delivering retirement income solutions now · source: callan 2018 dc trends survey *multiple...
TRANSCRIPT
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Delivering Retirement Income Solutions Now
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Joseph LeeSenior Vice President,
Head of Retirement Platforms and StrategyFirst Eagle Investment Management
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Polling Question #1Does your plan currently offer a Retirement Income Solution(s) that was specifically chosen for providing income in retirement?
1. Yes
2. No
Audience Polling Question
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Does your plan’s 2018 agenda include exploring Retirement Income Solutions for your plan?
1. Yes
2. No
Audience Polling Question
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Delivering Retirement Income Solutions NOW
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Why Now?
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Delivering Retirement Income SOLUTIONS Now
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9, 8, 7, 6, 5, 4, …It all begins with #1
Step 1: Identifying the Problem
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Problems Needing an Effective Solution • Plan Design
– Periodic Distributions– Installment
Payments– Fees for above– Pro-rata vs Selected
Distribution Fund– “Reinvest” vs
“Distribution of Income & Gains”
– IRA “Roll-Ins”
• Participant Concerns– Protection of Principal
• From Market Events• From Funding the
Retirement Income Need– Sources of Income
• Dividend & Interest• Capital Gains as “Gap-
Filler”– Predictability– Sustainability/Longevity– Unanticipated Needs– Control & Flexibility– Simplicity
• Provide Solutions– Products– Services
– In-Plan– Out-of-Plan
– Non-Guaranteed– Guaranteed
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Consultants’ Support For Various Solutions
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Source: Callan 2018 DC Trends Survey *Multiple responses were allowed
33% 33%
24%21%
12%9% 8%
0%
5%
10%
15%
20%
25%
30%
35%
None Access to DefinedBenefit Plan
DrawdownSolution orCalculator
ManagedAccounts/Income
DrawdownModeling Service
Annuity as a formof Distribution
Payment
In-PlanGuaranteed
Income for LifeProduct
Annuity PlacementService
Retirement Income Solutions that Plans Offer Today*
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Kevin Hanney, CFA
Senior Director, Pension Investments, Non-U.S. Pensions & Savings Plans
United Technologies
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UTC Lifetime Income StrategyA professionally managed, personalized retirement solution
Insured lifetime income for longevity protection
Designed for future growth of income & assets
Preserves full control & access (no surrender charges)
Institutionally priced insurance, administration & investments
Multi-insurer coverage with ongoing competitive bidding
All delivered through a single option in a defined contribution plan
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Investment allocation and secure income
0%10%20%30%40%50%60%70%80%90%
100%
Allo
catio
n %
Secure Income Portfolio - 60% equity/40% bonds, higher fee e.g. 119 bps, secure incomeTraditional Investment Portfolio - Custom allocation, low fee e.g. 12 bps, no secure income
Income Phase-In Period
Age
Pace of income acquisition and accrual influenced by glide path, investment returns and contributions
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Multi-carrier guarantee design
Insurance Carriers
Allocation Formula 25%
Quarterly Poll 5.2% 5.0% 5.0%
25%50%
Insurer 1 Insurer 2 Insurer 3
Insurance Aggregator
Record-keeper
Diversification, competition & capacity
Competitive bidding processAggregator polls insurers monthly/quarterlyUTC allocates via diversification formulaFixed fees for life cannot increasePurchased benefit cannot decrease
Aggregator interfaces with record-keeper & insurers
A flexible & extendable operational structure, trading and record-keeping platform
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96%
125%
73%
91%
50%
58%
0%
20%
40%
60%
80%
100%
120%
140%
65 70 75 80 85 90 95Age
Projected income levels
Lifetime Income Strategy50th Percentile
Target Retirement Strategy50th Percentile
Lifetime Income Strategy25th Percentile
Target Retirement Strategy25th Percentile
Lifetime Income Strategy5th Percentile
Target Retirement Strategy5th Percentile
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Walter KelleherDirector of Educational Services
Florida State Board of Administration
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Florida Retirement System Investment Plan • 401(a) DC Plan
• 185,956 members: 127,650 active / 58,306 inactive
• $10.7 Billion AUM
• 121,879 retirees
• $11.4 Billion distributions (since 2002)
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Investment Plan Annuities • MetLife
• Immediate Fixed Income Annuities
• Deferred Income Annuities (QLAC)– Introduced December 2015
• EY financial planners run quotes
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Monthly/Yearly Annuity Letters• Monthly Letters
– To:• Terminated IP members > $25,000• DROP rollovers > $25,000
– Annuity quote on 100%/50% of balance
• Yearly RMD Letters– Terminated IP > Age 69½ > $25,000
[Monthly Letter Sample]
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Letters to Members• Began in April 2010
• Annuities from July 2002 to April 2010 – 8 purchased ($1.2 mil.)
