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Mercer launches “My Retirement Workshop” for plan participants

Mercer, the provider of defined contribution plan services to 1.3 million participants, benefits has launched “My Retirement Workshop,” (www.myretirementworkshop.com) an online retirement planning and education campaign for employees whose 401(k) plans it administers.

Styled after popular home improvement TV shows, the website provides interactive tools and instruction to help investors “fix up” their retirement plans.

My Retirement Workshop consists of four main features:

• A brief self-assessment tool that provides personalized feedback and recommended actions.
• A selection of projects that address common retirement planning challenges.
• A toolbox of calculators, worksheets and widgets.
• An opportunity to “learn from the pros” by watching videos, listening to podcasts or reading articles.

Visitors to the site can interact with peers through discussion boards, take quick polls and share the site through social media. The My Retirement Workshop online education campaign was launched in early May and will be a year-long campaign, with new content and features to be added in the fall.

Participants can access My Retirement Workshop through their plan’s website. A public version of the site is also available at myretirementworkshop.com, where mobile device users also can access a mobile-optimized variation of the site for easy viewing.

Plan participants would welcome an income solution: The Hartford

Three out of five Americans (64%) say their employer’s 401(k) or other retirement plan does not allow them to turn their savings into guaranteed income in retirement or they are unsure if it does, according to The Hartford’s Guaranteed Retirement Income study.

The concept of guaranteed retirement income appeals most to those with a combined annual household income of $50,000-$74,000. A total of 92% in that demographic would like their employer to offer a guaranteed income option compared to 87% percent of those earning $30,000-$49,000, 86% earning less than $30,000, and 84 % earning $75,000 or more.

Women (89%) had a slightly greater preference for guaranteed retirement income than men (84%).

Perhaps because younger workers are less likely to have defined benefit pensions at work, the study also showed that the younger the employees, the more interested in a income solution they were:

• Overall, 87% of respondents of all ages say they find it “very” or “somewhat” appealing to be able to turn at least a portion of their retirement savings into a guaranteed income.
• 95% of workers younger than 30 say the same, the highest of any age group.
• The same sentiment was expressed by 90% of those ages 30-39, 89% of ages 40-49, 88% of ages 50-59, and 77% of those age 60 and older.

The Hartford’s study, which surveyed 2,500 Americans ages 18 and older earlier this spring, was conducted following the introduction of The Hartford Lifetime Income (HLI), an investment option that allows 401(k) participants to use their savings to create a pension-like income in retirement.

Michael Smith named Chief Risk Officer of ING U.S.

Michael Smith has been named chief risk officer with responsibility for overseeing the enterprise-wide and business-level risk monitoring and management program for ING U.S., the company reported.

Smith joined ING in 2009 as chief financial officer and chief risk officer for the ING U.S. Annuity business. In 2011, he became chief executive officer of the ING U.S. Annuity business, and led the effort to manage the variable annuity book of business into a run-off closed block. 

Smith’s responsibilities include managing the framework for measuring, controlling, hedging and pricing risk. In addition to his risk management role, he will continue to oversee the Closed-Block Variable Annuity run-off business.

Before joining ING, he was the head of Profitability and Risk Management for Retirement Solutions at Lincoln Financial Group (LFG), where he held several leadership positions, including chief actuarial officer for Lincoln National Life, chief administrative officer and CFO for Lincoln Financial Distributors Inc. (LFD), CFO and chief risk officer for LFG’s Life and Annuity division and head of customer support for LFG’s Employer Markets division.

An actuary and CFA, Smith holds bachelor’s degrees in economics and Russian studies from the University of Michigan.  

Edward Jones first in “investor satisfaction: J.D. Power & Assoc.

For the sixth year out of the past eight, Edward Jones has ranked highest in investor satisfaction among full service brokerage firms, according to the J.D. Power and Associates 2012 Full Service Investor Satisfaction Study. 

The study measures overall investor satisfaction with full service investment firms on the basis of seven factors: investment advisor, investment performance, account information, account offerings, commissions and fees, website and problem resolution.  

Edward Jones ranked highest in investor satisfaction by J.D. Power and Associates in 2010 and 2009, from 2005 through 2007, and in a tie in 2002, when the study began. Edward Jones in Canada ranked highest in the J.D. Power and Associates Canadian Full Service Investor Satisfaction Study in 2006 through 2008.

The 2012 Full Service Investor Satisfaction Study is based on responses from 4,378 investors who primarily invest with one of the 14 firms included in the study.  The study was fielded in February 2012. Edward Jones’ 12,000-plus financial advisors serve almost 7 million clients individual investors in the United States and Canada.  

Americans respect/disrespect Wall Street   

Each year The Harris Poll asks the Americans what they think about “the nation’s largest banks, investment banks, stockbrokers, and other financial institutions”—the businesses known metonymically as Wall Street.  

Again, this year, the American public said that the Street has problems. Eight percent of those polled agreed with the statement that Wall Street “benefits the country a lot.” (As recently as 2004, that number was 24%.) Twice as many—16%—said Wall Street “harms the country a lot.”

By a margin of 82% to 15%, American adults believe that “Wall Street should be subject to tougher regulation.” But, by 62% to 34%, Americans also believe that “Wall Street is absolutely essential,” the poll showed. Over half of U.S. adults, or 55% (down from 80% in 1997) believe that Wall Street benefits the country while 42% (versus 13% in 1997) believe it harms the country.

