A new trade group, formed in 2008, sees potential in offering income planning options in defined contribution plans. Called the Institutional Retirement Income Research Council (www.irirc.com), the Hartford, Conn.-based organization is completing its first year of operations now. A self-described “think tank,” it is underwritten by Prudential Retirement, Newark, N.J.
Going forward, plan sponsors will have an even greater need for in-plan income options, according to IRIRC Co-Chair Martin Schmidt, a principal with MAF Advisors, Chicago.
This tracks with the growing importance of ensuring a lifetime income in retirement, he says, and also with the simultaneous nationwide transition to defined contribution (DC) plans, which are supplanting defined benefit (DB) plans as the main means of saving for retirement.
The ability of advisors to help consumers ensure a stream of income in retirement is becoming more important, agrees Paula Hogan, a fee-only advisor with Hogan Financial Management, Milwaukee, Wisc.
Just having a “pot of income” will not be as important as “preserving a standard of living,” she adds.
Creating a “base layer of income” is going to be important going forward and any income stream created should be inflation indexed, Hogan continues.
But, according to Hogan, any sale of an IA needs to be transparent and should be done through available web sites. These sites should be able to take an application based on age, sex and type of IA requested and put that request out for competitive bid with participating insurance companies, she suggest.
What about employers offering IAs through DC plans such as 401(k)s? The employers should be outsourcing their due diligence to existing versions of such web sites, she says.