The key to achieving an innovative lifetime income option is not only educating participants but also educating key stakeholders, says Kevin Hanney, director of non-U.S. pensions and savings plans at United Technologies Corp., Hartford, Conn.
That meant convincing corporate executives and those in the investment, benefits, legal and insurance departments that UTC was ready to become the sponsor of the largest defined contribution plan to offer a retirement income option. The option is available in UTC's salaried and union plans, which together have $15.9 billion. (The option is called an insured withdrawal benefit.)
Mr. Hanney was one of five recipients of the inaugural Innovator Awards, sponsored by Pensions & Investments and the Defined Contribution Institutional Investment Association.
“This was different than just changing an (investment) option,” said Robin Diamonte, UTC's chief investment officer. In addition to Mr. Hanney, Ms. Diamonte and Natalie Morris, employee benefits director, played lead roles in getting corporate approval for the insured withdrawal benefit within the two 401(k) plans.
“We had to make sure that all stakeholders were involved and understood what we were doing,” Ms. Diamonte said.
Mr. Hanney started thinking about lifetime income options in 2007 in connection with the freezing and closing of corporate defined benefit plans and the ensuing increasing importance that DC plans took on. (UTC closed its $22.5 billion DB plan to new employees at the end of 2009. The plan continues to accrue benefits for existing participants.)
Formal discussions about lifetime income started early in 2009. The insured minimum withdrawal benefit — called lifetime income strategy — was launched in June 2012.
A few defined contribution plans use guaranteed minimum withdrawal benefits or annuities as “in-plan” lifetime income options, but United Technologies went further.
The benefit is the first to be guaranteed by multiple insurers instead of a single one. It is available through a custom target-date fund portfolio pegged to a participant's birthday, rather than an expected retirement date. That's no small task considering UTC's two 401(k) plans have approximately 102,500 participants.
The company had looked at several lifetime income products, Ms. Diamonte said. “Kevin had to prove point by point why this (strategy) was better.”
Innovator Awards judges gave Mr. Hanney and the program rave reviews.
“While complex under the hood, (it) is reasonably easy for participants to understand the overarching concept, and it has the potential to have a positive participant impact,” said one judge.
Mr. Hanney said the early response has been encouraging, as 6,000 participants, including 2,600 who are younger than 40, have signed up. UTC plans to measure the program's success by tracking adoption and utilization rates as well as participant awareness and outcomes compared to other available options.
“Retirement has multiple dimensions, and so are the measurements of success,” Mr. Hanney said. n