Some of the other main findings of this year’s poll, which was conducted among 1,016 adults in mid-April, were:

• Almost four in five Americans (78%) believe that Wall Street firms should only pay bonuses when they are doing well and making good profits;
• Seven in ten U.S. adults (70%) believe most people on Wall Street would be willing to break the law if they believed they could make a lot of money and get away with it;
• Just over two-thirds of adults (68%) do not believe that people on Wall Street are as honest and moral as other people;
• Two-thirds (67%) of U.S. adults do not believe that what is good for Wall Street is good for the country; and,
• Almost two-thirds (64%) do not believe most successful people on Wall Street deserve to make the kind of money they earn.

New advisor tool from Nationwide to help with health care cost planning

Nationwide Financial has launched a new online tool, called the Personal Health Care Assessment program, to help advisors estimate their clients’ health care expenses in retirement.

The program uses proprietary health risk analysis and up-to-date actuarial cost data such as personal health and lifestyle information, health care costs, actuarial data and medical coverage to provide a meaningful, personalized cost estimate that will help clients plan for medical expenses.

To illustrate the opportunity that advisors have for using the medical issue as a way to enhance or initiate client relationships, Nationwide also sponsored a Harris Poll showing that nearly half of soon-to-be retired high net worth Americans say they are “terrified of what health care costs may do to their retirement plans,” and nearly three in four say soaring health care costs is among their top retirement fears.   

The Poll of 1,250 Americans (half of whom plan to retire by 2020) with $250,000 or more in household assets showed that 38% of those nearing retirement haven’t discussed their retirement with an advisor. Of those who have, only one in five discussed health care costs in retirement not covered by Medicare.

The survey also revealed that 43% of soon to be retired Americans say they plan to discuss health care costs with a financial advisor. Of the 12% of near-retired Americans who said they plan to switch financial advisors, 54% said they would be likelier to stay with their current advisor if they could get help planning for health care expenses in retirement.

Although three in five (59%) near-retirees say that most financial advisors are not equipped to discuss retirement health care costs with their clients, many of those who have indicated that it was worthwhile. Only one in five surveyed say they are confident in their knowledge of Medicare coverage, and more than half say it is “very to extremely important” they educate themselves on Medicare coverage when planning for retirement.

Near-retirees who plan to enroll in Medicare estimated that Medicare would pay for 68% of their health care costs in retirement. But when asked how they arrived at that percentage, nearly three in four said they guessed or didn’t know, 15% based on their own research, 7% spoke with friends who have already retired and 4% said their financial advisor told them. According to the Employee Benefit Research Institute, Medicare currently covers only about 51% of the expenses associated with health care services.

While 45% expect health care to be their biggest expense throughout retirement, on average they expect to spend only $5,621 a year on health care. But a 2010 study estimated out-of-pocket health care expenses for a 65-year-old couple retiring today and living for 20 years to range from $250,000 to $430,000, or as much as $10,750 a year per person.

Harris Interactive collected data for the survey from January 3-19, 2012. Sampling included 625 adults ages 55+ having $250,000 or more in household assets who plan to retire by 2012 and 625 retired adults ages 65+ having $250,000 or more in household assets.  

Waste from “suboptimal” trade execution cited

As much as $5 billion is wasted each year in sub-optimal broker routing decisions, according to an examination of the execution quality of marketable limit orders and at-the-quote limit orders on U.S. equity exchanges by Woodbine Associates, Inc.

The report, “U.S. Equity Exchange Performance,” focuses on how exchanges compare in execution quality and information asymmetry associated with basic order types central to price discovery.

“There are differences among exchanges,” said Matt Samelson, principal and author of the report. “The buy-side must look out for themselves, intensively review sell-side order handling, and insist on accountability for sub-optimal routing. At the same time, the buy-side should be willing to pay higher commissions to brokers that truly provide superior order routing and premium service.”

The third annually-produced report examines exchange performance in marketable limit orders and at-the-quote limit orders less than 2,000 shares, without special order handling instructions, traded during normal trading sessions, excluding the opening and closing trades. 

Marketable limit orders are examined on the basis of execution prices and the degree of post-execution price reversion. At-the-quote limit orders are examined only on the basis of price reversion. Orders are examined in the context of capitalization and listing exchange.

“Many orders are not routed to the right venues at the right time for the right reasons,” added Samelson. “When a broker’s fiduciary responsibility to a client’s execution ends, economics turn toward the broker and away from the client. Pennies earned by brokers may cost principals dollars in execution quality. It is important that each client knows where their broker’s fiduciary responsibility ends.”

To learn more, e-mail Ryan Surprenant ([email protected]) or call 203-274-8970, ext. 203.

J.P. Morgan offers Financial Engines^’ Income+ service to 401(k) plans

Financial Engines and J.P. Morgan Retirement Plan Services have announced that Financial Engines^® Income+ has been integrated into J.P. Morgan Retirement Plan Services’ 401(k) offering.

Income+ is available as part of J.P. Morgan’s in-plan professionally managed account program, J.P. Morgan Personal Asset Manager, which works within a 401(k)’s existing investment line-up to enable more personalized portfolios designed to provide steady retirement income.

