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Delivering Retirement Income Solutions Now
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Page 1: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Delivering Retirement Income Solutions Now

Page 2: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Joseph LeeSenior Vice President,

Head of Retirement Platforms and StrategyFirst Eagle Investment Management

Page 3: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Polling Question #1Does your plan currently offer a Retirement Income Solution(s) that was specifically chosen for providing income in retirement?

1. Yes

2. No

Audience Polling Question

Page 4: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Does your plan’s 2018 agenda include exploring Retirement Income Solutions for your plan?

1. Yes

2. No

Audience Polling Question

Page 5: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Delivering Retirement Income Solutions NOW

Page 6: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Why Now?

Page 7: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Delivering Retirement Income SOLUTIONS Now

Page 8: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

9, 8, 7, 6, 5, 4, …It all begins with #1

Step 1: Identifying the Problem

Page 9: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Problems Needing an Effective Solution • Plan Design

– Periodic Distributions– Installment

Payments– Fees for above– Pro-rata vs Selected

Distribution Fund– “Reinvest” vs

“Distribution of Income & Gains”

– IRA “Roll-Ins”

• Participant Concerns– Protection of Principal

• From Market Events• From Funding the

Retirement Income Need– Sources of Income

• Dividend & Interest• Capital Gains as “Gap-

Filler”– Predictability– Sustainability/Longevity– Unanticipated Needs– Control & Flexibility– Simplicity

• Provide Solutions– Products– Services

– In-Plan– Out-of-Plan

– Non-Guaranteed– Guaranteed

Page 10: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Consultants’ Support For Various Solutions

Page 11: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Source: Callan 2018 DC Trends Survey *Multiple responses were allowed

33% 33%

24%21%

12%9% 8%

0%

5%

10%

15%

20%

25%

30%

35%

None Access to DefinedBenefit Plan

DrawdownSolution orCalculator

ManagedAccounts/Income

DrawdownModeling Service

Annuity as a formof Distribution

Payment

In-PlanGuaranteed

Income for LifeProduct

Annuity PlacementService

Retirement Income Solutions that Plans Offer Today*

Page 12: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Kevin Hanney, CFA

Senior Director, Pension Investments, Non-U.S. Pensions & Savings Plans

United Technologies

Page 13: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

UTC Lifetime Income StrategyA professionally managed, personalized retirement solution

Insured lifetime income for longevity protection

Designed for future growth of income & assets

Preserves full control & access (no surrender charges)

Institutionally priced insurance, administration & investments

Multi-insurer coverage with ongoing competitive bidding

All delivered through a single option in a defined contribution plan

Page 14: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Investment allocation and secure income

0%10%20%30%40%50%60%70%80%90%

100%

Allo

catio

n %

Secure Income Portfolio - 60% equity/40% bonds, higher fee e.g. 119 bps, secure incomeTraditional Investment Portfolio - Custom allocation, low fee e.g. 12 bps, no secure income

Income Phase-In Period

Age

Pace of income acquisition and accrual influenced by glide path, investment returns and contributions

Page 15: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Multi-carrier guarantee design

Insurance Carriers

Allocation Formula 25%

Quarterly Poll 5.2% 5.0% 5.0%

25%50%

Insurer 1 Insurer 2 Insurer 3

Insurance Aggregator

Record-keeper

Diversification, competition & capacity

Competitive bidding processAggregator polls insurers monthly/quarterlyUTC allocates via diversification formulaFixed fees for life cannot increasePurchased benefit cannot decrease

Aggregator interfaces with record-keeper & insurers

A flexible & extendable operational structure, trading and record-keeping platform

Page 16: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

96%

125%

73%

91%

50%

58%

0%

20%

40%

60%

80%

100%

120%

140%

65 70 75 80 85 90 95Age

Projected income levels

Lifetime Income Strategy50th Percentile

Target Retirement Strategy50th Percentile

Lifetime Income Strategy25th Percentile

Target Retirement Strategy25th Percentile

Lifetime Income Strategy5th Percentile

Target Retirement Strategy5th Percentile

Page 17: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Walter KelleherDirector of Educational Services

Florida State Board of Administration

Page 18: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Florida Retirement System Investment Plan • 401(a) DC Plan

• 185,956 members: 127,650 active / 58,306 inactive

• $10.7 Billion AUM

• 121,879 retirees

• $11.4 Billion distributions (since 2002)

Page 19: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Investment Plan Annuities • MetLife

• Immediate Fixed Income Annuities

• Deferred Income Annuities (QLAC)– Introduced December 2015

• EY financial planners run quotes

Page 20: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Monthly/Yearly Annuity Letters• Monthly Letters

– To:• Terminated IP members > $25,000• DROP rollovers > $25,000

– Annuity quote on 100%/50% of balance

• Yearly RMD Letters– Terminated IP > Age 69½ > $25,000

[Monthly Letter Sample]

Page 21: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Letters to Members• Began in April 2010

• Annuities from July 2002 to April 2010 – 8 purchased ($1.2 mil.)