• Annuities from April 2010 to present – 94 purchased ($10.2 mil.)
• Increase in number of annuities purchased
• Increase in member’s awareness of annuities
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Lynn AvitabileManaging Director
J.P. Morgan Asset Management
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Data filter: Chase data from 10/2012 to 12/2016
Included: spent 50% or more of their estimated gross income at Chase OR spent at least the median amount spent by households at Chase
Source: Chase credit card, debit card, electronic payment, ATM withdrawal and check transactions from October 1, 2012 to December 31, 2016. Outliers in each asset group were excluded (0.1% of top spenders in each spending category). Information that would have allowed identification of specific customers was removed prior to the analysis.
59,659 who spent a significant portion of their estimated income at Chase before and during retirement
110,949 households with 12 months before retirement and 12 months in retirement during this period
3,675,567 households that are continually retired during this period once retirement flag is set
4,347,471 with household_retirement_status= “Retired”
31,140,128 total households
Excluded: households with only Social Security income younger than age 60 (assumed to be Social Security disability payments)
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$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+
Lifecycle of spending: median household
Source: Total spending and all category sub-totals except checks, cash and health care costs: Chase data including Chase credit card, debit card, electronic payment, ATM withdrawal and check transactions from January 1 – December 31, 2016; J.P. Morgan analysis. Health care costs age 65+: Employee Benefit Research Institute (EBRI) data as of December 31, 2016; SelectQuote data as of January 16, 2017; J.P. Morgan analysis. Health care costs pre-age 65 and check and cash distribution excluding health care costs after age 65: 2016 Consumer Expenditure Survey, College Educated; J.P. Morgan analysis. Information that would have allowed identification of specific customers was removed prior to the analysis.
Median spending: Chase data with estimated categorization of checks and cash
Age in 2016
Travel
Apparel & services
Entertainment
Other*
Transportation
Food & beverage
Education
Housing (includes mortgage)
Health care
*Other includes: gifts & donations, gambling, personal care, tax payments, insurance and uncategorized items.
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$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
45-54 55-64 65-74 75+Age
Source: J.P. Morgan Asset Management. Estimates based on average consumer expenditure from the 2015 Consumer Expenditure Survey (BLS) for each age group excluding pension contributions. Population includes households where a bachelor’s degree or higher is achieved by any member. Average household size for age 45–54 is 3.0, age 55–64 is 2.3, age 65–74 is 1.9 and age 75+ is 1.9.
Changes in spendingWHAT TO EXPECT
Household spending peaks at the age of 45, after which spending declines in all categories but health care and charitable contributions and gifts. Housing is the largest expense, even at older ages.
Average household spending patterns by various age groups
$70,050$66,033
$52,332
$83,205
Health care
Housing – mortgageTransportation
Education
Other
ApparelTravel
Housing – excl. mortgageFood and beverage
Entertainment Charitable contributions and gifts
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Industry-wide challenges in offering retirement income funds in DC: Anticipating questions and preparing responses
Source: J.P. Morgan Asset Management.Past performance is not an indication of future performance. The manager seeks to achieve the stated objectives. There can be no guarantee the objectives will be met.
Operational Challenges
Communications
Plan Design To-Dos
How do you implement this type of fund in plan? Participants can set up systematic withdrawals to receive periodic payments.
What are the operational challenges? Some but not all record keepers offer systematic withdrawals and have periodic payment processing capabilities. A single fund withdrawal capability and a straight through processing (“Easy Button”) are not offered in DC while they are available
on retail platforms.