Income+ is designed to balance safety and growth in the years leading up to retirement. It provides steady monthly payouts from a 401(k) account, which can last for life with the optional purchase of an out-of-plan annuity.

Fidelity enhances its smartphone app

Fidelity Investments said its free mobile phone “app” has been updated to enable stock plan participants to access and track their portfolios and conduct transactions from their iPhone, iPod touch or Android.

The app enables participants with stock option plans to exercise and sell their options by following simple prompts. Investors can determine the total value of all of their options, the price of their exercisable options, the estimated value of their options and the aggregated tax rate that will apply if the options are sold.

Previously, participants could view their stock plan account balances from their iPhone, iPod touch or Android smart phone but could not conduct transactions. Other recent mobile enhancements include improved trading and research capabilities, comprehensive international market analysis and mobile check deposit for IRA and brokerage customers.

Participants now using FutureAdvisor, a free planning tool, to track $1 billion   

Less than 60 days since its initial launch, FutureAdvisor, a company started by West Coast techies that provides free web-based retirement income planning tools, says that it is of over $1 billion in assets and has identified more than $37 million in fee-saving opportunities for users.

FutureAdvisor’s co-founder, Bo Lu, also said the company has released a private beta version of a new product called “FutureAdvisor Premium” that provides automatic rebalancing and portfolio cleanup.

Since its launch last March 20, FutureAdvisor has experienced an increase of 25% growth week over week in people adopting the service, with many new users coming from Microsoft, Google, Intuit, and Oracle. FutureAdvisor supports more than 100 of the largest 401(k) plans in the country.   

According to a release, the company’s “new [rebalancing] service eliminates an often complex and frustrating process and moves the industry one step closer to providing users the convenience of a portfolio that manages itself.”  

In 1979, when Kelli Hueler was 20 years old, she spent part of her junior year of college backpacking in Asia. At one point, she found herself in the Khao-I-Deng refugee camp on Thailand’s Cambodian border. A self-described naïve Midwestern kid, she began volunteering alongside Catholic Relief Service workers in a reception tent for women and children who had fled Pol Pot’s killing fields.

“As an American, I had no concept of war or famine,” she recalled this week. “I remember one day I heard a loud rumbling and said to one of the nuns, ‘I think we’re in for some rain,’ or something like that. She said, ‘Honey, that’s not thunder.’ That’s how naïve I was.”

Today, Hueler, the president of Hueler Companies in Eden Prairie, Minn., monitors a different kind of border with a different kind of refugee. Her Income Solutions single premium immediate annuity (SPIA) platform serves as a kind of waystation for people crossing from 401(k) plans into the new frontier of retirement. (See today’s lead story in RIJ). Her humanitarian mission: to help Boomers get the best prices on income annuities.

Her attempts to fulfill that mission since 2003 has won her many allies in the retirement business but also some keen adversaries. Her goal has been to create an alternative annuity sales channel that eliminates many of the inefficiencies and informational asymmetries that characterize traditional annuity sales channels. She has tried to use the Internet to change the annuity industry in much the same way as sites like cars.com and autotrader.com have changed the auto business. But those in traditional channels—for whom inefficiencies and asymmetries are revenue-generating—don’t necessarily welcome the competition.  

In a phone interview this week, I suggested that she has “ruffled some feathers” in the process. A minister’s daughter, surgeon’s wife and mother of three sons, she was both surprised and not surprised to hear that. 

“We would prefer to collaborate with everyone,” she said carefully, referring to Income Solutions. “But we bring a message that challenges the status quo, and that doesn’t put us in a popular position. If we’ve had strong detractors, it’s because we’re taking power away from the traditional delivery channels.”

For example, when Hueler first went to the major annuity manufacturers and asked them to provide products to her platform at “institutional prices”—prices that did not have commissions already embedded in them—she didn’t always get a warm reception. In fact, had she not already established street-cred as a vendor of stable-value fund data to the pension industry, she probably wouldn’t have gotten an audience with insurance executives at all.

It undoubtedly surprises her prospects when they discover that they must meet her terms. When Hueler asks retirement plan sponsors to make Income Solutions available as a rollover option to their participants, she expects them to do much more than just provide shelf space. And, if anything, her expectations have risen over time. When she first courted plan sponsors, she accepted all comers, she told RIJ. She was grateful for any bit of buy-in she could get. But she discovered that some plan sponsors would set up a link to the platform without investing in the tools needed to support it. When she found that weak programs bled the credibility of her service, she decided to choose partners more carefully.  

“We have pulled back from just implementing with whomever wants to link to us,” she told RIJ. “We’re limiting it to those who make the annuity a viable option for participants. When we first started, we were hopeful to have any good plan administrator offer our program. But now we’re having a dialog that’s very different. We’ve learned that this requires program partners who are engaged and who are going to allow for an objective presentation of annuities. If they have any kind of bias against the product, it stops everything.”

She takes the same attitude—call it chutzpah, Norwegian-style—with the advisor community. For the past year or two, Hueler has been investing in an advisor-facing portal on Income Solutions where fee-based or fee-only advisors can learn about income annuities and buy them for clients without encountering a commissioned transaction. Rather than expend resources (there are only a handful of phone reps at Hueler’s headquarters) on any advisor who finds her site on the web, however, she prefers to seek out advisors who share her sense of mission.      