• Annuities from April 2010 to present – 94 purchased ($10.2 mil.)

• Increase in number of annuities purchased

• Increase in member’s awareness of annuities

Page 22: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Lynn AvitabileManaging Director

J.P. Morgan Asset Management

Page 23: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Data filter: Chase data from 10/2012 to 12/2016

Included: spent 50% or more of their estimated gross income at Chase OR spent at least the median amount spent by households at Chase

Source: Chase credit card, debit card, electronic payment, ATM withdrawal and check transactions from October 1, 2012 to December 31, 2016. Outliers in each asset group were excluded (0.1% of top spenders in each spending category). Information that would have allowed identification of specific customers was removed prior to the analysis.

59,659 who spent a significant portion of their estimated income at Chase before and during retirement

110,949 households with 12 months before retirement and 12 months in retirement during this period

3,675,567 households that are continually retired during this period once retirement flag is set

4,347,471 with household_retirement_status= “Retired”

31,140,128 total households

Excluded: households with only Social Security income younger than age 60 (assumed to be Social Security disability payments)

Page 24: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+

Lifecycle of spending: median household

Source: Total spending and all category sub-totals except checks, cash and health care costs: Chase data including Chase credit card, debit card, electronic payment, ATM withdrawal and check transactions from January 1 – December 31, 2016; J.P. Morgan analysis. Health care costs age 65+: Employee Benefit Research Institute (EBRI) data as of December 31, 2016; SelectQuote data as of January 16, 2017; J.P. Morgan analysis. Health care costs pre-age 65 and check and cash distribution excluding health care costs after age 65: 2016 Consumer Expenditure Survey, College Educated; J.P. Morgan analysis. Information that would have allowed identification of specific customers was removed prior to the analysis.

Median spending: Chase data with estimated categorization of checks and cash

Age in 2016

Travel

Apparel & services

Entertainment

Other*

Transportation

Food & beverage

Education

Housing (includes mortgage)

Health care

*Other includes: gifts & donations, gambling, personal care, tax payments, insurance and uncategorized items.

Page 25: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

45-54 55-64 65-74 75+Age

Source: J.P. Morgan Asset Management. Estimates based on average consumer expenditure from the 2015 Consumer Expenditure Survey (BLS) for each age group excluding pension contributions. Population includes households where a bachelor’s degree or higher is achieved by any member. Average household size for age 45–54 is 3.0, age 55–64 is 2.3, age 65–74 is 1.9 and age 75+ is 1.9.

Changes in spendingWHAT TO EXPECT

Household spending peaks at the age of 45, after which spending declines in all categories but health care and charitable contributions and gifts. Housing is the largest expense, even at older ages.

Average household spending patterns by various age groups

$70,050$66,033

$52,332

$83,205

Health care

Housing – mortgageTransportation

Education

Other

ApparelTravel

Housing – excl. mortgageFood and beverage

Entertainment Charitable contributions and gifts

Page 26: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Industry-wide challenges in offering retirement income funds in DC: Anticipating questions and preparing responses

Source: J.P. Morgan Asset Management.Past performance is not an indication of future performance. The manager seeks to achieve the stated objectives. There can be no guarantee the objectives will be met.

Operational Challenges

Communications

Plan Design To-Dos

How do you implement this type of fund in plan? Participants can set up systematic withdrawals to receive periodic payments.

What are the operational challenges? Some but not all record keepers offer systematic withdrawals and have periodic payment processing capabilities. A single fund withdrawal capability and a straight through processing (“Easy Button”) are not offered in DC while they are available

on retail platforms.

Partial Withdrawals: What actions do plan sponsor take? Plan amendment needs to be made if partial withdrawals are not currently allowed.

