Retirement News and Products

Following the funds flowing into target-date retirement funds, Charles Schwab Trust Company has expanded its offering of target date collective trust funds for retirement plans to include the Schwab Indexed Retirement Trust Funds, which primarily use index strategies. According to Schwab, the Indexed Trust Funds are passively managed collective trust funds, managed and distributed by CSTC, a division of Charles Schwab Bank, that use primarily passively-managed investment strategies in building their asset allocation models. The funds are designed for investments by defined contribution participants and are tied to target retirement dates 2010 to 2050 in five-year increments, Schwab notes. John Sturiale, investment officer for Schwab’s collective trust funds for retirement plan clients, said in a release that Schwab has seen “very high adoption of target-date retirement funds with nearly 70% of Schwab Retirement Plan Services clients making them available to their participants.”

A newly released paper by the Retirement Security Project, “Increasing Annuitization in 401(k) Plans with Automatic Trial Income,” suggests allowing retirees to “test-drive” lifetime income by proposing that a substantial portion of 401(k) and similar plans be “automatically directed (defaulted) into two years of trial income, payable as 24 consecutive monthly payments, when retirees take distributions from their plan.” Individuals, the paper says, could choose to opt out. At the end of the trial period, the paper says retirees could elect an alternative distribution option or, if they do nothing, be defaulted into permanent lifetime income. The paper estimates that 75 million Americans will retire over the next few decades, “many of them with larger balances in their retirement accounts and fewer sources of longevity protection to ensure their retirement resources last throughout their lifetime than current retirees.” However, few retirees purchase lifetime income products through the private market, the paper notes, with a bias against such products emanating perhaps from their cost or a lack of consumer understanding. “Our current proposal would help take the final step in the strategy of ‘DBifying’ the 401(k) by seeking to use an automatic approach to revive annuity or lifetime income distributions,” noted Mark Iwry, principal of the Retirement Security Project, in a statement.