively.​

As a part of our onboarding process, PGIM will work with clients to determine their current level of access to financial wellness information, assess their needs and streamline the delivery of content to employees. We have a five-step wellness framework for individuals that can help them manage their day-to-day finances, protect against key financial risks, and seek to achieve their important financial goals.

We have access to more than 300,000 personal financial wellness assessments from the past five years, through which we are able to identify retirement confidence and financial wellness trends over time. We plan to integrate many of these insights into future products and solutions.

401(k) Specialist: 401(k) plan participants have no doubt benefitted from the introduction of automatic features such as auto-enrollment and auto-escalation, providing behavioral nudges in the right direction. What else would you say needs to improve in terms of saving and investing to help participants build a better retirement?

Blanchett: You’re absolutely right in that over the last 15 years or so, plan design features like auto-enrollment, the increased use of target-date funds, and the implementation of financial wellness programs have helped propel the defined contribution industry forward.

I think there are still challenges around things like deferral rates, which are still well below where they need to be. The current economic environment is also making it increasingly difficult for workers to save for retirement.

I think an increasingly important issue, though, is one I mentioned earlier, which is the challenge of transforming accumulated wealth and savings into an adequate income stream that will last throughout their retirement. Plan sponsors are increasingly interested in helping participants with this challenge, and our PGIM RetireWell^TM solutions are geared towards helping employees, especially 401(k) participants, achieve better retirement outcomes through holistic advice and guidance.

401(k) Specialist: How does this tie into retirement portfolios, and can you expand a little on the importance of diversification and risk in these portfolios?

Blanchett: Absolutely. As I mentioned, DC plans were built for the accumulation of wealth, not necessarily the ability to generate retirement income. This is particularly true of the investment options offered to participants in DC plans today.

“Our research demonstrates that adding options like commodities, infrastructure, private real estate or private debt has the potential to generate between 5 and 10 years of additional income for retirees.”

Having managed a series of target-date portfolios for more than a decade, which incorporate a variety of nontraditional asset classes, we strongly believe in the value of expanding the breadth of asset classes on an investment menu or within a portfolio.

Our research demonstrates that adding asset classes like commodities, infrastructure, private real estate or private debt to a portfolio has the potential to generate an additional 5 and 10 years of retirement income.^[1]

401(k) Specialist: What about advice—and where do you see room for improvement? Is there more that DC plan advisors and plan sponsors need to be doing to help participants get retirement-ready?

Blanchett: Assumptions in retirement research and income planning tools have evolved only modestly over the last 30 years, creating an environment where financial advisors and online calculators often provide overly simplistic advice and guidance on one of the most important and expensive decisions of a person’s lifetime: how much they need to save for and how much they can spend in retirement.

Far too many tools treat retirement as a single static goal and ignore the ability of retirees to adjust spending over time. Additionally, outcomes metrics, like probability of success, are binary and do not accurately reflect how a potential shortfall would impact a retiree.

In contrast, the PGIM RetireWell^TM advice model leverages a dynamic framework to capture flexibility in retirement spending and uses an outcomes metric based on prospect utility theory that we think better captures expected retiree satisfaction and can lead to notably different advice and guidance than more traditional and basic models.

401(k) Specialist: Before we wrap up, we have to acknowledge all the SECURE Act/SECURE2.0-inspired buzz these days around adding options for in-plan guaranteed income solutions. Can you talk to us about some of the key challenges right now around generating lifetime income for retirement plan participants?

Blanchett: First, the consistent legislative focus geared toward improving retirement outcomes for Americans is great to see.

Generating income in retirement is obviously complex and this is compounded by an uncertain market environment and questions around life span. Allocating to a product that provides protected lifetime income has the potential to add significant value.

I think we’re going to see more interest in annuities in DC plans in the future, but we strongly believe that plan sponsors should focus first on getting participants to make better decisions around claiming Social Security benefits before addressing annuities. In our recent Evolving DC Landscape report^[2], we found only 13% of plan sponsors offer tools to help participants optimally claim Social Security retirement benefits, which can certainly be improved. So, while there can definitely be a benefit for DC participants from greater access to in-plan guaranteed income solutions, there are lots of other things the plan should likely consider first to ensure it’s really “retirement friendly” for participants who do want to stay in the plan during retirement.

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[1] There is no guarantee adding such asset classes will generate additional retirement income.

[2] The PGIM 2022 Plan Sponsor Research included 155 total respondents; breakdown is as follows: 36 plans with $100-$249M AUM, 37 plans with $250-$499M AUM, 31 plans with $500-$999M AUM, 32 plans with $1-$1.4B AUM, and 19 plans with over $5B AUM.

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