Many diligent retirement savers often struggle when it comes time to spending the money they worked so hard to save. That’s why the Tennessee Valley Authority Retirement System decided to add a target-date fund with a built-in annuity to the investment options offered in its $4.6 billion 401(k) plan.
The BlackRock LifePath Paycheck target-date series, which TVARS chose as the plan’s qualified default investment option, automatically allocates a growing portion of a participant’s balance to a pool of money that the participant will later have the option to convert to an immediate annuity.
Many people are unclear on how to turn their savings into monthly income in retirement, said Mark Meigs, TVARS' executive secretary and winner of an Excellence & Innovation Award.
With the new LifePath Paycheck funds, participants will be able to establish a lifetime income stream in the form of a "monthly paycheck for life,” he said.
The BlackRock LifePath Paycheck target-date series acts like an ordinary target-date fund until participants hit age 55, at which point the fund allocates 10% of the balance to a new asset class called “lifetime income." The allocation to lifetime income grows gradually to 30% by the time participants reach 65.
When participants are between the ages of 59 ½ and 71, they have the option to use the money set aside for lifetime income to purchase a guaranteed lifetime income stream from insurers selected by BlackRock.
Meigs said that the new offering will set up the “employees of tomorrow” for success as they don’t have pension plan benefits as some of their older co-workers do.
“The TVARS board wanted to be able to offer a pension-like option in the 401(k) plan for those who have no pension or have a frozen pension,” he said, adding that the TVARS’ pension plan closed in 2014.
Working with BlackRock, TVARS developed a comprehensive communications campaign explaining the new investment option that included a custom microsite, videos, brochures, postcards and two sets of FAQs.
The microsite exploded when it went live in June, receiving more than 750 clicks in the first three days, triple regular website traffic.
“We tried to customize the materials to where it was not just generic messaging,” said Sally Weber, manager of retirement operations for TVARS.
As a result, TVARS had very few questions from participants when the LifePath Paycheck funds were introduced, with nearly half of the plan's 15,034 participants — or 7,023 — invested in them as of June 30, she said.
Nevertheless, participant education about the new investment is ongoing. “We’re rolling out some group sessions that will be going on in October, both virtual and in person, to continue to educate our participants,” Weber said.
The five-year effort was not without challenges, including getting buy-in from TVARS’ seven-member board.
“It took a longer time and more in-depth evaluation than expected,” Weber said.
Probably the biggest challenge was persuading Fidelity, TVARS’ record keeper, to build out the platform to support BlackRock’s new investment option. Fidelity agreed to move forward once other large Fidelity clients, including Adventist Healthcare Retirement Plans — another Excellence & Innovation Award winner — also decided to implement the BlackRock LifePath Paycheck target-date fund.
“It was a bit out of our hands and relied upon a long-term partnership that we’ve had with both of those outside entities,” Meigs said, referring to Fidelity and BlackRock.
“It couldn’t have happened without Fidelity’s partnership to set up a platform to make this offering available,” he said.
