By Linda Koco
If you think that guaranteed lifetime withdrawal benefits (GLWBs) are giving up the ghost, they’re not. The Retirement Solutions business of Voya Financial said it has started offering a multi-insurer GLWB option on its recordkeeping platform for large 401(k) funds.
As with GLWBs in the retail annuity world, this product guarantees guaranteed lifetime income for plan participants while allowing access to the underlying account value. However, the GLWB is on a group annuity chassis, not an individual annuity. And it’s aimed at large plans with $200 million or more in plan assets, said a company spokesperson in an email.
Once elected, the option will gradually convert a participant’s 401(k) plan savings into a stream of guaranteed lifetime income via the GLWB.
The company not only allows plan participants to elect the GLWB as an option, it is also positioning the GLWB for use as a qualified default investment alternative (QDIA).
The QDIA is a plan option into which 401(k) contributions are deposited when a participant does not elect his or her own options. Products have to meet certain government standards in order to be considered eligible for QDIA status.
This large size/QDIA design all but ensures that at least some plan participants will be in a GLWB through Voya. This assumes that plan sponsors agree to have the income option added to their plan — which is a safe assumption given the rising interest in guaranteed income options in defined contribution (DC) plans.
In 2013, the number of plans offering annuity guarantees via GLWBs and deferred income annuities (DIAs) increased by 10 percent, to 23,500, from the year before, according to the LIMRA Secure Retirement Institute.
This trend should be of interest to annuity specialists who have watched individual variable annuity carriers scale back on their GLWB products in recent years. That happened in response to the low interest rate environment. If GLWBs were to catch fire in the retirement plan environment now, that could help keep the GLWB concept — and market — cooking.
It also would reinforce the GLWB momentum on the fixed index annuity side of the industry, where carriers don’t face the same pricing constraints and so have actually expanded GLWB offerings and sales.
At the very least, it’s a trend to watch in terms of expanding annuity awareness. If more people in retirement plans take the GLWB option (when available), that will help spread public knowledge about the products.
The four-carrier buttress
Called Lifetime Income Strategy, the Voya option is guaranteed by four different insurers, not just one. The carriers are Axa, Nationwide, Prudential and Lincoln, a Voya spokesperson said. The company contends that this multi-insurer approach helps to diversify risk and also “helps participants receive competitive payouts.”
The design is the handiwork of AllianceBernstein (AB). The New York investment management firm debuted its multi-insurer solution in late 2010. That AB product also includes a multi-manager structure for the investment funds. At the time, AB described its design as “freeing plan sponsors from dependence on any single insurance company or investment manager.”
Voya said the four carriers in its option are essentially “splitting the responsibility” under the contracts. Splitting means “the guarantee to make monthly payment to a participant/investor is split across the four insurance companies,” the spokesperson told InsuranceNewsNet. “Each insurer has a separate contract.”
The Voya Financial insurance companies do not provide any of the guarantees, the company said. “All guarantees under the contracts are subject to certain conditions and limitations and to the claims-paying ability of the issuing insurer.”
- This is an integrated program, allowing for growth through the investment options and guaranteed income through the GLWB.
- Participants can select the age at which they plan to retire, and they can adjust the level of income protection over time, if necessary. They can choose to take 100 percent guaranteed, or zero percent, or increments in between, the spokesperson said.
- Participants can also, at their convenience, withdraw their assets or transfer to other investment options while in the program, including while in retirement.
- AB assumes the role of fiduciary. That means AB will take on full responsibility for selecting the four insurers that provide the guaranteed income component, Voya said.
An in-plan annuity
The retirement plan industry tends to call products like this an “in-plan annuity” or an “in-plan income option.” That’s because the retirement income arrangement is structured inside the plan environment. An in-plan option generally can be in the form of annuities or investment programs managed for income payouts, but many variations and innovations keep popping up.
Voya does appear to be committed to this market, including the in-plan annuity segment. For example, in addition to offering the new Lifetime Income Strategy, it offers Voya Lifetime Income Protection, an in-plan “program” that provides minimum guaranteed withdrawal benefits for participants in small- and mid-sized employer plans.
Product development for in-plan income options has gained steam in recent years, due to the widespread recognition that many DC plan participants don’t know how to translate their DC savings into retirement income for life.
"We know Americans are shouldering more responsibility for generating their own income once they leave the workforce,” Voya executive Rich Linton said in a statement on the new program. He is president of Voya’s Large Corporate and Individual Markets for Retirement Solutions business. “Many are uncertain about how to address this aspect of retirement planning,” he said, so Voya is offering the GLWB option as a way to help participants create “greater retirement security."
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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