Archives: Articles

Securian has introduced the Ovation Lifetime Income II guaranteed living withdrawal benefit (GLWB) rider, an optional rider available with certain Securian MultiOption variable annuities for an additional cost.

The rider guarantees annual withdrawals from the variable annuity contract, up to an annual limit, for clients age 59 or older. The variable annuity is issued by Minnesota Life Insurance Company, Securian’s largest subsidiary.

The Ovation II GLWB rider offers:

• A 6% compound benefit base enhancement.
• A doubling of the benefit base after 10 contract years (or the client’s 70^th birthday) if no withdrawals have been taken.
• CustomChoice allocation allows to select up to a 70% equity/30% fixed income portfolio. Election of the rider requires use of an approved allocation strategy.
•  Increased withdrawal flexibility so clients can take withdrawals if needed without canceling the six percent benefit base enhancement feature.
•  Investment options now available include a Minnesota Life selected group of more than 75 underlying investment options from 17 fund families that span a variety of asset classes and, investment styles. This includes the TOPS Protected ETF Portfolios, which strive to provide more consistent returns through dynamic hedging.

© 2012 RIJ Publishing LLC. All rights reserved.

MetLife has released its Retirement Income Practices Study: Perspectives of Plan Sponsors and Recordkeepers for Qualified Plans report, which examines the dynamics of the plan sponsor-recordkeeper relationship with regard to the provision of lifetime income options in qualified plans.

The study assesses whether, and to what extent, plan sponsors of defined benefit (DB) and defined contribution (DC) plans, and recordkeepers are collaborating to educate participants about retirement income strategies and solutions for their participants. The study found that:

• Ten of the 12 recordkeepers and one in three plan sponsors predict an increasing focus on retirement income for the next three-to-five years.   
• Tools that will project the amount of monthly income a participant might receive during retirement are not automatically shown to participants when they view their account balances online, nor are they routinely provided to plan participants on statements. Instead, plan sponsors appear to favor a self-service approach.   
• The “do-it-yourself” model is not taking hold among participants. The majority of recordkeepers surveyed estimated that 25% of plan participants or fewer have made the effort to project their retirement income.
• 44% of plan sponsors said that most DC plan participants would prefer to “receive at least part of their retirement savings as monthly income for as long as they live rather than receiving all of it in a lump sum that they would invest themselves.”
•  68% of plan sponsors said they believe the majority of their DC plan participants favor “guarantees that offer stable but somewhat lower returns” over a “higher degree of risk because the returns could be greater.”
• Only 16% of plan sponsors surveyed offer any form of in-plan retirement systematic income option. Among those, the most widely offered option is an in-plan deferred annuity (27%).
• 56% of plan sponsors who offer an in-plan retirement income option don’t know specifically what type of product is being offered.
• Most recordkeepers do not make institutional income annuities and other retirement income products available at the point of retirement nor do they have the ability to administer in-plan accumulation annuity options on their platform.
• Four of the 12 recordkeepers surveyed currently offer in-plan retirement income options. Of the other eight, four said they are very likely to build the infrastructure required for in-plan retirement income options to be available on their platforms in the next 18 months. The remaining four cited low demand from sponsors and participants as a reason for not exploring this infrastructure.   
• Eight in 10 plan sponsors (79%) say that fiduciary liability concerns are discouraging them from more widespread offering of income annuities within their DC plan. More than half of plan sponsors (56%) also believe these concerns are dissuading their recordkeepers from more widely offering these products on their platforms. Most plan sponsors believe that their company (62%) is more concerned about annuity-related fiduciary liability issues than their recordkeeper.

The MetLife Retirement Income Practices Study was conducted in two phases between October 2011 and January 2012. In Phase I, the qualitative phase, MetLife commissioned RG Wuelfing & Associates, Inc. to conduct phone interviews with 12 defined contribution plan recordkeepers that service primarily FORTUNE 500^® Companies. The interviews were conducted from mid-October to mid-November 2011.

In Phase II, the quantitative phase, MetLife commissioned the research firm MMR to conduct an on-line survey with plan sponsors of retirement plans in cooperation with Asset International. A total of 215 plan sponsors participated in the survey, including 113 from FORTUNE 1000 companies. Phase II of the study was conducted between December 14, 2011 and January 30, 2012.

