How lifetime income encourages retirement savings
PRUDENTIAL RETIREMENT, A UNIT OF PRUDENTIAL FINANCIAL, serves more than 4 million retirement plan participants and annuitants, representing $375 billion in assets. EBN recently spoke to Jamie Kalamarides, leader of Prudential Retirement’s Full Service Solutions business, about issues in meeting the needs of plan participants and the role of guaranteed income products. Edited highlights of that conversation follow.
Employee Benefit News: What’s foremost on your plan sponsor clients’ minds today?
Kalamarides: Employers are trying to make sense of the fiduciary role and their obligations underneath it. They’re also thinking about the financial wellness of their employees, and how to help employees achieve it.
EBN: Prudential’s message to plan sponsors and others is that you are “changing the way Americans save for retirement.” What does that mean?
Kalamarides: It begins with the understanding that in order to save for retirement, you need to have control over day-to-day expenses, understand the tradeoffs between how you spend money today versus what you’ll have tomorrow. It means having the tools you need in order to save. And you need to be able to influence your behaviors around saving for tomorrow. So it’s the focus on financial wellness that is a key part of what we are trying to do to help people save for retirement.
We can help people on the retirement accumulation side, but we’re also positioned to help people manage risks around disability and [premature death]. Also, we can help people know their retirement income will last with guaran-
teed lifetime income products like IncomeFlex.
EBN: Can you give an update on the evolution of IncomeFlex?
Kalamarides: When we originally rolled it out it in 2007, it was called IncomeFlex Select, and that product is no longer offered for new sales. More recently we have rolled out IncomeFlex Target, a guaranteed lifetime withdrawal benefit, GLWB, around target date funds.
If an employer had that target date fund as a QDIA, they could simply put this onto the plan as well and it would still remain a QDIA. The most interesting development that’s happened is the ability of a plan sponsor to move the investments to another recordkeeper if for some reason they want to make a change.
EBN: How do you help employees really grasp the tradeoffs involved in retirement savings decisions?
Kalamarides: We help individuals to understand why their brain may be to blame for some of their behaviors, and help reframe issues and problems so that they can overcome the inertia, hindrances or risk aversion that is inside all of us, and how to use that to one’s advantage.
EBN: If plan participants know they’ll have a lifetime income guarantee at retirement, will they save more aggressively?
Kalamarides: Yes. Across both Aon Hewitt’s and our own research, when a lifetime income solution like IncomeFlex is available in the plan, individuals contribute 10.1% of their savings versus 7.3% if it’s not available. Not only that, they’re happier with the plan, and behave rationally and stay the course on their diversified investments during volatile times.
EBN: Many plan sponsors have been concerned about the duration of their liability when they incorporate a lifetime income product into their 401(k)s. Any relief in sight?
Kalamarides: We think that will be addressed by the Retirement Enhancement and Savings Act, which cleared some hurdles in the last Congress. It has a fiduciary safe harbor for the selection of a lifetime income provider, and provides that if a plan sponsor decides not to offer a guarantee product for some reason, that the individual can roll it out of the plan as a qualified distribution and maintain their guarantee. We think these things are going to remove the sort of barriers that have prevented plan sponsors from adopting lifetime income solutions.