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Big Questions Facing Retirement Income Products

Where is the demand and is the time now?

Leaders from the top RPA aggregators, record-keepers and broker/dealers as well as retirement income providers gathered in New York City last week to discuss the state of the decumulation industry at’s first-ever RPA Edge Retirement Income Think Tank and Roundtable. In-plan retirement income has been a hot topic for decades, yet it seems like the momentum is finally building. So will it finally happen now?

The answer was not obvious as the industry faces many challenges as it tries to retrofit defined contribution plans to replace pension plans with one big question: if guarantees are offered, which many people want, who assumes the risk?

Is the demand there yet? When prompted, plan sponsors and participants many want help with decumulation so the key may be getting retirement plan advisors engaged. Jeff Cullen, CEO at SRP, noted, “Managed account adoption was low until advisors got involved.”

Scott Colangelo, managing partner and chairman at Prime Capital, pushed back on the sentiment that demand is low. “Attention is phenomenal, more than for target dates when they were first launched in the early 2000s.” He did wonder, however, whether the typical RPA or wealth advisor has the experience to conduct proper due diligence on insurance companies.

Agreeing that there is demand and motivation, Shlomo Benartzi, founder of PensionPlus and a UCLA professor, said, “People have a greater fear of running out of money than dying. RPAs are losing 6%-8% of assets to rollovers.”

Shawn Daly, head of DC experience and product management at MML, asked, “Why are out-of-plan annuity sales booming while in-plan are not?” Answering his own question he noted, “Because out-of-plan properly compensates advisors. The industry needs to realize that distribution is more important than manufacturing.”

So if advisors are key, how do we get them to be proactive rather than reactive? Barbara Delaney, founder and principal of StoneStreet Renaissance, said COVID-19 has resulted in fundamental changes that advisors need to leverage. “People are not retiring, they are rewiring. But retirement income solutions cannot be automated.” She noted that retirement income is an opportunity for advisors to reinvent themselves and their businesses as plan fees decline by using a combination of in-plan and out-of-plan solutions.

But record-keeper involvement is also key not just for portability for in-plan solutions but also to engage and educate participants. “The DC industry needs to coalesce to provide education and help select winners,” stated Mark Pherson, senior director, product development at Transamerica. Kelly Rome VP, DC product management at Empower, agreed, “We are spending a lot of time and money on product due diligence. We need to be selective and get behind winners.”

But how? The consensus was plan sponsors do not want a product, especially if it’s an annuity. “Don’t talk about annuities,” said Aaron Schumm, CEO at Vestwell. “Ask people what they want.” Professor Benartzi said that 10 of 10 plan sponsors in his PensionPlus pilot signed up but none wanted to buy a product especially if it was an annuity—they wanted a solution.

rpa-edge-roundtable-table.pngSo along with the question of in-plan vs. out-of-plan, Rob Capone, head of DC at LGIM America, and Joel Schiffman, head of strategic partnerships at Schroder Investment Management, asked whether guarantees are necessary as they add complexity and can result in a loss of control. “Participants don’t want complexity or illiquidity,” said Saumen Chattopadhyay, CIO at OneDigital.

Nathan Voris, director at Schwab Retirement Solutions, noted, “There are more out-of-plan solutions than in-plan. Maybe we should include retirement income in managed accounts.” That sentiment was echoed by Josh Forstater, Vestwell’s national sales manager, who added, “Record-keeper platforms need to be upgraded and even overhauled.” Many suggested that short of an overhaul, there needs to be middleware rather than each record-keeper syncing to each solution.

Brian Collins, CIO at Hub International, asked, “What will be the accelerator for retirement income like the Pension Protection Act of 2006 was for target dates?” He suggested that we invite institutional investment consultants to the Roundtable next year as, “Solutions are more likely to move down market.”

Though it may take a while to impact retirement income, the Portability Services Network, created by Retirement Clearinghouse and major record-keepers focused on low balance rollovers, is the first industry data exchange, which could address the transferability issues. Spencer Williams, RCH’s CEO and president, noted, “The issues being discussed today are the same as when I headed up MassMutual’s retirement income group in 2004.” A sobering thought.

So is the time now? Maybe. Questions of who assumes risk in a guarantee, whether solutions should be in-plan or not and how to engage advisors must be addressed. MML’s Shawn Daly averred, “Advisors need to be paid the same for advice in-plan as out-of-plan.”

Regardless, we need to get real and make sure we are asking the right questions in an open forum like the one provided by without everyone protecting their own self-interests. Because until there is widespread adoption of retirement income by DC plans, no one wins.

Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.

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