© 2012 RIJ Publishing LLC. All rights reserved.

What would Martin Luther say? What would Garrison Keillor say?

Thrivent Financial for Lutherans is considering expanding its flock beyond the nation’s 18 million Lutherans and allowing more non-Lutherans into the fold, according to a report in the Milwaukee Journal Sentinel.

The Appleton, Wis., provider of life insurance, annuities and mutual funds has catered almost entirely to Lutherans and affiliated institutions. But a vote of the 2.5 million-membership of the nation’s largest fraternal benefit society could change that. An internal poll showed that about two-thirds of Thrivent members favor expansion, which would require changes in Thrivent’s articles of incorporation.

CEO Brad Hewitt said Thrivent, whose current organization was formed by the 2002 merger of Aid Association for Lutherans in Appleton and Lutheran Brotherhood of Minneapolis, must be careful not to tamper with its faith-based brand. The most likely targets for expansion would be other churches, schools and perhaps certain nonprofit groups that provide social services, he said.

At the end of 2011, Thrivent had $170.2 billion of life insurance protection in force, and paid out $310 million in dividends. Its adjusted surplus stood at $5.4 billion. The organization has reported three consecutive years of growth in sales, revenue, assets under management and total adjusted surplus, which is a measure of an insurer’s financial strength.

Thrivent distributes exclusively through a career force and selects agents who believe in the faith-and-finances theme of the organization. That makes it more difficult to find people and limits growth, Hewitt said.

Hewitt said the company hasn’t decided whether it would need to change its name if it changed its customer base. “We haven’t figured that out yet,” he said. “The reality is, the practical thing is, people call us ‘Thrivent,’ “ he said.

© 2012 RIJ Publishing LLC. All rights reserved.

Investors are faintly positive: Wells Fargo/Gallup Poll

U.S. investor optimism fell to +24 in early May from the +40 recorded in February, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index. The decline was driven by increased investor pessimism about the future course of the overall economy.

The optimism of retired respondents fell to +17 in May, down from +38 recorded in February, a drop of 21 points and down from +61 a year ago. Non-retired Americans recorded an optimism level of +27 in May, versus +41 in February.

The Index had a baseline score of +124 when it was established in October 1996. It peaked at +178 in January 2000, at the height of the dot-com boom, and hit a low of –64 in February 2009.

On low interest rates. One in three investors (33%) say low interest rates will cause them to “delay” retirement. Forty-five percent of non-retired Americans and 34% of retirees fear that current low interest rates may cause them to “outlive” their money in retirement. A little more than a quarter (26%) of non-retired and 19% of the retired say low interest rates will cause them to put money in investments they “might have avoided.”

Thirty-two percent of investors think today’s low interest rates are likely to lead to a sharp increase in inflation in the years ahead. “Some people may feel like they’re pushing mud up hill,” said Karen Wimbish, director of Retail Retirement at Wells Fargo.

Non-retired investors say lower interest rates are good for consumers and businesses, and the “benefits outweigh the costs” by 73% to 22%. Retirees are more evenly split, with 47% saying “benefits outweigh the costs” versus 43% who do not.

On saving for retirement. Today’s retirees are more likely to depend on employer-sponsored pensions and Social Security, while future retirees expect to rely on their own savings:

• Only 20% of non-retirees say Social Security will be a major funding source for them in retirement (down from 30% in May 2011), compared with 47% of retirees.
• 64% of the non-retired say their 401(k) will be a major source of retirement funding for them (down from 70% in February), compared with 33% of the retired.
• 36% of the non-retired expect pensions to be a major funding source for retirement (up from 32% in February), compared with 50% of retirees.
• 31% of the non-retired call stock investments a “major source” for funding their retirement (down from 33% in February, compared with 27% of the retired.

On healthcare. Three in four investors are dissatisfied with the total cost of healthcare in the U.S., while 80% of all respondents say healthcare is in “a state of crisis” or has “major problems.” But nine in 10 investors consider their own healthcare “excellent” or “good,” while eight in 10 rate their insurance coverage as “excellent” or “good.”

• Two in three investors (67%) say their insurance costs increased a lot (23%) or a little (44%) over the past year. Twenty-nine percent of the non-retired say rising healthcare costs have hindered them from saving for retirement and forced some to delay retirement (12%).