“We’re not handpicking advisors, but there’s no doubt that we’re looking for advisor organizations that are naturally inclined to think the way we do. It’s a bit of a shift from our original vision,” Hueler said.

If Hueler is making people uncomfortable, however, it’s not her exclusivity—which is really just a way of protecting the integrity of her business—that irritates. The more obvious reason is that she poses a new kind of competition that threatens to undermine the traditional structure of the annuity business. In some circles, that makes her as welcome as Jeff Bezos at a meeting of the Downtown Merchant’s Association.

And she has felt the backlash, in subtle ways. At the Income Solutions website, for instance, there’s language that clearly announces the fact that Income Solutions charges a 2% fee. Hueler put the language there in the interests of transparency and differentiation. Competitors, she said, have used that disclosure to make potential clients believe that she charges a fee but they don’t. (Commissions and fees, of course, are embedded in the payout amount of retail SPIAs and not quoted separately.) 

It’s telling that, even though her fee disclosure gives ammunition to her rivals, Hueler let the language stand. She wouldn’t be maneuvered into relinquishing her commitment to transparency. “If you don’t have a value proposition, you won’t be successful, and our value proposition is clearly defined,” she said. “Our desire isn’t to ruffle feathers. It’s to do what’s in the interest of the public. And that makes some people uncomfortable.”

© 2012 RIJ Publishing LLC. All rights reserved.

Women on average are significantly less prepared for retirement than men, and encounter “distinctly different realities” when preparing for retirement, according to a study commissioned by the ING Retirement Research Institute. 

Among those with savings in or outside an employer-sponsored retirement plan, men have saved $149,000, on average, compared to $108,000 in total average savings for women.  For women living with at least on child under age 18 at home, the retirement savings figure averaged $88,000. 

Women plan participants tend to contribute less than their male counterparts, the study showed. More women (42%) than men (34%) contributed just one to five percent of their salary into their plans. Fewer women (25%) than men (33%) have a formal investment plan to reach their retirement goals. More than half (56%) of women don’t feel financially prepared for retirement, compared to only 42% of men. 

Because they spend more time out of the workforce, mothers face additional hurdles when it comes to building their retirement security, according to the study. Serving as a housewife or full-time parent reduces their earning and savings potential and also lowers Social Security benefits. ING U.S.’s study found that:

• 60% of mothers do not feel prepared for retirement and 46% don’t know how to achieve their retirement goals.
• 53% of mothers have less than $25,000 saved in their employer-sponsored retirement plan.
• 65% of mothers are receiving their employer’s full company match compared to 76% of fathers.

The percentage of women 18 years or older in the U.S. who are single has more than doubled in the last fifty years, to 25% from 12%, according to the Pew Research Center.  Among single women, ING’s research found that:

• 69% said they relied on their own research or family and friends for financial guidance, compared with 63% of married women.
• 21% of single women were worked with a financial professional, compared with 31% of married, divorced or widowed women. 
• 28%) have calculated how much they’ll need to retire, compared to half (50%) of men.
• 26% of single women spent some or a lot of time thinking about retirement, compared to 44% of widowed/divorced women.

The study also found that women across the generations have differences in their approach to retirement and planning.

• Gen Y (age 25-34) women are most likely to have barriers to saving (86%) compared to women 35 or older (74%) and more than half of Gen Y women (56%) have outstanding student loans.
• Only a small number (6%) of Gen Y women put most of their extra money to retirement savings, whereas close to half (47%) put it towards entertainment or vacations.
• More than half (54%) of women ages 50-64 have not calculated how much money they will need to continue their current lifestyle after retirement.
• Only one-third (33%) of women ages 50-64 have a formal investment plan to reach their retirement goals.

Findings are from an online survey conducted Oct. 5-13, 2011 by ORC International.  Respondents were 4,050 adults between ages 25 and 69 who are employed full-time with an annual household income of $40,000 or greater. Data was weighted to make the results representative of the U.S. population.

© 2012 RIJ Publishing LLC. All rights reserved.

Nationwide Financial Services, Inc. today announced several enhancements to the investment lineup for its variable annuity and variable life insurance products, including 15 new fund options.  The changes were effective May 1, 2012.

Nationwide will begin offering the following options from Dimensional Fund Advisors for its variable life products:

• VA Global Bond Portfolio
• VA US Large Value Portfolio
• VA US Targeted Value Portfolio
• VA International Value Portfolio
• VA International Small Portfolio
• VA Short-Term Fixed Portfolio

For the first time at Nationwide, advisors will have access to actively managed target volatility funds for both variable life insurance and annuity products. These funds include:

• Goldman Sachs VIT Global Markets Navigator Fund
• AllianceBernstein VPS Dynamic Asset Allocation Portfolio

Other fund additions to the life and annuity line-up will enhance investment options in high yield, asset allocation and mid-cap asset classes:

• Invesco VI Mid Cap Core Equity Fund
• MFS VIT New Discovery Series
• PIMCO VIT All Asset Portfolio
• Ivy Funds VIP High Income
• Ivy Funds VIP Mid Cap Growth

Nationwide is also offering two new funds to enhance its high yield bond asset class options for the America’s marketFLEX Series product:
Direxion Insurance Trust Dynamic VP High Yield Bond Fund
Fidelity VIP High Income Portfolio

As of May 1, 2012, Nationwide’s investment lineup includes:

• 92 variable annuity investment options.
• 96 variable life investment options.
• Coverage across 34 Morningstar categories.
• Access to over 33 money managers.
• 23 asset allocation investment options.
• More than 59 variable annuity options with a five-year track record and 49 options with a 10-year track record.
• More than 68 variable life options with a five-year track record and 58 options with a 10-year track record.