Partial Withdrawals: What actions do plan sponsor take? Plan amendment needs to be made if partial withdrawals are not currently allowed.
IPS update: How do you think about selecting and monitoring retirement income solutions in plan? IPS amendment may be needed to reflect unique nature of these products, if applicable.
RMD requirements Retirees older than 70 ½ are required to calculate and satisfy their RMDs separately for each plan and withdraw that amount from each plan they
have accounts with. This requirement should be clearly communicated and enforced.
Annual withdrawal insights The annual sample spend down amount needs to be effectively communicated to participants. This information is public.
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Michael KnowlingSenior Vice President,
Head of Client Relations and Business DevelopmentPrudential Retirement
For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.
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The challenge: Financial security in America
Don’t have a retirement and savings plan 1
1. GoBankingRates.com, “1 in 3 Americans Have $0 Saved for Retirement,” 20162. Northwestern Mutual’s 2016 Planning&Progress Study3. LL Global, Inc.™ and Life Happens®, “2017 Insurance Barometer Study,” 20174. PwC, Employee Financial Wellness Survey, March 2016
Why should employers
care?
1/3
Believe they will outlive their savings 2
2/3
Don’t have life insurance 3
41%
of workers delay retirement 4
Higher employer costs if employees delay retirement by one year 5
HR professionals say financial issues impact employee performance 6
70%
44%
1-1.5%
5. Prudential, “Benefits Optimization: Insights into Benefit Plan and Portfolio Design,” 2016. With supporting research and analysis conducted by the University of Connecticut’s Goldenson Center for Actuarial Research.6. Society for Human Resource Management, “Financial Wellness in the Workplace,” May 2014
For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.
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We need to meet them where they are
5 generations of workers in today’s workforce
Planning Saving Protection
For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.
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Key Risks Facing Retirement Plans30
Longevity risk Will participants outlive retirement income?
Participation risk Will eligible employees join the plan?
Contribution risk Will participants save enough?
Investment risk Do participants know how to invest?
Market risk Are savings protected from volatile cycles that will repeat?
Conversion risk Do participants know how to turn savings into income?
HUMAN RISKS MARKET RISKS
For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.
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Market Risk
Institutional Retirement Income Options31
Flexibility & Control
Longevity Risk
Market protection pre- and post-retirement
Access to funds atany time
Lifetime income protection
No Income Guarantee• Managed payout program• Systematic withdrawals Fixed Annuities• Fixed payout annuity• In-Plan/Out-of-Plan Guaranteed Minimum Withdrawal Benefits
For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.
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DisclosuresRetirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, a Prudential Financial company.
In providing this information Prudential Retirement is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity. Prudential Retirement may benefit from advisory and other fees paid to it or its affiliates for managing, selling, or settling of the Prudential mutual funds and other investment products or securities offered by Prudential Retirement or its affiliates. Investment vehicles sponsored or managed by a Prudential Retirement affiliate generate more revenue for the Prudential enterprise than non-proprietary investment vehicles. Prudential Retirement's sales personnel generally receive greater compensation if plan assets are invested in proprietary investment vehicles. Prudential Retirement may benefit directly from the difference between investment earnings of Prudential Retirement's stable value funds and the amount credited to deposits in those funds. Prudential Retirement may also benefit from broker-dealer or other entities’ co-sponsorship of Prudential conferences.
Michael Knowling is a registered representative of Prudential Investment Management Services LLC (PIMS), Newark, NJ, a Prudential Financial company.
© 2018 Prudential Financial, Inc. and its related entities. Prudential, the Prudential logo, the Rock symbol and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.
0315169-00001-00
For institutional plan sponsor use only. Not to be distributed to plan participants or the general public.
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Michael Tassinari, CFA
Investment DirectorJohn Hancock Investments
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Building Income for Tomorrow
Top Features
Income stability
Inflationprotection
Upside potential
Cost
Liquidity
Longevity• DOL likely to increase post-retirement
reliance on plans
• Scarcity of investment product options designed specifically to meet decumulation objectives
• Balancing investor needs and addressing the key attributes in delivering a “paycheck replacement” (income stability & inflation protection)
Overcoming Today’s Challenges:
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Please take a moment to fill outyour evaluation sheet.
THANK YOU.
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