When the Setting Every Community Up for Retirement
Enhancement (SECURE) Act passed in late 2019, many in the industry celebrated
it as the first step toward widespread annuity adoption. Yet a little more than
a year later, only a small fraction of plan sponsors have embraced the option,
according to experts.
Eric Levy, executive vice president of AIG Retirement
Services, points to the COVID-19 crisis as a reason why adoption has stalled.
As vaccination rates increase and workforces open up, he expects a gradual
implementation of the options. “We’ve all been dealing with [the pandemic] for
the past 12 months, so I think what you’ll see is a slow rise in conversation
and a learning curve, and ultimately, longer-term levels of adoption.”
Until then, plan sponsors can offer a variety of services
and tools for participants to gauge their future retirement income. For
employers that are not ready to adopt a specific solution, Jennifer DeLong,
senior vice president, managing director and head of defined contribution (DC)
for the Americas at AllianceBernstein, encourages them to rethink retirement
planning communication materials. “Reframe this to not just talk about the
savings phase, but also about how the plan can be used to create that
retirement income stream,” she says.
Employers can provide pieces of educational content and
retirement income calculators—both of which are often available through
recordkeeper platforms and participant websites, DeLong says. For example,
resources on Social Security and when to tap into those funds help participants
understand its role in their retirement income.
Levy notes that participants face a series of decisions when
withdrawing income from their accounts. Offering educational resources and
guides can mitigate some of that complexity. “There are a lot of complicated
decisions to make, and these tools help [participants] organize these decisions
and start to understand the various what-if scenarios,” he says.
The effects of the pandemic have underlined a need for
holistic financial wellness programs, another benefit DeLong recommends plan
sponsors implement if they haven’t already done so. Plan sponsors might also provide different
types of advisory services throughout the working life of the participant and
in the retirement phase.
“All of that feeds into helping participants with how to
create a basic budget, how to create emergency funds, how to save for college
for your child,” DeLong says. “All of those basics in getting your financial
life into better shape can free up additional discretionary dollars that can be
saved for retirement.”
Providing financial advice allows participants to build a
plan for generating retirement income while organizing their assets.
Participants who set up a one-on-one meeting with a financial adviser can set
specific goals and objectives for their retirement years, while learning about
multiple retirement income options, such as guaranteed minimum withdrawal
benefits (GMWBs). A GMWB promises returns on a policyholder’s retirement income
throughout all types of market activity.
As employers encourage participants to stay in the
company-sponsored plan throughout retirement, more are questioning what
investment options are sustainable for retirees. “With that philosophy, that
can lead to the question of whether they have the right investment options for
retirees if they do stay in the plan,” DeLong adds.
Levy adds a similar note, saying more recordkeepers are
implementing interactive tools that allow participants to understand the
impacts of their financial decisions. As longevity rates have increased, the
need for overall financial planning—especially in retirement—has surged. Urge
participants to think about how they want to accumulate wealth for retirement
and offer them resources to come up with a plan, Levy says.
“The question that every individual needs to ask is, ‘How do
I take these assets that I’ve accumulated over the lifetime of my career and
turn this into my paycheck? How do I take those assets and turn them into
income?’” he says.
Click here for the
original article.