A weakening of the Japanese yen in relation to the U.S. dollar and certain other currencies was cited as the reason for the net loss of $988 million ($2.09 per common share) of financial services businesses attributable to Prudential Financial, Inc., the company reported.

The company took a pre-tax charge of approximately $1.5 billion from net changes in value relating to foreign currency exchange rates and changes in market value of derivatives. The currency-driven value changes were largely offset by corresponding adjustments to accumulated other comprehensive income which are not reflected in net income or loss.

After-tax adjusted operating income for Prudential’s Financial Services Businesses was $741 million, or $1.56 per Common share, compared to $1.62 per Common share for year-ago quarter. In other items from Prudential’s quarterly report:

• Individual annuities: Account values reach $124.1 billion at March 31, up 9% from a year earlier; gross sales for the quarter of $5.0 billion; net sales $3.2 billion.
• Retirement accounts: Values reach $239.8 billion at March 31, up 12% from a year earlier; total retirement gross deposits and sales of $9.0 billion and net additions of $404 million for the quarter.
• Individual Life annualized new business premiums of $79 million, up 22% from a year ago.
• Assets under management: $636.8 billion at March 31, up 12% from a year earlier; net institutional additions for the quarter, excluding money market activity, $5.4 billion.
• Group insurance: annualized new business premiums of $313 million, compared to $500 million a year ago.
• International insurance: constant dollar basis annualized new business premiums of $819 million, up 24% from a year ago.

© 2012 RIJ Publishing LLC. All rights reserved.

Allstate, which serves 16 million households in the U.S. and Canada, launched the IncomeProtector and GrowthProtector fixed indexed annuities this week. Currently available in 40 states, the products are expected to be available in 49 states by year-end 2012.

The Allstate Protector annuities offer a minimum guaranteed interest rate combined with an interest rate linked to a market index, such as the Standard & Poor’s 500. Allstate offers two Protector annuities:

• Allstate IncomeProtector is a deferred fixed indexed annuity whose guaranteed living benefit features a 7% annual deferral bonus that can produce an income base double the purchase premium if income is delayed for 10 years.
• Allstate GrowthProtector is a flexible premium fixed indexed annuity offering a guaranteed rate of return.  

Both Allstate Protector annuities have a purchase payment bonus that remains part of the contract value or income base while the contract is in force. The bonus is fully vested after 10 years.

© 2012 RIJ Publishing LLC. All rights reserved.

Pacific Life has licensed an online retirement income planning tool for advisors—which it has privately labeled Pacific Life Nautilus—from the Toronto-based QwEMA Group, which is led by the noted retirement expert Moshe Milevsky.

The tool, which ManuLife, John Hancock and other insurers have licensed in the past, generates a “Retirement Sustainability Quotient” based on a client’s age, current retirement savings and desired retirement income, and helps the advisor create an income plan using an optimized allocation to three product groups: investments, to protect against inflation risk; variable annuities with living benefits, to cope with sequence risk; and guaranteed lifetime income, to protect against longevity risk.

Advisors can use the tool to “financial advisors to engage clients in a conversation about how to build sustainable lifetime retirement income,” the company said in a release. “The tool helps differentiate the advisor in the art and science of creating retirement income.”

According to Pacific Life’s release: “The higher the RSQ, the more likely it is that the client’s current portfolio can generate the desired level of retirement income stream over his or her lifetime. The tool then offers up to three possible product allocation strategies with higher RSQs. These higher RSQ strategies illustrate how the client might increase his or her likelihood of creating a more sustainable lifetime retirement income.”

Pacific Life is supporting Nautilus with a new suite of sales, education, and promotional resources that focus on the product allocation concept. They include an interactive website and tools, as well as a comprehensive set of printed materials.

© 2012 RIJ Publishing LLC. All rights reserved.

During one of the presentations at the 2012 Retirement Industry Conference in Orlando last week, Scott Stolz, a senior executive at Raymond James, asked the presenter, Aviva USA’s Mary Beth Ramsey, to explain an apparent annuity anomaly to him.   

Why is it, Stolz wanted to know, that a Raymond James client can get more monthly income in retirement—as much as 15% more, he said—from a fixed indexed annuity with a lifetime income benefit than from a deferred income annuity, assuming a 10 to 15 year deferral period?

Ms. Ramsey couldn’t comment on non-Aviva products. Approached after the presentation, Stolz said that he was assuming that the deferred income annuity (DIA) offered a cash refund, which provides the annuitant’s beneficiary a lump sum equal to the balance of the premium, if any remains unpaid.

A cash refund DIA? That’s how many if not most DIA contracts are structured, but is that the best way to judge the potential value of an income annuity to a client? “That’s the only way to make an apples to apples comparison,” Stolz said with an amiable shrug.

Here at RIJ, May is the month that we focus on the income annuity market, and so Stolz’ comments were especially timely. As we did last May, we’ll devote much of our content each Wednesday this month to the product family that includes SPIAs (single-premium immediate annuities), SPIVAs (single premium immediate variable annuities), DIAs (deferred income annuities), and ALDAs (advanced life deferred annuities).  