On planning and control.  Forty-eight percent of investors say now is a good time to invest in the markets, versus 52% in February and 53% a year ago.

• More than half of investors (57%) say they feel they have “little” or “no control” in their ability to build and maintain their retirement savings in the current environment, but 82% of non-retired and 92% of retired who have a financial plan feel it gives them confidence they can achieve their future goals.
• Only 28% of the non-retired respondents and four in 10 (42%) of the retired say they have a “written” plan for retirement, however. The survey found that 51% of retired women say they have a written plan, compared with only 32% of retired men.

The Wells Fargo-Gallup Investor and Retirement Optimism Index, which was conducted May 4–12, 2012. The sampling for the Index included 1,018 investors randomly selected from across the country, including any head of household or a spouse in any household with total savings and investments of $10,000 or more. The sample size is comprised of 75% non-retired and 25% retirees. Of total respondents, 63% had reported annual income of less than $90,000 and 37% had income of $90,000 or more. About two in five American households have at least this amount in savings and investments.   

Doug Schubert advances at Securian Financial

Securian Financial Group has appointed Doug Schubert to director, Retirement Plan Technology. His responsibilities include oversight of the business technology unit for Securian’s retirement plan product line.

Schubert provides technological production support, project management, business analysis and quality assurance services associated with technology projects that support and enable key business initiatives. Prior to his promotion, Schubert was a manager in the same division.
Schubert earned a bachelor’s degree from Hamline University in St. Paul, MN. He joined Securian in 1984 as a programmer in the Information Technology department. He is a member of the Life Office Management Association (LOMA), Society of Professional Actuaries and Record Keepers (SPARK) and chairman for White Bear-Mahtomedi Young Life.

The Phoenix Companies to market LTCI/fixed annuity hybrid through AltiSure Group

The Phoenix Companies has introduced the Protected Solutions Annuity, a long-term care insurance and single-premium fixed deferred annuity hybrid, which will be issued by PHL Variable Insurance Co., a Phoenix unit, and distributed by The AltiSure Group.

The product offers two indexed accounts and a fixed account, principal protection from investment loss and, for an additional fee, a guaranteed chronic care and enhanced death benefit.

The benefits of the Protected Solutions Annuity can be applied to chronic (or confinement) care within the home, an assisted living facility or nursing home. If the chronic care benefits go unused, the beneficiary is entitled to an enhanced death benefit.

Protected Solutions offers the “SafetyGuard Benefit” which provides both the chronic care benefit, as well as an enhanced death benefit. The Guaranteed Chronic Care Benefit can be activated when the covered individual is unable to perform at least two of the six Activities of Daily Living (bathing, dressing, transferring, toileting, continence, and eating) and provides benefits up to 400% of premium paid out over five years.

If the covered individual never uses the chronic care benefit, upon death, the beneficiary can choose the Guaranteed Enhanced Death Benefit as an alternative to the standard lump-sum death benefit provided by the annuity account value.

The Guaranteed Enhanced Death Benefit provides a death benefit, payable monthly over five years, equal to a guaranteed multiple, ranging from 125% to 200%, of the original premium minus withdrawals. The guaranteed multiple varies by issue age and year of death.

Both the Guaranteed Chronic Care Benefit and the Guaranteed Death Benefit become available after the fifth contract year and, until activated, can continue to grow for another ten years. If no withdrawals have been made from the annuity contract, a return of premium death benefit is available in all contract years. This feature provides a return of the additional fees paid for the SafetyGuard Benefit.

Dave McLeod appointed SVP at Great-West

Great-West Life & Annuity Insurance Company (Great-West) announced today the promotion of Dave McLeod has been promoted to senior vice president, product management, at Great-West Life & Annuity Insurance Company.

McLeod will lead the company’s recently integrated product management efforts while remaining managing director for Great-West subsidiary Advised Assets Group, LLC (AAG), a registered investment adviser. He will also serve as managing director for Great-West subsidiaries Maxim Series Fund, Inc. (Maxim), a management investment company; and GW Capital Management, LLC, Maxim’s investment adviser.

McLeod had been managing director of AAG for five years. Since joining Great-West in 1985, he has held several leadership positions in the company, including vice president, investment operations, and controller/treasurer of Maxim. McLeod is a business graduate of the University of Manitoba. He holds a NASD Series 65 license and a Certified Management Accountant designation. 

