Despite sponsor resistance, participant reluctance and regulatory uncertainty, lifetime income options for DC plans continue to hit the market.
Last month, officials at Financial Engines Inc., said the firm had begun offering a lifetime income option to defined contribution plans through its managed account business. In November, AllianceBernstein LP unveiled a series of target-date funds with an embedded annuity component for DC plans. In February 2010, Great-West Retirement Services announced a lifetime income option offered through a group of target-date and balanced mutual funds.
Each effort represents an attempt at one-upmanship on existing players that offer annuities embedded in 401(k) plans.
New York-based AllianceBernstein is promoting its annuity product as being backed by three insurers rather than the single-insurer coverage offered by competitors. DC consultants say single-insurer risk is one reason large sponsors have been cool to annuities within 401(k) plans.
Financial Engines and Great-West are promoting non-annuity strategies as offering greater flexibility and simplicity for participants and fewer headaches for plan executives.
Because the Financial Engines product, called Income+, doesn't require buying an annuity within the DC plan, “the plan sponsor is not subject to any of the fiduciary requirements associated with purchasing in-plan annuities nor are there any administrative issues associated with interfacing with an insurance provider,” said Robyn Credico, Arlington, Va.-based senior consultant and defined contribution practice leader for North America at Towers Watson & Co. Ms. Credico said her firm doesn't endorse a specific lifetime income option.
Alison Borland, retirement strategy leader at Aon Hewitt, said executives spent a year talking with clients and Financial Engines about how best to deliver Income+ and to deal with administrative issues. Aon Hewitt, Lincolnshire, Ill., began offering the product on its platform in late 2010, and it has offered Financial Engines' managed account business since 2004.
“Sponsors like the fact that there's no insurance (component) in-plan,” she said. “They are concerned about the long time viability of insurers, and they have concerns about the uncertainties of fiduciary duties.”
Adding that “different sponsors have different needs,” she said Aon Hewitt also offers an annuity-based product from Prudential Retirement that is linked to target-date funds in DC plans.