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MODERATOR:Lee Stevens, Vice President, National Sales Manager – Institutional Market, Empower Retirement
PANELISTS:
• Daniel Beard, Director of Administration, Office of Defined Contribution Programs, State Board of Administration of Florida
• Renée Wilder Guerin, Acting Director, Office of Participant Operations and Policy, Federal Retirement Thrift Investment Board
• Raymond Jimenez III, Associate Administrator/CFO, Adventist Retirement
• Steve Shepherd, Partner, Head of Institutional Annuities and Life Insurance Solutions, Aon Hewitt
Moving the Needle on Retirement Income
As a plan sponsor, do you currently offer a lifetime income solution to your employees?
1. Yes
2. No, but we are considering adding it
3. No, we do not plan to add it at this time
4. I don’t know what a lifetime income solution is
Thank you to our Diamond Sponsor
For those considering adding a lifetime income solution, what’s your time frame?
1. Within the next 12 months
2. 1 to 2 years
Thank you to our Diamond Sponsor
What’s your main concern with introducing an in-plan lifetime income solution?
1. Fiduciary concerns
2. Operational and administrative complexity
3. Plan-level portability
4. Participant appreciation, understanding and engagement
Thank you to our Diamond Sponsor
Older workers approaching retirement face significant challenges managing their retirement savings and run the risk of exhausting their savings. Contributing factors include:
• Longer Life Expectancy• Market Volatility• Erosion of purchasing power through inflation• Rising medical costs• Unrealistic expectations about post-retirement employment• Ill-advised financial decisions
The consequences of failing for U.S. retirees are severe –exhausting savings during retirement, relying solely on Social Security and living in poverty or near poverty.
Help participants generate lifetime income streams
Annuity options are rarely found in 401(k) or other DC plans. Of the 366 Fortune 1000 companies responding to a recent Plan Sponsor survey:
• Fewer than 5% offer annuities• More than 77% offer no income-oriented products or services
Even when annuities are available, participants’ utilization rate has historically been very low. Only about 1% of DC plan participants convert their balances to annuities, says a recent EBRI report.
Daniel Beard, Director of Administration, Office of Defined Contribution ProgramsState Board of Administration of Florida
Florida Retirement System Investment Plan Payment Options
• Rollover
• Lump-sum
• On demand or scheduled
• Annuity payments
• Combination
Florida Retirement System Investment Plan Annuities
• MetLife• Immediate Fixed Income Annuities• Deferred Income Annuities (QLAC)
• Introduced December 2015• EY financial planners run quotes
Newsletter Quarterly Annuity Quote
• Quarterly Newsletter • Includes latest annuity quote• $100,000 balance• Single/joint & survivor
• Included with quarterly statement
[Quarterly Annuity Quote]
Monthly/Yearly Annuity Letters• Monthly Letters
• To:• Terminated IP members > $50,000• Deferred Retirement Option Program rollovers
> $50,000• Annuity quote on 100%/50% of balance
• Yearly Letters• Terminated IP > Age 69½ > $50,000 - RMD
[Monthly Letter Sample]
Letters to Members
• Began in April 2010
• Annuities from July 2002 to April 2010 – 8 purchased ($1.2 mil.)
• Annuities from April 2010 to present – 60 purchased ($8.4 mil.)
