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.

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