Building a Bridge to Retirement Income – Part II (11:51)
Financial Advisors, Plan Sponsors and Participants Need Education about New Retirement Income Products
Broadcast Retirement Network’s Jeffrey Snyder discusses the importance of retirement income education for financial advisors, plan sponsors and participants (employees) with SS&C Technologies’ Ryan Grosdidier and Income America’s Matthew Wolniewicz, AIFA.
Jeffrey Snyder, Broadcast Retirement Network
This morning on BRN Retirement, part two of our conversation on Building the Bridge to Retirement Income, and we’re going to welcome back to the program Ryan Grosdidier of SS&C Technologies and Matthew Wolniewicz, AIFA of Income America. Ryan, Matt, welcome back to the program. Great to see you again this morning.
Ryan Grosdidier, SS&C Technologies
Thank you, Jeff.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, always a pleasure to pick up the conversation. Matt, you know, we left off our conversation. It was a great segue and teaser, because I felt like we’re like Yellowstone.
We’re like teasing the next episode or whatever people watch Friends. And, you know, we talked about due diligence, but I want to start off by asking how can retirement plan advisors, you know, they’re always looking to bring more value. How can they bring more value through the due diligence of retirement income to their clients?
Matthew Wolniewicz, AIFA, Income America
Well, Jeff, you know, the retirement income is the hottest topic out on the conference circuit. Every conference that I go to, there’s multiple sessions. And so, you know, Ryan spoke yesterday about our need and ability to go out and educate.
So not only do we need to educate the retirement plan consultant community, we also need to do a better job of communicating with both the plan sponsors and the end participants. Because, again, the retirement plan consultant is held to a fiduciary standard. And everything that they do has to be in the participant’s best interest.
And so if I think back to where we ended yesterday, it was really about this idea that, you know, one of the first milestones that the consultant needs to decide is, is the solution going to be in plan or out of plan? If they make a determination that it’s going to be in plan, there’s some great resources that are available at no charge out in the marketplace. NAPA has, with Bonnie Treichel, they’ve launched a program called the Retirement Income Certificate or the RIC program.
Advisors can attend that for no charge. It’s done online. It’s also done at the NAPA Summit.
And then John Faustino at Broadridge has created the Retirement Income Consortium. And every month they have at least one webinar in addition to creating a prudent process for how to look at and think about the space. But really, once a decision is made as to whether it’s in plan or out of plan, there’s some very simple factors to consider.
The first is, is it simple? Can participants and sponsor understand it and understand the benefits? The second really is about control and flexibility.
Does the participant have to make a decision to annuitize or are they automatically covered? In addition to that, when I think about flexibility, does the participant have the right to take their money out at any time with no penalty? That’s historically been one of the biggest hurdles that people are afraid to make decisions that are irrevocable.
The last two topics are really around fee transparency. Do you understand how much it costs and can you benchmark that? And then the final one relates to something that Ryan was talking about, which is this interconnectivity or the idea of portability.
Because if a participant has been paying for a guarantee and yet they switch employers, are they able to take that guarantee with them? With the SECURE Act, they can always roll it out into an IRA, but we all know that from a participant level, to have five or six different IRAs, that’s not a great experience. So can they take that guarantee and bring it to the new plan?
Those are really four basic things to look at, Jeff, when consultants and advisors are thinking about how to perform due diligence.
Jeffrey Snyder, Broadcast Retirement Network
And again, it’s that bridge we’re talking about this morning and talked about yesterday, and there sounds like there seems to be a roadmap. Ryan, I want to pick up on something that Matt talked about yesterday, but kind of bring it forward, and that is auto. We talked about the power, I should say, of auto enrollment, auto escalation.
What about defaults, implementing defaults for retirement income? Is there a softening there?
Ryan Grosdidier, SS&C Technologies
I believe there is, and I think that the next step is auto income. I think that’s really where we want to go. We’ve been successful with 401ks in D.C. as a supplemental savings plan, but the need is there to really transition that into a retirement income plan. So that’s where we’re going, and I know that the DOL and the ERISA Advisory Council has been looking at this recently. We testified, or SS&C as an organization testified in front of that council as they’re exploring QDIA and defaults when it comes to income. I think that there’s support, obviously, across the industry.
It’s how assets flow today, and it’s how assets are going to continue to flow. So if you’re going to get the adoption that all of these firms are looking for to justify the technology implementation that’s going to be required to offer the solutions, you’re going to need to get to some form of default through a QDIA and a target date fund or a managed account. There’s a lot of different ways that a plan can offer these solutions to really put those guardrails and put those nudges in place to get participants the solutions that they need to secure their retirement.
