Financial Engines Inc. was one of about 780 respondents to the Labor Department's request for information earlier this year for ideas about how to better provide lifetime income options to defined-contribution plan participants.
“Part of the problem is that there is a structural deficiency in the 401(k) plan,” said Jason Scott, managing director for the Financial Engines retiree research center, in a telephone interview. “There's not much attention to creating streams of income” after retirement.
In formal comments submitted to the DOL in May, Mr. Scott said employees who are close to retirement become overwhelmed by the prospect of annuities: When should they annuitize? How do they calculate fees? How much flexibility do they want?
“An immediate annuity is an unfamiliar product that differs significantly from the investments that they have become accustomed to during their years of accumulating wealth,” he wrote. “Given this type of choice, it is not too surprising that retirees overwhelmingly choose a lump sum over lifetime income at retirement.”
Mr. Scott's written comments also suggested the possibility of what he called a hybrid lifetime income option, “combining investments and flexibility in early retirement followed by insurance and security in late retirement.”
This hybrid could be delivered several ways, including through a managed account. “The management would create income in the early retirement years while always maintaining sufficient assets to give participants the option of increasing the income through an annuity purchase,” he wrote.
Mr. Scott emphasized in an interview that his comments to the DOL reflect research on retirement issues and were not recommendations for products or policy.
Mr. Scott also wrote that his company wants the DOL to make sure any new policy allows for retirement income solutions “that more closely align with individual preferences.”
And since Financial Engines is in the advice-giving business, and perhaps as a subtle hint of his company's upcoming lifetime income offering, Mr. Scott also asked the DOL to make sure that “future policy decisions support the development and deployment of adviser-assisted lifetime income options for DC plan participants.”