¶ Among other things, we’ll be talking to the leading sellers of income annuities, including New York Life, MetLife and MassMutual, who together account for about half of U.S. SPIA sales each year. New York Life has already collected more than $400 million in premiums for its new DIA, the Guaranteed Future Income Annuity, launched last July.

¶ We’ll be asking Gary Baker, president of Cannex USA, for a progress report on the efforts of a Retirement Income Industry Association committee to create compensation practices that make it easier for fee-based advisors to incorporate income annuities into their clients’ retirement income plans.

¶ We’ll discuss some of the ways that advisors can overcome the objections that clients might have toward income annuities, and explore some of the types of strategies that incorporate income annuities—like the strategy described in Someday Rich, the new book from Timothy Noonan of Russell Investments and Matt Smith (Wiley Finance, 2012).

Tune in next week for the beginning of those discussions. But now back to the question that Scott Stolz raised. The unique value of the income annuity arises of course from longevity pooling, which produces the so-called survivorship credit or mortality credit. The survivorship credit enables a life-contingent income annuity to offer more income per dollar of premium for policyholders for as long as they live than a GLWB can.

That’s why many academics and some advisors believe in income strategies that leverage the survivorship credit. They generally advise retirees to dedicate the payouts from life annuities to essential living expenses, and to rely on portfolio assets other than life annuities to satisfy their  needs or desires for liquidity and bequests.

But, to extrapolate from Stolz’ comments, independent investment advisors and RIAs apparently don’t think that way. They seem inclined to consider income annuities only in the most diluted forms—when they include a refund or other form of liquidity that weakens or eliminates the survivorship credit. The real challenge for a retirement advisor, it seems to me, would be to find a way to solve the need for liquidity while still capturing the survivorship credit. A DIA or a SPIA without a survivorship credit is a like a one-armed boxer. 

Regarding Stolz’ original question for Mary Beth Ramsey about how an FIA with a GLWB can produce more income than a DIA, he already suspected the answer. He believes that the issuer of an FIA/GLWB rider can assume a much higher lapse rate than the issuer of a DIA can. Therefore, if lapse assumptions prove true, the FIA issuer won’t have to keep as many of its lifetime income promises. “It’s a case of ‘Everybody will get the benefit’ [in the case of the DIA],” Stolz said, “versus ‘They may get the benefit [in the case of the GLWB].’” 

© 2012 RIJ Publishing LLC. All rights reserved.

In the wake of losses, Genworth CEO resigns

Genworth Financial chairman and CEO Michael D. Fraizer resigned on May 1, and the board has named chief financial officer Martin P. Klein as interim CEO while it searches for a successor, the company reported.

Fraizer led the insurer through its initial public offering by GE in 2004 and the recent financial and housing crisis. In a statement, he said this is “the right time for me to move on to other opportunities.”

The board named James S. Riepe, a company director since 2006, non-executive chairman. Klein will remain CFO while acting as CEO.

In addition to the top management changes, Genworth reported that its profit and revenue declined in the first quarter. Net income fell to $47 million, or 9 cents a share, for the three months ended March 31. That compares with $59 million, or 12 cents a share, in the same period last year.

The latest quarter included a loss of $41 million related to a transaction by its U.S. life insurance segment. Operating income, which excludes investment gains and losses, slipped to $31 million, or 6 cents per share, from $75 million, or 15 cents per share, last year.

Revenue slipped to $2.43 billion from $2.57 billion a year earlier, reflecting lower premiums. Results missed Street expectations. On average, analysts surveyed by FactSet forecast quarterly operating income of 13 cents per share and revenue of $2.6 billion.

Genworth’s Joelson to succeed Doll as CIO of Northwestern Mutual 

Ron Joelson, current chief investment officer of Genworth Financial, will join Northwestern Mutual on June 4, succeeding Mark Doll as the company’s chief investment officer. Doll will retire on June 30 after 40 years with Northwestern Mutual.

Joelson, who currently manages Genworth’s $75 billion investment portfolio, spent most of his career at Prudential Financial, where his last position was senior vice president and chief investment officer–asset liability and risk management. He oversaw investment strategy and portfolio performance for Prudential’s $230 billion general account.

Joelson earned a BA from Hamilton College and an MBA from Columbia.

Doll, Northwestern Mutual’s chief investment officer since June 2008, oversaw a $164 billion general account investment portfolio. 

Jackson launches MarketGuard Stretch for VA beneficiaries

Jackson National Life has introduced MarketGuard Stretch, a new variable annuity guaranteed minimum withdrawal benefit rider that “allows beneficiaries the flexibility to spread distribution payments over their lifetime, keeping more money in a tax-deferred account for continued growth potential.”

According to a Jackson release, policyholders can use MarketGuard Stretch to avoid a lump sum death benefit in favor of longer-term distributions, to provide for potentially young and inexperienced beneficiaries. The beneficiary’s required minimum distributions (RMD) will be determined annually based on the current account value and life expectancy.

“MarketGuard Stretch is the first stretch-friendly GMWB in the industry, allowing us to enhance the value proposition of variable annuities and expand Jackson’s relevance to a wider market,” said Clifford Jack, head of retail for Jackson.

