Since United Technologies Corp., Hartford, Conn., introduced a lifetime income option in June 2012, nearly 20,000 people — or about one-sixth of eligible participants — have enrolled.
The two United Technologies 401(k) plans, with a combined $20.3 billion in assets, offer participants an insured withdrawal benefit built into a target-date portfolio. Participants have invested approximately $696 million in UTC's lifetime income strategy, said Kevin Hanney, director of pension investments. The combined UTC plans are the largest to offer such an option.
The option is the qualified default investment alternative for automatically enrolled participants in one of the plans, and is available as an investment option in both plans.
United Technologies uses a customized version of a lifetime income strategy developed by AllianceBernstein LP. While UTC kept some of the AllianceBernstein components, such as having three insurers guarantee the withdrawal benefit, it doesn't use AllianceBernstein's annuity component. UTC uses a custom target-date approach pegged to each participant's birth date, rather than the projected retirement date.
AllianceBernstein manages the glidepath and is co-fiduciary. State Street Global Advisors manages the underlying investments of the strategy. Aon Hewitt is the record keeper.
Adventist Healthcare Retirement Plans, Roseville, Calif., also created a customized version of a lifetime income option, making a few changes to the Prudential Retirement IncomeFlex Target, said William Easterbrook, president of Adventist whose 403(b) and 401(a) plans have combined assets of $3.5 billion.
“We wanted a low-hassle alternative at the lowest cost possible,” said Mr. Easterbrook, whose plans adopted IncomeFlex Target in April 2012 after negotiating some changes. “We customized it to keep the costs down.”
For example, Mr. Easterbrook said Adventist wanted the option to be embedded in a passively managed Vanguard balanced fund with institutional shares, rather than in the actively managed Prudential balanced fund recommended by Prudential. The Vanguard fund's expense ratio is eight basis points; the Prudential fund's expense ratio was 71 basis points, he said.
Mr. Easterbrook said Adventist didn't want IncomeFlex Target to be included in the target-date family that serves as a QDIA.
Adventist has taken a laid-back approach to marketing IncomeFlex Target to participants. “We haven't promoted it,” Mr. Easterbrook said. “For now, it's been word of mouth.”
As a result, approximately 350 of 90,000 participants have invested a total of $22 million in IncomeFlex. “We're not trying to sell this,” he said. However, Adventist is preparing a video about lifetime income that will be available on the Adventist website. “We need to pick up the education,” Mr. Easterbrook said.