IPS update: How do you think about selecting and monitoring retirement income solutions in plan? IPS amendment may be needed to reflect unique nature of these products, if applicable.

RMD requirements Retirees older than 70 ½ are required to calculate and satisfy their RMDs separately for each plan and withdraw that amount from each plan they

have accounts with. This requirement should be clearly communicated and enforced.

Annual withdrawal insights The annual sample spend down amount needs to be effectively communicated to participants. This information is public.

Page 27: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Michael KnowlingSenior Vice President,

Head of Client Relations and Business DevelopmentPrudential Retirement

For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.

Page 28: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

The challenge: Financial security in America

Don’t have a retirement and savings plan 1

1. GoBankingRates.com, “1 in 3 Americans Have $0 Saved for Retirement,” 20162. Northwestern Mutual’s 2016 Planning&Progress Study3. LL Global, Inc.™ and Life Happens®, “2017 Insurance Barometer Study,” 20174. PwC, Employee Financial Wellness Survey, March 2016

Why should employers

care?

1/3

Believe they will outlive their savings 2

2/3

Don’t have life insurance 3

41%

of workers delay retirement 4

Higher employer costs if employees delay retirement by one year 5

HR professionals say financial issues impact employee performance 6

70%

44%

1-1.5%

5. Prudential, “Benefits Optimization: Insights into Benefit Plan and Portfolio Design,” 2016. With supporting research and analysis conducted by the University of Connecticut’s Goldenson Center for Actuarial Research.6. Society for Human Resource Management, “Financial Wellness in the Workplace,” May 2014

For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.

Page 29: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

We need to meet them where they are

5 generations of workers in today’s workforce

Planning Saving Protection

For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.

Page 30: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Key Risks Facing Retirement Plans30

Longevity risk Will participants outlive retirement income?

Participation risk Will eligible employees join the plan?

Contribution risk Will participants save enough?

Investment risk Do participants know how to invest?

Market risk Are savings protected from volatile cycles that will repeat?

Conversion risk Do participants know how to turn savings into income?

HUMAN RISKS MARKET RISKS

For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.

Page 31: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Market Risk

Institutional Retirement Income Options31

Flexibility & Control

Longevity Risk

Market protection pre- and post-retirement

Access to funds atany time

Lifetime income protection

No Income Guarantee• Managed payout program• Systematic withdrawals Fixed Annuities• Fixed payout annuity• In-Plan/Out-of-Plan Guaranteed Minimum Withdrawal Benefits

For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.

Page 32: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

DisclosuresRetirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, a Prudential Financial company.

In providing this information Prudential Retirement is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity. Prudential Retirement may benefit from advisory and other fees paid to it or its affiliates for managing, selling, or settling of the Prudential mutual funds and other investment products or securities offered by Prudential Retirement or its affiliates. Investment vehicles sponsored or managed by a Prudential Retirement affiliate generate more revenue for the Prudential enterprise than non-proprietary investment vehicles. Prudential Retirement's sales personnel generally receive greater compensation if plan assets are invested in proprietary investment vehicles. Prudential Retirement may benefit directly from the difference between investment earnings of Prudential Retirement's stable value funds and the amount credited to deposits in those funds. Prudential Retirement may also benefit from broker-dealer or other entities’ co-sponsorship of Prudential conferences.

Michael Knowling is a registered representative of Prudential Investment Management Services LLC (PIMS), Newark, NJ, a Prudential Financial company.

© 2018 Prudential Financial, Inc. and its related entities. Prudential, the Prudential logo, the Rock symbol and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

0315169-00001-00

For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.

Page 33: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Michael Tassinari, CFA

Investment DirectorJohn Hancock Investments

Page 34: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Building Income for Tomorrow

Top Features

Income stability

Inflationprotection

Upside potential

Cost

Liquidity

Longevity• DOL likely to increase post-retirement

reliance on plans

• Scarcity of investment product options designed specifically to meet decumulation objectives

• Balancing investor needs and addressing the key attributes in delivering a “paycheck replacement” (income stability & inflation protection)

Overcoming Today’s Challenges:

Page 35: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

Please take a moment to fill outyour evaluation sheet.

THANK YOU.

Page 36: Delivering Retirement Income Solutions Now · Source: Callan 2018 DC Trends Survey *Multiple responses were allowed. 33%. 33%. 24%. 21%. 12%. 9%. 8%. 0%. 5%. 10%. 15%. 20%. 25%. 30%.

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