Financial Engines hires SAS to help mine 401(k) data

Financial Engines, the provider of investment advisor to 401(k) plan participants, has engaged SAS, a specialist in business analytics software, to help it analyze its database of 401(k) participant demographic information.

SAS will help Financial Engines save time in data manipulation, processing and analysis of data on more than 8 million plan participants, the companies said in a release. In addition to increased efficiencies, the analysis will provide a more comprehensive user view.  

Dan Arnold named CFO of LPL Financial

Dan Arnold, the managing director and head of strategy for LPL Financial since October 2011, will succeed Robert Moore as chief financial officer, effective June 15. Moore was named president and chief operating officer May 1.

Following a three-month transition of CFO responsibilities with Moore, Arnold will report to Mark Casady, LPL Financial chairman and CEO.  Arnold will be based in San Diego.

Before becoming head of strategy, Arnold was president of Institution Services, the LPL Financial business unit that provides third-party investment and insurance services to more than 750 banks and credit unions nationwide.

In his new role as CFO, Mr. Arnold will have oversight of LPL Financial’s Finance organization, as well as its Internal Audit and Strategic Planning functions. 

“Disconnect” exists in political debate: Concord Coalition

Politicians are arguing over the wrong issues, says The Concord Coalition, citing a new report from the Congressional Budget Office (CBO) as evidence.

“Candidates and elected officials this year have been focusing on cuts to domestic and defense appropriations even though these programs are not the source of future budgetary pressures,” said Robert L. Bixby, The Concord Coalition’s executive director.

“Meanwhile, the tax debate has largely been about whether to extend all or part of the expiring tax cuts and less about the kind of base-broadening revenue-increasing reforms we need.”

Instead, public officials should focus on the aging U.S. population and rising health care costs, Bixby said.

The CBO’s 2012 Long-Term Budget Outlook shows that the percent of Gross Domestic Product spent on Social Security, Medicare and Medicaid, as well as interest on the public debt, will rise by 12.3 percentage points over the next 25 years, while all other spending will drop by 1.4 percentage points. Under current policies persist, revenues for those growing programs will not keep up with their growth. 

The Concord Coalition recommended enacting “a package of policies that have the same amount of deficit reduction as in current law, but with a different, more sensible mix of revenue increases and spending cuts. In addition, the timing should allow for continued short-term support for today’s struggling economy, with structural reforms for the long term phased in.”

Tom Idzorek succeeds Peng Chen at Morningstar 

Morningstar’s Global Investment Management Division has a new president. Thomas Idzorek, chief investment officer of Morningstar Investment Management, will assume the position at the end of June, replacing Peng Chen, who is returning to China for family reasons.

In his six years at Morningstar, Idzorek, 41, has specialized in quantitative research and strategic and tactical asset allocation, overseeing the Investment Management division’s Global Investment Policy Committee and serving on Morningstar’s retirement plan committee.

Idzorek’s other areas of expertise include lifetime asset allocation, target-date funds, retirement income solutions, fund-of-funds optimization, risk budgeting, returns-based style analysis, and performance analysis. 

Before joining Morningstar, Idzorek was senior quantitative researcher for Zephyr Associates, where he developed and researched financial models and techniques for inclusion in the company’s analytical software.  He co-developed the “style drift score” and implemented the Black-Litterman model in the firm’s software. 

Idzorek holds a bachelor’s degree in marketing from Arizona State University, an MBA from Thunderbird School of Global Management at ASU, and the Chartered Financial Analyst (CFA) designation.  

Jackson National acquires SRLC America Holding Corp. from Swiss Re

Jackson National Life has agreed to buy SRLC America Holding Corp. (SRLC) from Swiss Re for $621 million in cash. Swiss Re will retain a portion of the SRLC business through reinsurance arrangements to be undertaken prior to closing. The transaction is subject to regulatory approval and is expected to close in the third quarter of 2012.

SRLC is a life insurance business that sits within the US division of Swiss Re’s Admin Re.

The earnings of SRLC are derived from long-duration cash flows generated principally from term life, whole life and basic universal life products. Jackson will acquire assets related to the subject business of approximately $10 billion and approximately 1.5 million policies.

