The great debate on 401k in-plan guaranteed income

#401k participants fear making an irrevocable decision with their hard-earned #retirement savings. We designed Income America, LLC to be simple for plan sponsors, advisors and consultants, and participants to understand. 5% for life. Guaranteed. And the guaranteed balance is fully liquid at any time with no penalties or surrender fees.??

Thank you INSTITUTIONAL RETIREMENT INCOME COUNCIL INC Bruce Ashton Martha Tejera Michelle Gordon Nevin Adams for your articles on the topic. I love what you wrote and had to add some of my thoughts!

There is no legal requirement to provide a lifetime income option.????I worry more about the impact of Secure 2.0 than a lack of a legal requirement to provide #lifetimeincome. Secure 2.0 has a lot of new provisions for sponsors and record keepers to consider and work on. With Secure 1.0 passing right before COVID, plan sponsors were forced to focus on their businesses to ensure they survived COVID, deal with quiet quitting and recruiting in a full employment economy, and many missed the safe harbor in 1.0. ?I also wonder if, in the future, participants will sue sponsors for not offering #guaranteedincome options after a big market crash.

The safe harbor for selecting an annuity provider doesn't feel very "safe." The safe harbor in Secure 1.0 provides relief if an insurance provider fails (provided the sponsor follows all the required steps). More eloquently stated in the IRIC response: ?since fiduciaries must act in the interest of the participants, plan sponsors and advisors may have a #fiduciary duty to learn about #retirementincome solutions. Using this as an excuse to avoid consideration of retirement income solutions is, in our view, inappropriate." I think it may feel "unsafe" because 1.0 was lost in the COVID madness. We designed Income America, LLC as a QDIA solution.

Operational and cost concerns linger. This is a fair objection. The two most common questions I get after a presentation are portability/platform availability & QDIA. The definitive answer on portability between RKs will be revealed soon. We have a couple of press releases in Q2 that will put the lack of portability issue to bed. The QDIA question is usually about what age is right to default a participant into a guaranteed income solution. Current solutions address this question in slightly different ways, but I have seen sponsors begin to default between the ages of 50-55. My retirement guru David Blanchett e has written extensively about the sequence of returns risk. Participants need time for their accounts to recover if there is a catastrophic market crash before retirement. In addition, in some of the conversations we are having right now about QDIA, the sponsor is considering making the company match from day 1 into the guarantee – it allows the participant to have a "DB-like" portion of their 401k.??

Participants aren't asking for it. This objection makes me crazy because many articles say participants and sponsors ask for it, while others oppose it. There is always a survey that can be used to support either view. One of the questions the sponsor is trying to answer is whether their participant is better off getting guaranteed income in the 401k plan, where there is fiduciary protection, or from a salesperson pushing a retail annuity. Everyone has a horror story about a friend or family member being taken advantage of. In this PLANSPONSOR article Bonnie Treichel says, "people are particularly afraid of retail annuities in which an insurer sells a retiree an annuity with an 8% trail, with no oversight on the person selling the annuity."

Participants don't take advantage of the option when offered. Fair point. If an investment is just in the 401k lineup as an option, it will have ~2% utilization. A better alternative is a QDIA (see Secure Act 1.0) or managed account solution. Remember that participants love guarantees but want liquidity.

Conclusion. We are in the first inning of guaranteed income or #protectedretirement in 401k plans. It's an exciting time to be part of the evolving solutions. I believe many misperceptions will be addressed and debated in 2023 – in plan retirement income is once again a large part of the National Association of Plan Advisors #NAPA401KSummit. We launched Income America in May 2022 and won 59 new plans in 2022. Participants and sponsors want guaranteed income solutions in their 401k plans.