Early Groundwork Is Key for Implementing Lifetime Income Solutions

Engaging up front with four key workstreams may smooth the process of adding a solution. 

Adding a lifetime income solution to a defined contribution (DC) plan can be one of the most important decisions plan sponsors can make, because these solutions may help put participants on a path to achieving security in retirement. Establishing a thorough process and following best practices may help keep things on track when moving from intention to implementation.

Part of the journey involves narrowing the burgeoning field of solutions to a short list worthy of closer evaluation. We think working through four key questions can help whittle down the offerings in play. As this list takes shape, plan sponsors can lay the groundwork for a smooth implementation by engaging early—and productively—with key workstreams.

Based on our experience in partnering with plan sponsors, here are a few considerations:

Talk to recordkeepers about the intent to offer a lifetime income solution. Recordkeepers are vital gateways to plan participants, through regular touch points ranging from account statements to customer-service calls and educational content. All these elements will need to incorporate information on the lifetime income solution to maximize the positive impact on participants.

Some recordkeepers are more comfortable being facilitators between solution providers and individuals; others take great pride in creating a holistic financial-education experience for individual participants. Recordkeepers, always key stakeholders in making solutions work, may need to go a step further to integrate them into their participant experience.

Go back in time a few years, and lifetime income solutions were a new frontier in the DC world. Some plan sponsors may assume this is still the case. But today, we’re seeing more recordkeepers than ever supporting these offerings on their platforms through integration with product providers such as asset managers and insurance companies. At times, recordkeepers combine income solutions into existing offerings, such as their own managed-account services or wealth guidance.

For plan sponsors, a helpful to-do item is to inform recordkeepers about the type or types of solutions they’re homing in on. The recordkeeper might already offer it or—if not—be willing to add it. It helps to understand the time frame required for a recordkeeper to add a specific solution well in advance of zeroing in on a choice.

Build a communications strategy that engages all participants. Every lifetime income solution requires communication—and it must be clear and targeted. Decide on the main message early, making sure both treasury and benefits professionals weigh in—as well as internal legal experts. Dedicate specific resources to sharpening the communications strategy and focus on the benefits.

The core message should be consistent and simple, delivered across diverse channels and media: some participants prefer watching videos and animations, others want a human voice to speak with. Still others like to “do it themselves” on a website. Our participant research distinguishes three investor personas with distinct needs and capabilities that offers insight into communication strategy.

Capable investors are confident and more financially literate—they could benefit from articles discussing the ins and outs of lifetime-income strategies. And they may be perfectly at home using web-based self-service tools. Eager investors are younger and less financially literate, so social media could be an effective way to succinctly describe the merits of glide paths that incorporate guaranteed income. Conservative investors tend to be more cautious, and could be helped by insights on why staying invested in a diversified strategy may be better for growing retirement income potential than a risk-averse strategy. Speaking with call center representatives might be preferable for this cohort.

Tailoring a communication strategy for lifetime income solutions may help ensure that all participants receive the information they need in a way that resonates. For human resources teams that might worry that communications content and strategy will be a heavy lift, one option is to tap into solutions providers that offer this service and the experience in deploying it.

Perform legal and fiduciary due diligence—and document it. The good news for plan sponsors pursuing a lifetime income solution is that there’s no shortage of regulatory guidance for incorporating one within a plan.

The SECURE Act, passed in 2019, includes a safe-harbor provision for choosing an annuity provider if plan fiduciaries conduct thorough due diligence in evaluating them. The default safe harbor from 2006 covers qualified default investment alternatives, with guidance that provides support for incorporating insurance products. We won't dive deep into the specifics of these regulations here, but we believe they offer a solid foundation for due diligence. It’s essential to document this process clearly.

Consultants may be a valuable resource—they’ve upped their coverage of lifetime-income solutions and can help guide plan sponsors through the process. Legal experts may also be useful in understanding fiduciary considerations for lifetime income solutions. And there are plan sponsors who have navigated or are navigating the process. At this point, over 30 DC plans have publicly announced that they’ve selected lifetime income solutions or are putting one in place. Many would likely be willing to share their first-hand experiences.

Lay the groundwork with operations and administration. In our experience, engaging partners in these disciplines will make it easier for them to adapt existing infrastructure to an incoming solution when the time arrives. You don’t want to reach what you think is the end of the road and then have to hit the “pause” button because you’ve overlooked a key stakeholder requirement.

Other stakeholders should be brought into the fold early on. Investment managers, custodians and third parties may be partnering with a plan in benefit administration, participant education or communications. A plan might already be engaging with insurance companies if they’ve undergone a pension risk transfer for their defined benefit plan.

These conversations could end up influencing the ultimate solution choice; having a dialogue early on could avoid implementation challenges further down the road. Ensure that the plan’s foundations will support a lifetime income solution that meets the unique, diverse needs of participants into the future.