MarketGuard Stretch is intended to give contract owners more control over beneficiaries’ distributions, allowing wealth to be spread to future generations. The withdrawal benefit can also help guarantee return of premium on a stretch contract over a number of years, regardless of investment performance.

Policyholders can take up to 5.5% of their protected balance each year, or their stretch RMD, if higher, depending on their age at the time of the first withdrawal. The options allow for distribution of the original investment amount without risking an excess withdrawal.

In some circumstances, remainder beneficiaries may also elect to continue the MarketGuard Stretch benefit, guaranteeing they will receive at least the remaining protected balance back while remaining in a tax-deferred contract.  

“The new policy gives us the opportunity to provide beneficiaries – who may be unfamiliar with the complexities of investing – with an approach to planning that can help ensure their long-term financial health,” said Alison Reed, senior vice president of Product and Investment Management at Jackson National.

In March 2011, Jackson introduced the Portfolio Construction Tool, an interactive online solution that helps advisers build customized investment portfolios inside Jackson variable annuities. In October 2010, Jackson introduced LifeGuard Freedom Flex, billed as the industry’s first customizable GMWB.

The Hartford to sell individual annuity new business capabilities to Forethought

Forethought, a Houston-based privately held diversified financials services company, has agreed to buy The Hartford’s Individual Annuity new business capabilities, consisting of the product management, distribution and marketing units, as well as the suite of products currently being sold.

The terms of the agreement were not disclosed, but are not considered material to The Hartford’s operations or financial results. The majority of the current employees that support The Hartford’s Individual Annuity new business capabilities will be offered positions with Forethought.

The Hartford will continue to write new annuity products during a transition period and Forethought will assume all expenses and risk for these sales through a reinsurance arrangement. The agreement does not include The Hartford’s in-force annuity book of business.

Nationstar Mortgage to buy MetLife Bank’s ‘Reverse Servicing Portfolio’

MetLife, Inc. is exiting the reverse mortgage business, and Nationstar Mortgage LLC will buy MetLife Bank’s reverse mortgage servicing portfolio, pending regulatory approvals and closing conditions. MetLife Bank will not accept new reverse mortgage loan applications and registrations.

MetLife’s retail banking business, including mortgages, represented less than 2% of MetLife’s 2011 operating earnings. But because MetLife owns a bank, it was considered a bank holding company and therefore underwent the Federal Reserve’s Comprehensive Capital Analysis and Review Test (“stress test”) in March and—despite MetLife’s financial strength as an insurer—failed it.

After the test, MetLife’s CEO clarified the situation. “The bank-centric methodologies used under the CCAR are not appropriate for insurance companies, which operate under a different business model than banks,” said Steven A. Kardarian. “The established ratios used to measure insurance company capital adequacy, such as the NAIC’s risk-based capital ratio, show that MetLife is financially strong. At year-end 2011, MetLife had a consolidated risk-based capital ratio of 450%, well in excess of regulatory minimums.”

In 2011, MetLife had already decided to sell its bank and relinquish its bank holding company structure. It has reached agreements to sell MetLife Bank’s deposit business to GE Capital and to sell the bank’s warehouse finance business to EverBank. In addition, the bank has ceased taking forward mortgage applications.

MetLife was advised by K&L Gates LLP and Deutsche Bank Securities Inc.

Hammond to succeed Bibliowicz in top job at NFP

National Financial Partners Corp., a provider of benefits, insurance and wealth management services, said it has begun to implement a management succession plan.

Jessica M. Bibliowicz, chairman and chief executive officer, will voluntarily step down as president immediately, to be succeeded by Douglas W. Hammond, the current chief operating officer.

Bibliowicz will step down as CEO on March 31, 2013, when Hammond will succeed her and she will become the non-executive chairman at such time.  Bibliowicz has been NFP’s president and CEO since April 1999.  She served as a director since June 1999 and as chairman since June 2003. 

Mr. Hammond, 46, has served as COO of NFP since 2008. He was NFP’s EVP and general counsel from 2004 to 2008. Before joining NFP in 1999, he was an attorney with the law firm currently known as Dewey & LeBoeuf LLP. He received his B.A. from Fairfield University and J.D. from St. John’s University School of Law.

Pension liabilities in UK dwarf GDP, in a sense

The United Kingdom’s total pension liabilities exceed £7trn (€8.1trn, $10.7trn) and are nearly five times Britain’s GDP, according to the Office of National Statistics (ONS), IPE.com reported.

State pension obligations make up more than three-quarters of total government liabilities, with both funded and unfunded obligations incurred through public pension plans accounting for the remaining £1.2trn of the £5trn in liabilities.

The £900bn in unfunded pension obligations amounted to 58% of GDP, while outstanding state pension payments were 269% of GDP, the report said.

Examining private sector obligations, ONS pensions analyst Sarah Levy said £1.3trn in obligations stemmed from defined benefit schemes, while a further £386bn of assets were located in defined contribution funds.

Mel Duffield, head of research at the National Association of Pension Funds, added: “These are big figures, but it must be remembered that public sector pensions cover millions of past and current workers and, in the case of the state pension, most of the UK population.”

The ONS stressed that all calculations covering obligations until 2010 were produced on a voluntary basis and should be viewed as “experimental statistics,” with refinements expected in future publications. The undertaking comes as European Union member states seek to comply with the European System of National and Regional Accounts proposed several years ago.

