At BlackRock we celebrate the progress the retirement industry has made in helping Americans accumulate assets for retirement. At the same time, we acknowledge the continued challenge faced by people transitioning into retirement. We aspire to work together to ease that challenge, in particular by supporting retirement income security.
As the industry shifts from defined benefit plans to DC plans, the retirement income burden also shifts to individuals. At BlackRock, we believe helping deliver retirement income to participants is an important element of an employer’s benefits package. The retirement industry can also leverage its knowledge to develop solutions.
Build on what’s already working
Workplace plans generally represent the bulk of an individual’s savings at retirement. Including guaranteed income options in retirement plans can capitalize on the successes of those plans and help participants bridge into retirement. It can also help participants retire with greater certainty around the source of income during retirement, while also minimizing spending volatility.
As a fundamental premise, we think any solution should build on the concepts and tools that participants are already familiar with, and we believe that incorporating an option to receive guaranteed income as a feature of a target date product is a powerful way to enhance outcome certainty for participants. By adding a guaranteed income option as a feature of a target date product, participants can have a similar experience in accumulation to that of other target date products, benefiting from successful target date features like automatic enrollment, auto-escalation, and an asset allocation framework that adjusts to a participant’s time horizon.
Minimize the burden for plan sponsors and participants
Retirement planning can be a complicated topic for plans and their participants. We believe viable solutions for offering guaranteed income must minimize the complexity. This will require collaboration within the retirement ecosystem, including asset managers, insurers, consultants, and recordkeepers.
For most plans, the ideal solution won’t simply consist of offering guaranteed income as an option that participants may choose—though of course that approach is one avenue for plans to consider. Guaranteed income solutions such as annuities can present an array of choices and are often thought to be expensive and illiquid. These could be barriers to adoption.
Building a guaranteed income offering that specifically solves for the needs of the DC ecosystem, including daily valuation, liquidity and flexibility, can allow for easier adoption and increase the likelihood of participant success. In particular, the retirement industry must reduce friction in the annuity purchase process by removing fees, streamlining annuity selection and application processes, and offering dedicated insurance-related support.
Take a fiduciary perspective
The SECURE Act’s inclusion of a safe harbor for selecting a guaranteed income provider may alleviate some of a plan sponsor’s fiduciary risk associated with including retirement income products in retirement plans. We believe the investment solutions themselves must provide comfort as well.
One key element is making the option for guaranteed income a choice that participants can select. We believe in the power of choice and know that every participant’s circumstances are unique. Participants should be free to choose whether they would like to receive guaranteed income or not, depending on their own needs.
A guaranteed income solution should also provide participants some flexibility in the amount of their savings they can use and when they can start receiving income. DC plans should not require an “all or nothing” guaranteed income option that many pension plans have offered historically.
In addition, asset managers should use a robust process for the selection and monitoring of any insurers to which they allocate. At a minimum, this process should involve an assessment of insurers’ financial strength and relative pricing/payout rates.
Simplify delivery to participants
Historically, participants have received little guidance as they transition into retirement. While retirement income tools and spend-down calculators can help participants at the point of retirement, they should be educated about retirement income early on in their careers. It's important to meet participants where they are - using technology to provide the information they want, when and how they want it.
The retirement industry can work together to shift the retirement conversation away from simply accumulating assets and toward creating secure income in retirement. This change in mindset can build on what’s already working for participants and help them retire with dignity.
