Retirement income and what to do about it … the perennial subject that always gets advisors talking. What products are available? What products are needed? How well is the industry responding? Will reform help or hurt the retirement income equation? We put these questions and more to Kristi Mitchem, and she didn’t hold back on the work still to be done.
Mitchem is a senior managing director of State Street Global Advisors and head of global defined contribution. She’s responsible for SSgA’s global defined-contribution business, including product development, distribution, pricing, client service, operations and marketing infrastructure. Before joining SSgA, Mitchem was BlackRock’s managing director and head of the defined contribution business, responsible for delivering products for individual 401(k) investors.
Q: Are you happy with the current slate of retirement income products?
A: I still think that there’s a long way to go. I think there have been some early advances, but I think they are just that—“early advances.” There’s more that we need to do to heighten the sense of urgency around income and retirement security.
Q: What, specifically, needs to happen from an educational standpoint?
A: People are in a wait-and-see mode with income. We just conducted a client listing campaign where we go out to a large number of plan sponsors and talk to them through a structured interview about what they’re looking for. We heard loud and clear that while plan sponsors are very interested in income, very few were moving to execution stage. There was a reticence that hinged partially on the regulatory structure and fears around litigation and fiduciary liability. That’s a challenge to all of us in the investment management industry when understanding the importance of retirement income.
Q: Do you think once the fiduciary question is settled it will be a catalyst for moving these issues forward?
A: Potentially, although I think the plan sponsors are looking for something very specific with regards to income. I’m sure you’re aware the DOL held hearings on income in Washington, D.C. last fall, of which we were a part. What came out of those hearings was that plan providers would like to see something very concrete to delineate how they should evaluate income options and, in particular, how they should evaluate the insurance component.
Q: That’s no small order. Do you think that will happen in a reasonable amount of time?
A: I have high hopes. When we talk to regulators within the DOL, they’re very interested in pushing forward. I think the need for retirement security and to have successful accumulation strategies is one that we can’t afford to wait five to 10 years for. I think the industry is pushing in terms of coming up with constructive solutions. But none of this stuff is easy. But again, I view that as a challenge. You know as someone who is passionately committed to furthering retirement security in the United States, I have to make sure that my peers across the industry and I are really keeping our foot on the accelerator with regard to the regulatory changes that are required to make this happen.
Q: What do you see as the single most important retirement trend for 2011 and 2012?
A: We are going to see this increasing level of proactivity and engagement around improving plans and retirement security. We’re going to see it through potential changes in “automaticity.” Now that we’ve had several years of auto enrollment, I think we’re going to see plan sponsors make some positive moves in terms of increasing the default savings rate and the amount of money flowing into the 401(k) system. A second trend is a little bit more product-specific with inflation risk. With high levels of federal deficit people are really thinking about the “erosionary” impact of inflation on retirees’ buying power. And it’s such an incredibly important risk to manage, but it’s one that we don’t often see staring us in the face. I’m very encouraged that plan sponsors have what we call “real” strategies that help to hedge inflation. We believe it’s going to be the number one strategy that plan sponsors add this year and they’re going to be adding it in a lot of different and creative forms.