Levy, the author of the research, said she did not include any future obligations in her calculations. “As the European Central Bank has pointed out, in order to assess the fiscal sustainability of unfunded pension schemes, ‘the concept of pension entitlements needs to be extended to include entitlements that will be accrued in future, while at the same time comparing these ‘claims’ with future social contributions and tax payments’,” she wrote.

However, Levy stressed that all figures presented did not serve as an indicator of how financially sustainable the country’s pension system was at present.

Many financially unprepared for long lives: Northwestern Mutual  

Americans appear to be “startlingly unprepared financially” to live past age 70, according to a new Longevity & Preparedness Study from Northwestern Mutual Life. The study is the company’s second in a series.    

Only 56% of Americans surveyed (56%) feel financially prepared to live to the age of 75, while only 46% felt prepared to live to 85 and just 36% felt prepared to live to 95.  According to the Centers for Disease Control, among couples who are age 65 today, there’s a 50% likelihood that one partner will live to age 94 and a 10% chance that one partner will live to age 100. 

The research indicates:

• Regardless of age, men are more likely than women to feel financially prepared to live to age 75 (65% vs. 48%), 85 (55% vs. 37%), and 95 (43% vs. 30%). 

• Younger Americans (25-59) feel less prepared than older Americans (60+) to live to 75 (47% vs. 79%), 85 (37% vs. 66%), and 95 (29% vs. 52%)

The first study in this series of research, called the Planning and Progress Study, showed that 21% of Americans would like to be more cautious with their money but feel they have a lot of catching up to do.

Independent research firm Ipsos conducted the online survey of 1,015 Americans aged 25 or older between February 2 and February 13, 2012. Results were weighted as needed to U.S. Census proportions for age, gender, marital status, household size, region and household income. 

GDP growth slows, with consumer spending up and defense spending down 

U.S. Gross Domestic Product grew just 2.2% in Q1 2012  (Qtr over Qtr, annualized), below expectations of 2.7% and well under the 3% growth rate in Q4 2011. On an annual basis, GDP rose 2.1% (year over year) after 1.6% growth in Q4, according to Prudential International Investments Advisors.

Within GDP, consumer spending rose 2.9%, while business investment spending fell 2.1% and government spending declined 3%.  Consumer spending added 2% to Q1 GDP growth while government spending subtracted 0.6% and business investment subtracted 0.2% from Q1 growth.

Weaker inventory accumulation was a drag on growth, with inventories contributing just 0.6% to Q1 growth. Final sales (GDP ex inventories) grew 1.6% QoQ annualized after a weaker 1.1% growth in Q4. In other results:

•        Consumer spending grew 2.9% QoQ annualized in Q1, strengthening from 2.1% in Q4. Durable goods spending continued to grow at a strong pace, up 15.3% (with motor vehicles growing 28.7%) after 16.1%. Spending on non-durable goods was solid, rising 2.1% after 0.8%, while services spending increased 1.2% after 0.4%.   

•        Government spending fell 3% in Q1 after 4.1% decline in Q4.  Weakness in Federal government spending was mostly responsible for the decline, falling 5.6% in Q1 after falling 7% in Q4. Most of the decline in Federal spending was due to national defense cuts. Defense spending fell 8.1% in Q1 after falling 12.1% in Q4; non-defense spending fell just -0.6%. State and local spending fell 1.2% in Q1 after falling 2.2% in Q4. Government spending subtracted 0.6% points from growth after a 0.8% drop in Q4.

•        Trade contributed little. Exports rose 5.4% after 2.7%, while imports rose 4.3% after 3.7%. However, while exports added 0.7% to growth, this was offset by a -0.7% contribution from imports. Inventories added 0.6% to growth after a stronger 1.8% contribution in Q4.

•        Investment spending was weaker than expected in Q1. Business investment spending fell 2.1% after rising 5.2% in Q4. Structures investment was mostly responsible for the decline, sinking 2%. While equipment and software was weak, it still posted a modest gain, rising 1.7% after a stronger 7.5% in Q4.   However, residential investment was strong, rising 19%—the strongest since Q2 2010—after rising 11.7% in Q4. Nevertheless, since it is a small component of GDP, residential investment only added 0.4% to growth.

Despite the mild Q1 GDP disappointment, the U.S. economy remains on a moderate growth path.  Gradually rising household income and declining unemployment are likely to support consumption spending growth.

Further, household deleveraging appears to be largely complete and hence is unlikely to be a drag on consumer spending and GDP growth.  Business investment spending is expected to rebound on the back of strong profit and cash levels but offset to some extent by weaker orders recently. Government spending is likely to remain a drag with the huge debt and deficit levels requiring a combination of spending cuts and tax hikes. Trade remains a drag with Europe in recession. Q1 GDP growth is likely to be revised higher in the next estimate.  U.S. Q2 GDP growth is expected around 2.5%.  

Pentegra Retirement Services Announces New App

Pentegra Retirement Services has introduced its first app (called “Pentegra”) for mobile devices, offering Pentegra’s 401(k) participants the ability to view their 401(k) plan accounts using an iPhone, iPod Touch, iPad or Android device.

The app provides participants with the ability to view retirement plan account information, including account balances, transaction history, and portfolio performance, using their mobile device.