• Increase in number of annuities purchased
• Increase in member’s awareness of annuities
Renée Wilder GuerinActing Director, Office of Participant Operations and PolicyFederal Retirement Thrift Investment Board
Thrift Savings Plan
• CSRS – Civil Service Retirement Plan• FERS – Federal Employee Retirement Plan
• TSP – Thrift Savings Plan• Uniformed Services
• $450 billion • 4.8 million participants• Periodic payments• No in-plan annuity• Immediate annuity available as a distribution
option
Thrift Savings Plan
Annuity Purchase History
0
500
1,000
1,500
2,000
2,500
88 90 92 94 96 98 00 02 04 06 08 10 12 14
Num
ber D
isbu
rsed
Dol
lars
Dis
burs
ed(0
00’s
)1,372
Contracts
2015
Dollars
$237,351
2015 Retirement Withdrawals
69%
19%
8%4%
100% AnnuityPaymentAnnuity and SinglePaymentAnnuity and MonthlyPaymentsAnnuity, Monthly &Single
Participant Education
Now• Retirement letter and brochure• Tweets• Videos
Later• Greater withdrawal flexibility• Outreach prior to retirement• Zone of Confidence• Re-engineer withdrawal election forms
Participant Education
Raymond Jimenez IIIAssociate Administrator/CFOAdventist Retirement
Adventist Retirement• DC Plan Profile
• Over $1 billion in assets• Over 25,000 participants with a balance
• Participant Profile• Retirement plan is primary retirement asset for many participants
• Plan Features• Managed Accounts• Online Advice• Target Date Funds• Asset Allocation Models
• In Plan Retirement Income – Guaranteed Lifetime Withdrawal Benefit (GLWB)
Adventist Retirement
The Case for Guaranteed Retirement Income
• Retirees are living longer
• Timing retirement can be a risky proposition for participants
• Participants and plan sponsors value certainty and predictability
• Average participants tend to invest based on emotion, damaging their retirement income potential
Adventist RetirementWhy an in-plan retirement income solution
• Majority of Americans do not have access to professional financial advice• In-plan solutions provide the best opportunity for participants/investors to gain access to
retirement income solutions• Many participants do not have enough assets outside their retirement plan to fund a retirement
income solution• Does not require a distributable event to fund a retirement income solution. Many
employers are making it a priority to help their employees – particularly the Baby Boomer generation – become retirement ready by helping employees account for their retirement income needs
• Retirement income solutions help plans balance their investment lineup by helping participants account for both the accumulation phase of retirement as well as the income phase
Guaranteed Lifetime Withdrawal Benefit
Adventist Retirement – GLWB Roll Out• Fund Addition Letter – Direct Mail• Email Campaign – Link to microsite• Banner Website Messaging• Plan Highlights with SecureFoundation II Information – Direct Mail• Plan Sponsor Flyers - Email• Participant Flyers – Direct Mail• Participant Education Presentations• Pre-Retirement Presentations – Directed at those 55 and older,
presented at Employer locations
Steve ShepherdPartner, Head of Institutional Annuities and Life Insurance SolutionsAon Hewitt
Employees Not on Track for Adequate Income
Source: Aon Hewitt’s The Real Deal, 2015 Retirement Income Adequacy at Large Companies; based on results for full-career contributing employees who only have a defined contribution plan available for retirement income accumulation.
Mul
tiple
of e
ndin
g sa
lary
Need Reality
7.0x pay
4.1x pay
11.1x pay
Income Gap
Less than 1 out of 5 DC-only participants is on-track for a reasonably
adequate retirement
Average participant needs 11.1x pay at age 65 for retirement income, yet
DC-only participants fall short
10
8
6
4
2
0 Reasonably adequate retirement defined as being within 2x pay of projected retirement needs
67%Feel supporting the process to have participants convert
balances to lifetime income is very or moderately important
48%Are very likely or moderately likely to address ways to
encourage lifetime income in 2016
In-plan annuity or insurance product
Prevalence of Tools and Products to Convert Savings to Lifetime Income
7%
12%
Facilitation to purchase annuities outside plan
In-plan managed account with drawdown
30%
45%
Distribution option to receive monthly payments
Online tools or apps to help see how much to spend
66%
Converting Savings to Retirement Income
Percentages shown are those who answered “Already Offer”Source: Aon Hewitt’s 2016 Hot Topics in Retirement and Financial Well-being Survey
Barriers to Adding In-Plan Income Solutions
Percentages shown are those who answered “Major Barrier”Source: Aon Hewitt’s 2016 Hot Topics in Retirement and Financial Well-Being Survey
Waiting to See Market Develop53%
Fiduciary Concerns43%
Operational or Administrative Concerns
Participant Utilization Concerns
40%
34%
How Sponsors Think about the Market
2008 Safe Harbor
CounterpartyRisk
1. Early Adopters
2. Wait & See
Due Diligence
Future Regulatory
Actions
3. Follow the Crowd
4. Legally Required
Retirement Income Solution Categories
Type of OptionManaged Payout – Existing Funds
Managed Payout – New Fund
Deferred Guaranteed Withdrawal Benefit
Deferred Guaranteed Income Benefit
Deferred Fixed Annuity
Traditional annuity – End of plan
Annuity Platform
Longevity Insurance
Scheduled Payout
Ongoing GuaranteedIncome Purchase
Lump Sum Annuity Purchase
Longevity Insurance
Income Category
Aon Hewitt’s Views on Retirement Income
Prepare for Evolving
Environment
Retirement income options are evolving DC plans - critical retirement income source Firms starting to implement The Government supporting and encouraging
Evaluate Market as it Matures
The market is addressing initial sponsor concerns Greater fee transparency Lower counterparty risk Better portability through middleware
Continue to Assess Options
Plan Sponsor action steps: Examine non-insurer and insurer solutions Assess the right time to add retirement income Consider short-term and long-term fiduciary implications