Jackson, an indirect wholly owned subsidiary of the United Kingdom’s Prudential plc, expects the transaction to add to the company’s IFRS pre-tax earnings while having a modest impact on its statutory capital position. The acquisition will diversify Jackson’s earnings base by increasing the percentage of income derived from underwriting activities relative to the company’s current spread- and fee-based businesses, the company said in a release.

J.P. Morgan launches new retirement plan advisor tool

J.P. Morgan Asset Management has launched a new tool designed for retirement plan advisors.

The Plan Design Guide aims to help retirement plan advisors evaluate and benchmark their clients’ plans based on the sponsor’s retirement benefits philosophy.  Using a brief assessment, the tool charts the sponsor’s standing relative to peers using two dimensions — their philosophy towards innovation and their level of plan investment.  The guide then offers steps towards executing new investment strategies.

Plan Design Guide is based on in-depth proprietary research into the primary factors that influence plan design decision-making.  

“It offers a more objective way to evaluate plan effectiveness relative to a precise group of peers with similar retirement plan preferences and characteristics, allowing sponsors to identify realistic, actionable opportunities that may improve participant outcomes via strategies that match their philosophy,” the company said in a release.

LPL’s Retirement Benefits Group to add consultants

LPL Financial LLC is expanding its Retirement Benefits Group with the addition of five new retirement plan consultants. 

Matthew Haerr, Christine Soscia, Amir Arbabi, Peter Littlejohn, and William Brown will provide retirement guidance to institutional clients in the areas of plan design assistance, compliance updates, and investment due diligence, as well as participant communication and education. 

These new advisor additions will be based out of the San Diego, CA, Akron, OH, Las Vegas, NV, and Idaho Falls, ID offices of Retirement Benefits Group.

Matthew Haerr has been a financial advisor for over 20 years, working with company-sponsored retirement plans, family and personal wealth management, and personal retirement planning throughout his career. Christine Soscia has been in the financial services industry for over 15 years, working on the design, audit and implement employee benefit programs.   

Amir Arbabi assists companies on plan design, fiduciary oversight and investment due diligence. He also has experience in investment management from his training at Merrill Lynch and Morgan Stanley Smith Barney.

Peter Littlejohn has over 27 years of retirement plan experience at several firms, including Highmark Capital Management, Ivy Funds, Wells Fargo, Strong Capital Management and Cigna Retirement and Investment Service.

© 2012 RIJ Publishing LLC. All rights reserved.

On June 1, MetLife filed a new variable annuity application for its GMIB Max IV, which supersedes its GMIB Max III in all but an unspecified number of unnamed states.

Under the new version, contract owners who take withdrawals before the fifth contract anniversary are locked into a maximum 4.5% per year withdrawal rate. If they defer withdrawals for five years, however, they can take out up to 5% for life. After 10 years, owners may annuitize the contract.

Last November, MetLife announced that it would reduce the deferral bonus on the benefit base of its recently-introduced GMIB Max product from 5.5% to 5%, the company said in a release.

“As of January, the roll-up rate on our GMIB Max product will be reduced from 5.5 percent to 5 percent,” MetLife CEO Steven Kandarian told analysts in a conference call in November.

In mid-February, MetLife announced that it was discontinuing its GMIB Plus products, which offered greater investment flexibility than the GMIB Max with slightly lower withdrawal rates.

The GMIB Max IV rider charge is 100 bps, unchanged from previous iterations of the rider, with a maximum of 150 basis points. The portfolio expenses range from 52 basis points to 134 basis points. The combined annual mortality & expense ratio and administrative fees are 130 basis points. There is an additional fee for an enhanced death benefit.

© 2012 RIJ Publishing LLC. All rights reserved.

On June 1, MetLife filed a new variable annuity application for its GMIB Max IV, which supersedes its GMIB Max III in all but an unspecific number of unnamed states.

Under the new version, contract owners who take withdrawals before the fifth contract anniversary are locked into a maximum 4.5% per year withdrawal rate. If they defer withdrawals for five years, they can take out up to 5% for life. After 10 years, owners may annuitize the contract.

Last November, MetLife announced that it would reduce the deferral bonus on the benefit base of its recently-introduced GMIB Max product from 5.5% to 5%, the company said in a release.

“As of January, the roll-up rate on our GMIB Max product will be reduced from 5.5 percent to 5 percent,” MetLife CEO Steven Kandarian told analysts in a conference call in November.

