401(k) Specialist Issue 1 - 2021 - 37

401(k) PRODUCTS
annuities are or they have misconceptions
about them, " Reddy said.
He continued, " Not all annuities are created
equal. They don't all deliver the same type of
guarantees, and they're priced differently. "
The industry needs to address those
barriers to make annuities more palatable to
savers, but Reddy also believes sponsors and
advisors should address plan design from
participant's perspective so that the products
they use to convert savings to income work
seamlessly with the plan.
" When you look for a mutual fund or
something that's for guaranteed income,
it feels clunkier than it needs to be, " he
explained. " How do you get annuities as
part of either the QDIA, part of managed
accounts or part of the auto programs that
you implement, and how do you make it so
that it feels natural and intuitive for them? "
One way to help sponsors test the annuity
waters with participants is to invest the
employee match in a guaranteed solution,
Reddy suggested.
" If I make that money liquid, you're not
fully getting the benefits of the annuity. If I
make it illiquid, it feels like an irrevocable
decision, " Reddy explained. Investing just the
match " feels less like you're making [a decision]
on behalf of the participant, but you're
" The income
solution needs
to be embedded
into a default
option. "
still creating good habits and good behaviors
that will benefit them in the long term. "
Finding ways to integrate products seamlessly
into participants' retirement plans is an
important step in achieving broad adoption.
Ferraro agrees. He suggests " the income
solution needs to be embedded into a default
option, into a qualified default investment
alternative. By doing so, that's going
to provide the scale needed to secure the
most advantageous institutional pricing, but
it's also going to help participants because
that is the ideal retirement savings vehicle to
really help them make the transition from
savings to income. "
He added that in educating retirement
plan participants, Lincoln focuses on three
outcomes: protecting savings during accumulation,
turning it into protected income
in retirement, and providing liquidity so
participants can access their money.
" It's not so much you're having to explain to
them how everything works as much as helping
them understand how this can help them
help them achieve those outcomes, " he said. He
compared annuities to iPhones. " I use my iPhone
every day ... but I don't understand all the
technical details, how it works. I do understand
what it can do for me and the benefits. "
Guaranteed Income
The last decade of economic growth
may have lulled participants into thinking
they didn't need to worry about guarantees,
Reddy said. 2020 likely disabused them of
that notion, but " having some diversified
solutions that provide annuity-like guarantees
I think is really important for advisors
to be thinking about as they talk to plan
sponsors, " Reddy said.
Ferraro believes that recent volatility has
brought guaranteed income front-and-center
for investors. He cited a study by the Alliance
for Lifetime Income, which Lincoln
co-founded, that found " Americans with a
source of protected income in addition to
Social Security are significantly more confident
about their retirement income. "
Over three-quarters of those investors
expect their income to last as long as they
live, he continued.
Lifetime Income for Longer Lives
I
n October 2020, Rep. Richard Neal, chairman of the House Ways and Means Committee, introduced with Ranking Member
Rep. Kevin Brady bipartisan legislation that doubles down on retirement saving incentives passed in 2019's SECURE Act.
" COVID-19 has only exacerbated our nation's existing retirement crisis, further compromising Americans' long-term financial
security, " Neal said in a statement. " In addition to meeting workers' and families' most pressing, immediate needs, we must
also take steps to ensure their well-being further down the road. "
Notably, the Securing a Strong Retirement Act of 2020, or SECURE Act 2.0, increased the age for required minimum distributions
to age 75.
" The longer you leave the money working for you, the better off you're going to be, " Sri Reddy of Principal Financial Group said.
Life expectancy in 2018 was almost 78 years old for the average American, according to The Centers for Disease Control and
Prevention. The Insured Retirement Institute has lobbied for an increase in the age for required minimum distributions for years.
" By increasing the RMD age to 75, adjusting mortality tables to reflect longer life expectancies, and modifying and exempting
certain annuity benefits and payments from the minimum income threshold test, the 'Securing a Strong Retirement Act of 2020'
would provide workers with more time and opportunities to continue to accumulate and grow their savings, thereby improving
their retirement security, " IRI President and CEO Wayne Chopus said in a letter sent to Neal and Brady before the bill passed.
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401(k) Specialist Issue 1 - 2021

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