Thursday, March 24, 2011

Retirement Income - Insurance isn't the only Way

Over the last several years as the Retirement Plan marketplace has matured, service providers have built out an array of services engineered to help participants and plan sponsors in different ways. Plan design in a post Pension Protection Act environment has led to increasing use of techniques such as Automatic Enrollment or Progressive Savings Escalators. But only recently has the shift focused beyond the accumulation phase. As the Boomer generation gets closer and closer to retirement, IRA Specialty providers and Employee Education providers are popping up everywhere. With this comes a new focus on Income Replacement including defining Income Replacement adequacy, strategies that start in the accumulation phase and work throughout life and even Insurance Based Guaranteed Income Vehicles.

Our philosophy has always been to create a more pension-like experience for the participant where the accumulation phase is targeted toward a range of possible retirement ages and amounts and managing that experience to fruition taking the least amount of risk necessary to achieve the goal. We call this style Defined Goal Investment Management. Recently, we’ve observed that several firms out there are starting to come out with their own spin on the ‘Pension-Like’ retirement plan experience. This article from Investment News titled 'Firms are Omitting Annuities in New Retirement Income Products,, does a good job in weighing some of the pros and cons of insurance-based retirement income products and non-insurance based retirement income services.

In the end, we believe the appropriate philosophy is that if we default the participant into an environment that gives them an adequate income replacement than the uptake on that would be much higher than if they had to elect to do it themselves. This is in line with our overall core philosophy, default the participant into all of the decisions that lead to the best outcomes and leave them there unless they choose to opt out.