In mid-February, MetLife announced that it was discontinuing its GMIB Plus products, which offered greater investment flexibility than the GMIB Max with slightly lower withdrawal rates.

The GMIB Max IV charge is 100 bps, unchanged from previous iterations of the rider, with a maximum of 150 basis points. The portfolio expenses range from 52 basis points to 134 basis points. The combined annual mortality & expense ratio and administrative fee are 130 basis points. There is an additional fee for an enhanced death benefit.

© 2012 RIJ Publishing LLC. All rights reserved.

In the month of June, RIJ tackles the topic of government. Although not much is happening in the presidential campaign, there’s plenty of action at the regulatory level that’s pertinent to the field of retirement income.

There’s the looming deadline for compliance with 401(k) fee disclosure rules, the dispute over harmonized regulation of financial advisors and brokers, and the prospect of an exemption for deferred income annuities from RMD rules, among other things.   

But these questions are peripheral to three of country’s largest and most intractable political problems: Balkanization, conflicted corporate governance, and failed public-private hybrids.  

 *                              *                               *

“Balkanization” (Too many governments). Where I happen to live, in the densely populated East, you can drive 10 miles and pass through six or seven boroughs, townships, school districts and towns. Since 1980, they’ve bled together into one teeming sprawl, yet they’ve retained their own duplicative governments, services, and tax regimes.

As in many other places, our central city, once the busy capital of a regional empire, is in steep decline. Its former vitality—families and businesses—has bled to the surrounding suburbs, where the taxes are lower and there’s no ancient infrastructure in need of replacement.

Recently, the city fathers hatched a plan to revive downtown with a new hockey arena. But now that an entire city block has been cleared for the arena, the surrounding suburban communities are reconsidering their agreement to help pay for it. Meanwhile, the urban core has been reduced to rubble, waiting for construction that may never begin.   

Our region—where a capital city itself is in receivership—suffers from a lack of wise planning because interests are so fragmented. In the financial industry, we emphasize the necessity of a plan, and the wisdom of consolidating our assets with one advisor. In our communities, we have too many different plans, and no plan.   

 *                              *                               *

The “public” corporate structure (No governance to speak of). Although many great people do many great things at public companies, the public company model is increasingly a victim of destructive incentives, ineffective boards, impotent shareholders, and a self-defeating short-term focus.    

The managers of public companies serve at least three masters: their shareholders (number one); their customers; and their employees. The conflicts of interest that inevitably arise from this arrangement are unavoidable. But how can you put shareholders’ interests first and not shortchange the customers or the employees?

Several large publicly-held companies helped lead the country to its biggest financial crisis since the Great Depression. Yet, thanks to the corporate veil and limited liability, none of the executives has been held either financially or legally accountable.

In the life insurance industry, demutualization, which was so tempting during the 1990s, yielded bitter fruit in the 2000s. Public ownership is a misnomer, and the governance model for public companies is broken. Enron taught nothing. Sarbanes-Oxley was ineffective. As for the SEC and FINRA, the best that can be said is that they are hopelessly undermanned and outgunned.  

 *                              *                              *

Hybrid institutions (schizophrenic governance). Hybrid structures like Fannie Mae and Freddie Mac or Medicare sound appealing at first because they’re more politically acceptable to establish than all-private or all-public institutions. But they’re too vulnerable to moral hazard to succeed in the long run.

When the country wants to provide a needed public service (like subsidized health care for seniors) but the government doesn’t want to crowd out private enterprise, it sets up a hybrid service like Medicare, where the public sector pays private medical providers. But moral hazard quickly creates the temptation, among the providers of care, the users of care, and the insurers, to milk the system. The inevitable result: runaway costs.   

When the government wants to subsidize housing but doesn’t want a huge obligation on its own balance sheet (like millions of home mortgages), it insures the obligations of a private stock company, like Fannie Mae. What eventually follows, as we saw in the financial crisis, is moral hazard, leading to the privatization of profits and the socialization of costs. 

*                              *                              *

These self-interfering problems, which hide in plain sight, are so entrenched, so integrated with daily life, that we can barely recognize them, let alone begin to solve them. It requires a flight of utopian fantasy even to imagine what an alternative reality might look like, let alone agree on a plan for realizing it. The hope of reaching any public consensus on anything, these days, seems naïve.     

© 2012 RIJ Publishing LLC. All rights reserved.

