CHICAGO — UBS Global Asset Management is the latest firm to jump on the retirement income bandwagon.
UBS, in collaboration with Genworth Financial Inc., Richmond, Va., will roll out a retirement income annuity as an option within a 401(k) plan.
UBS joins the ranks of Merrill Lynch Retirement Group, Pennington, N.J.; Prudential Retirement Inc., Newark, N.J.; and Hartford Financial Retirement Plan Services Group Inc., Hartford, Conn.; as firms offering retirement income options.
Drew Carrington, executive vice president and head of the defined contribution and retirement solutions group at UBS in Chicago, said adding this option with Genworth was a no-brainer.
“We hear a lot about the ‘DB’ification’ of DC plans, but you haven’t DB’d anything until you turn accumulated assets into a stream of income. The story is clear that baby boomers are worrying about longevity risk. You cannot hedge longevity risk by adding more stocks to the portfolio. You have a higher risk that a big market decline could affect your standard of living. The only way to directly hedge longevity risk is to buy longevity protection in insurance companies,” said Mr. Carrington.
The Genworth product offers a guaranteed income stream to participants starting at age 65 and the amount of income depends on how much is invested. The retirement income feature will be available to 401(k) plan participants starting at age 50, said Mr. Carrington. The value of the income-for-life guarantee is determined on the participants’ account balance at the time they enroll.
“Automatic withdrawals of 5% of the highest locked-in account value could begin at age 65,” said Mr. Carrington, adding that in the event the participant dies, the remaining assets are passed to his or her beneficiaries.
UBS will offer the option in two flavors, said Mr. Carrington. “At the end of the first quarter, it will be attached to our target-date funds, and it will be rolled out as a standalone option in the second quarter,” said Mr. Carrington. The option will be made available to all of UBS’ defined contribution clients.
Fred Conley, president of the institutional retirement group at Genworth, said, this annuity option is a way for 401(k) plan participants to have increased retirement security regardless of market performance.
And, participants are not locked in, he said. “This is a very flexible option for participants. After they invest, participants could decide to transfer that money out at any time. It’s liquid,” said Mr. Conley.
Participants will respond to that flexibility, Mr. Carrington believes. “There’s no requirement that participants need to put 100% of their balance into this option. They could choose 50% or however much they are comfortable with,” he said.
While he declined to discuss sales goals, Mr. Carrington said he expects the product to be very well-received. “We think this changes the game. It changes the dynamic in the 401(k) arena. It’s not just about the accumulation period anymore. It’s also about market risk, inflation risk and longevity risk. We feel this product addresses all those risks,” said Mr. Carrington.