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Now is the Time for a Pension Reinvention
As the conversation on lifetime income continues to grow following the SECURE Act of 2019, Nuveen examines the considerations for plan sponsors when evaluating potential lifetime income solutions.
This is an excerpt from NCPERS Fall 2023 issue of PERSist, originally published October 24, 2023.
The conversation around guaranteed lifetime income has been steadily growing since the SECURE Act of 2019 changed safe harbor provisions to protect in-plan annuities. Participants have long wanted lifetime income built within their retirement plans, to mirror the benefits of now essentially extinct defined benefit plans.
When asked about the overarching objective of a retirement plan, respondentsi in our third annual Equilibrium survey prioritized the traditional role of a DC plan, namely providing a savings vehicle for plan participants. However, the most selected answer across rankings was the broadest and most aspirational; to support the financial well-being of employees.
Research shows though that for plan participants, a guaranteed lifetime income in retirement is a significantly larger concern and could be used to motivate recruitment, retention and allow employees to retire on time. Seventy percent of participants surveyed by TIAA expressed a preference for a company that offers a guaranteed lifetime income solution in retirement. Even higher numbers expressed a preference for income stability over just principal protection, with 78% of respondents to an EBRI survey asking for income. These numbers are not necessarily indicative of a disconnect between participants and plan sponsors, but they could be a growing sign that participants want the next evolution in their retirement plan.
They are not simply looking for a tax-advantaged savings vehicle that opens at retirement. Participants understand that guaranteed income has a significant role in securing their retirement and they are, rightly, looking to their employer to help them in that process.
When asked about their views specifically on guaranteed income, a majority of plan sponsors see that a guaranteed income solution can improve the risk/return profile for participants, and they see a growing need to explore the available options for lifetime income given the current market environment.
The other telling portion of the dataset is just how large the ‘neutral' portion of respondents is. The education around the role and benefits of a lifetime income solution within a retirement plan is still at a relatively nascent stage. Those who have an opinion on the matter are largely in favor, with only around 10% of respondents disagreeing with the potential role and benefits of lifetime income solutions. It is the role of asset managers as well as advisors and consultants to help educate plan committees on the role that guaranteed lifetime income solutions can provide. The solution isn't right for every plan sponsor, but it appears that on balance, once a sponsor has a firm opinion of lifetime income, they view it positively.
About the author: Brendan McCarthy is the Head of Retirement Investing for Nuveen where he is responsible for the firm's DCIO efforts in the U.S. In this role, he leads strategy and distribution for Nuveen investment and TIAA lifetime income solutions in the 401(k), 403(b) and 457 marketplaces. He joined the organization in 2015. Brendan has more than two decades of retirement leadership experience in the financial services industry. Prior to joining TIAA, he was Chief Operating Officer of F-Squared Retirement Solutions, a subsidiary of F Squared Investments. Previously, he was a Senior Vice President at Putnam Investments responsible for Defined Contribution Investment Only Business Development. Brendan graduated with a B.S. in Business Administration from St. Joseph's College and an M.B.A. from the Carroll School of Management at Boston College.
Endnotes:
iNuveen EQuilibrium Survey 2023. Out of the 800 institutional investors, 189 respondents are actively involved in their DC plans, across the U.S., Canada and the U.K.
Disclosures Nuveen, LLC provides investment solutions through its investment specialists.
Any guarantees are backed by the claims-paying ability of the issuing company.
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