As more and more Baby Boomers continue to retire without a traditional pension plan, employers are faced with the formidable task of helping their employees prepare themselves to fund their “golden” years.

A recent study conducted by Cogent Research® indicates that employers are far from shirking their responsibilities toward the welfare of their employees. In fact, automatic enrollment is embraced by 38% of all 401(k) plans, while automatic rebalancing is employed by 39%.

These and other findings are included in the annual Retirement Planscape® study, based on a representative survey of over 1,500 defined contribution (DC) plan sponsors across all plan sizes and industries.

What follows is a detailed analysis of how employers are adjusting 401(k) plans to help plan participants more easily get started and, hopefully, reach their goals, using a combination of automatic plan features, investment advice and retirement income product offerings to help employees steer the course.  

Key Findings

1. Automatic enrollment and automatic rebalancing have become widely accepted practices.  Automatic enrollment and rebalancing has been adopted by nearly 40% of all 401(k) plans. While the trend is consistent across the spectrum of plan size, some important variations do exist:

• Usage of automatic enrollment among Small Plan sponsors ($5 million to $20 million in assets) has increased significantly from the previous year with nearly half (48%) now utilizing this feature.
• Roughly one-third (37%) of Micro Plan sponsors (less than $5 million in DC plan assets) have incorporated automatic enrollment into their plans, compared to nearly two-thirds (65%) of Mega Plan sponsors ($500 million or more in DC plan assets).
• There is more consistency in the use of automatic rebalancing across all plan sizes, ranging from 39% among Micro Plan sponsors to 50% among Mid-sized ($20 million to $100 million in assets) and Large Plan sponsors (DC plans with assets of $100 million to $500 million).

2. The vast majority (90%) of employers offer some sort of investment advice to their DC plan participants, and a significant number offer multiple advice options. Once enrolled in a DC plan, many participants seek assistance in selecting the appropriate asset mix to meet their retirement goals, and our data indicate that employers are recognizing this need.

Common advice conduits include: An online investment model provided by the plan provider or independent third party, access to a financial advisor, and one-on-one advice provided by an independent third-party only.

Among the key findings:

• Just over half (51%) of all DC plan sponsors offer access to a single type of advice, while one-quarter (25%) provide participants with access to two methods of advice. Only a handful (14%) of plan sponsors offers investment advice via three or more channels.   
• Distinct preferences can be seen among plan size segments: Micro Plans most often provide access to a financial advisor as a means for delivering advice, while Large and Mega Plans rely more heavily on online models offered by their current plan provider and from independent third parties, respectively.

Retirement Income Product Offerings

1. Interest in retirement income products is on the rise. Encouragingly, plan sponsors are recognizing that employees need help making the transition from accumulation to decumulation, and are becoming more amenable to offering DC plan participants investment options designed to generate an income stream in retirement. (See Exhibit 1 below)

• Overall, a third of all plan sponsors (35%) offer products designed specifically to help participants generate an income stream. However, Micro and Small Plan sponsors are the most likely to offer these investment vehicles. Interestingly, Mega Plan sponsors show the strongest interest in adding retirement income options, which may influence the structure and pricing of such products going forward.

About the Study

The Retirement Planscape® study was conducted by Cogent Research® last February to April 2012, surveying over 1,500 plan sponsors across Micro, Small, Mid-sized, Large, and Mega plans. Respondents were screened to ensure that they were decision makers and had sufficient levels of knowledge about key plan features.  The study allows plan providers to pinpoint competitive strengths and weaknesses in brand, loyalty, and key plan sponsor experience metrics to maximize acquisition opportunities and minimize attrition. The report provides a detailed analysis of plan sponsors’ needs, their selection process for plan providers and investment managers, as well as their attitudes and loyalty toward providers, investment managers, and advisors.

About Cogent Research®

Cogent Research® helps clients gain clarity, obtain perspective, and formulate direction on critical business issues. Founded in 1996, Cogent Research® provides custom research, syndicated research products, and evidence-based consulting to leading organizations in the financial services, life sciences, and consumer goods industries. Through quality research, advanced analytics, and deep industry knowledge, Cogent Research® delivers data-driven solutions and strategies that enable clients to better understand customers, define products, and shape market opportunities in order to increase revenues and grow the value of their products and brands.

[email protected]