Matthew Wolniewicz, AIFA, Income America
Yeah, Jeff, do you mind if I make a quick comment on that? Because Brian brings up a really interesting point, and it ties into the due diligence question. It’s been four years that I’ve been out on the speaking circuit doing somewhere around 70 in-person sessions a year.
And when I first started, the question was really, is there any demand? And then once people realized that there was demand at both the sponsor and the participant level, it was about how do I perform due diligence? And so we’ve worked really hard with the community over the past 18 months to cover that.
But now the question is, really switch to implementation. And Brian’s right, there’s a lot of different ways to implement this. And it’s funny to me that in the retirement plan community, advisors either really like target dates or they really dislike them.
They really like managed accounts or they really dislike them. But you can implement guaranteed income solutions in both forms, in target dates and in managed accounts. Or one of the things that we have seen really gain a lot of traction recently is the idea of a dynamic QDIA, where a participant in the accumulation phase, it doesn’t make sense for them to pay the extra cost for a guarantee.
So they sit in a target date until they get to an age appropriate point in their life, which is typically somewhere between 50 and 55. At that time, they switch into a managed account that better accounts for all the life events that they have and pick up some guaranteed income at that time. So it’s been interesting for me to see that conversation change from demand to due diligence and now on to implementation.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, and I think that would track with where you all have said things are going, which is there’s just a lot of movement, a lot of energy in the space. Brian, I want to come back to you. You talk about auto, but that doesn’t forego participant education, right?
And where does that kind of fit in? Because both you and Matt have said over the last two days, yesterday’s show, this morning’s show, that it’s so critical. I mean, you build a great plan, you got to understand how to use it.
Ryan Grosdidier, SS&C Technologies
Absolutely. I think once you get people into the solutions, utilizing some sort of auto feature or default, that then allows you the opportunity to educate them, whether it’s at certain points in their life, certain ages, and really provide that robust tool set so that they can get the education that they need. They can utilize tools and calculators and financial modeling tools as well so that they not only understand where they are today, but what they’re building to in their future.
And that’s really where the power of the guarantees comes in, because they can see how that not only their balance is accumulating, but how their guaranteed benefit is accumulating as well. So to your point, it’s really important to add that next layer of support. And then, you know, you can move even beyond that to call center support, financial advisor support for certain individuals that have unique situations.
But really to democratize advice and bring it to the mass market within the DC system is the goal here. And I think there’s a huge opportunity to end up with better outcomes for all of these participants through these solutions, as well as all of the tools and educational content that comes along with it.
Jeffrey Snyder, Broadcast Retirement Network
So Matt, we’ve had a good conversation. Obviously, the ball is moving, or the train has left the station, so to speak. I don’t know, whatever analogy you want to use.
And I want to ask you to pull out your, I don’t know, your SWAMI hat, if you remember, Johnny Carson, or even your eight ball. Where do things go? Where do things look in terms of trends over the next 12 to 18 months in terms of retirement income?
Matthew Wolniewicz, AIFA, Income America
We’re going to see more solutions that are launched, which is good for everybody. We’re going to see more adoption at record keepers, which makes these solutions more available to more participants. And we’re also going to see just a greater acceptance of what Ryan had spoke about, which is the idea that these solutions can and will be a QDIA.
You know, it’s ironic when you think about the retail end of the market. In 2003, Lymra had published a stat that there was record-setting retail annuities sold, $385 million worth. And half of that money came from the qualified plan space.
So you know that there is interest at the participant level, and probably the biggest benefit that they get from dealing with it in their plan is, one, there’s fiduciary oversight, but two, at the end of the day, cost is really important. The average cost of a retail annuity is 247 basis points. In a qualified plan, it’s less than 100 basis points.
And so, you know, in addition to there being interest and demand from the participant level, sponsors have also become more paternalistic. Many years ago, they used to want to chase the people that had retired out of the plan. That’s not the trend anymore.
They definitely want to keep those people in the plan. And there’s a benefit to the sponsor, too, because those are typically the highest balances, and it helps them negotiate. So we’re going to see a lot of movement, Jeff, over the next 18 months, and we’re going to see some really wide adoption.
Jeffrey Snyder, Broadcast Retirement Network
Yep. And it seems to be on track for that. And guess what?
We’re going to have to have you guys back during that time to keep us updated. Matt, Ryan, always great to see you. Thanks for joining us.
And like I said, we look forward to having you back again very soon.
Ryan Grosdidier, SS&C Technologies
Thanks, Jeff. Thanks, Jeff. Look forward to it.
Jeffrey Snyder, Broadcast Retirement Network
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Until then, I’m Jeff Snyder. Stay safe, keep on saving, and don’t forget, roll with the changes.