Fiduciary Links: Plan Sponsor Considerations in Changes in Retirement Plan Income Options
Posted by Kathy Stewart on October 14, 2013
>>>Plan participant risk can be quantifiable or behavioral, each having separate characteristics but both vital to understand. A recent report, published by the Society of Actuaries (SOA) and the Stanford Center on Longevity, notes that while quantifiable risks such as outliving retirement savings, market declines, inflation, and fees and expenses pose serious challenges, behavioral risk, including poor understanding, judgment, and decision-making, can be just as problematic. See “The Next Evolution in Defined Contribution Retirement Plans – A Guide for DC Plan Sponsors To Implementing Retirement Income Programs.”
The report analyzes information on the importance of offering retirement income solutions, and offers suggestions on how to implement income solutions to offset, and address, risk. It presents a roadmap for plan sponsors to develop and document a systematic process for designing and implementing a retirement income program. It also provides a checklist for evaluation of retirement income options in their plans and implementation considerations.
Providing retirement income options is one way plan sponsors can help employees address risk. Sponsors have a choice between three options including: annuitization of a retirement account outside of a plan, establishing an individual annuity distribution option, or a group annuity consisting of investment options that are later annuitized when the participant is ready to take withdrawals.
With regard to individual annuity distribution options, the Pension Protection Act permits plan sponsors to take advantage of a DOL safe harbor in selection of an annuity provider for distributions from an individual account to meet ERISA requirements. The sponsor has to meet certani requirements, including engaging in an objective and thorough search of annuity providers, supported by a determination of a provider’s ability to make all future payments. Determination of reasonable cost must be met, as well as other issues.
Investment alternatives introduced as a plan evolves should be individually addressed and explained in a personalized manner to facilitate their effective adoption. A recently released 2013 survey of 796 plan sponsors of defined contribution plans found that (see page 20) communication of personalized information to participants to be most effective in motivating participant behavior in retirement savings as compared to more general education. However, the study noted that 62% of sponsors deem most of their participant communication as more generalized, compared to 22% of sponsors who viewed information as personalized.
As sponsors strive to improve plan success in participant-directed plans, such changes in design or alternatives should be weighed, along with the strategy for effective adoption to promote participant understanding and involvement.
Now on to the rest of the week's best links:
News and columns from the leading trade, consumer, and mainstream media:
- State regulators contemplate required E&O insurance for arbitration awards [InvestmentNews]
- When clients want to talk philanthropy, they're interested in more than just the tax benefits [InvestmentNews]
- Spend money to make money. [InvestmentNews]
- A primer on responding to client concerns about the government shutdown [InvestmentNews]
- Advisory industry shines, but work ahead. [InvestmentNews]
- FINRA's amended Rule 8210: Where does it end? [InvestmentNews]
- Mastering the Personal Introduction, excerpt. [Wealth Management]
- Holding onto clients: start by listening. [ThinkAdvisor]
- Why a singular focus is critical to building an advisory business. [ThinkAdvisor]
From the organizations/associations/government/academia:
- Chairman White talks enforcement program, indicates focus will be put on small issues [SEC, coverage from IN]
- When clients want to talk philanthropy, they're interested in more than just the tax benefits [InvestmentNews]
- DOL asking questions about fiduciary training. [NAPA Net]
- Automatic IRAs would increase retirement savings for lower-earning households. [GAO]
- SEC approves amendments to FINRA Rule 9217. [FINRA]
From the blogs:
- AIFA Susan Mangiero will speak about pensions and infrastructure investing on December 5. [Pension Risk Matters]
- Trending Topics for ERISA Plan Sponsors [Fiduciary News]
- The Age of Social Products: the internet shift. [Harvard Business Review]
- The Rise of the Employee Advisor at Financial Planning Firms [Kitces]
- Don't treat your career marathon like a sprint. [Harvard Business Review]
Articles your clients are reading (or should be):
- Don't let shutdown and default anxiety influence investments. [U.S. News]
- Five reasons why you're in debt up to your eyeballs. [U.S. News]
- Self-employed? You need a retirement plan. [U.S. News]
- How to judge your 401(k). [U.S. News]
- Make your life easier - never forget a password again. [MC OpenForum]
