There have been plenty of head fakes and false starts with 401k in-plan income solutions, American Century Investments’ Glenn Dial said at the beginning of a panel discussion at the GRPAA 2022 Industry Leaders Summit.
But the SECURE Act will make it the real deal, Dial explained. The Act did three things:
1) Solved the safe harbor issue
2) Put “teeth” around portability
3) There is no longer a requirement to use the lowest cost product
“However, with insurance, the rules are that there are no rules,” he added. “Some products are explicit versus implicit. Some are flexible, while others are rigid. Some appear to be in-plan when they actually are not.”
He noted that mutual funds are easy to compare with one another, but not with insurance products because of their numerous variables.
“I explain it this way: How many people insure their house, and how many have healthcare? When I ask, every hand is raised,” Dial continued. “How many insure their 401k? No hands are raised. They never regret paying homeowners insurance if their home didn’t burn down, but somehow, they don’t want to use part of their assets to insure their retirement. It’s a solution for the masses that do not have access to financial advice.”
Schroders’ Joel Schiffman noted the difference between guaranteed and non-guaranteed products. Once a guaranteed product’s contract is examined and revealed to be an annuity, the conversation suddenly gets serious.
“Most Americans do not have a million dollars for retirement,” Schiffman said. “How are we going to ensure that they have assets to last and supplement Social Security. Running out of money in retirement is the top fear from our survey.”
Adding that plan sponsors are interested but overwhelmed by guaranteed products, he said they are waiting for a “silver bullet,” but there isn’t one.
“What we think about are consistency, flexibility, and durability,” Schiffman continued. “Consistency in that they continue to receive a ‘paycheck,’ flexibility in that it is portable and liquid and durable so it will last a lifetime.”
Pension Risk Consultants’ Mike Devlin said his firm has two types of clients, those that are all or nothing (meaning they distribute a lump sum or offer an annuity) and those that allow for a certain portion of the portfolio’s assets to be used to purchase an annuity.
“We sell maybe one annuity out of 100 with the first,” he concluded. “When we talk to plan sponsors who allow the second and talk to them about putting maybe 20% of the assets in an annuity, we get much higher adoption.”