“What we’re focusing on,” says Christine Marcks, referring to the leadership of Prudential, is providing a retirement planning option “that delivers guaranteed lifetime income,” and helping retirement plan participants and sponsors to move their attention from looking at the balance in their retirement plans, and instead focus on “how that balance might finance a retirement that will last for perhaps 25 to 30 years.”
In an interview with AdvisorOne on Wednesday, Marcks (left), president of Prudential Retirement, noted that the company’s ‘heritage’ is in the defined benefits arena, but it has also been in the defined contribution space since the 1980s. Looking at the demographics of the boomer population and the inadequacy of those balances in DC plans “has not positioned a large part of the population to retire securely.”
Marcks calls the 2006 Pension and Protection Act (PPA) landmark legislation that recognized that DC plans “were not going to get people where they needed to be.” PPA’s enablement of "automatic enrollment, of defaulting into diversified portfolios, and auto-escalation are important components” of a solution, putting DC plans on “better footing,” but points out that the PPA didn’t mandate those features of 401(k) and similar retirement plans—“We don’t have 100% participation rates.”
Instead, she argues that to “complete the picture,” plan sponsors should be given a fiduciary safe harbor status for including a guaranteed lifetime income option in their plans,” perhaps linked to a target date fund “so it happens for you.” Plan participants may or may not have access to personal financial planners, “so giving them a structure that has guidance embedded in it will get them to a more secure retirement place.”
While she is a fan of using the findings of behavioral finance to help guide plan participants to make the right decisions on retirement planning, the truth is, she says, that behavioral finance “doesn’t move the needle in the same way” that auto-enrollment and auto-escalation does.
“If you’re going to be prepared for retirement, you should be putting 15% of your pay away. That’s what it takes,” she states simply but forcefully. The issue with defined contribution plans, she says, is that “the connection wasn’t made between what you were saving and what you would get out” of your retirement savings in terms of a income stream after retirement. By contrast, she note, traditional pension plan participants “knew what they could count on.” That misguided focus on the ‘balance’ in your plan, and not looking at those funds “as a base for the income that could be provided” once retired is, she suggests, "where things have broken down.”