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Life Health > Annuities

BlackRock CEO Sees Annuities as Retirement Plans' Future

By Allison Bell

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What You Need to Know

  • The new LifePath Paycheck program combines target date funds with a lifetime income option.
  • It will go live later this month with 14 plan sponsors and their 500,000 participants.
  • CEO Larry Fink believes it shows how typical plans will work.

Morningstar recently put out a report scoffing at the idea that annuitization options will have much of an effect on the U.S. retirement plan market.

Larry Fink, the CEO and chairman of BlackRock, disagrees.

The New York-based asset manager is preparing to launch the LifePath Paycheck defined contribution retirement plan investment program, which combines a family of target date funds with a chance for the plan participants to buy a lifetime income stream option, later this month.

Fink told securities analysts Friday that he thinks that the LifePath Paycheck program and its competitors will change how work-managed retirement plan accounts work all around the world.

“I believe it will be the most used investment strategy in defined contribution plans,” Fink said during a conference call BlackRock held to go over earnings for the first quarter. “This is going to change retirement. We look at this as a major component of our future growth rates over the next three to five years.”

What it means: If Fink is right, more of your salaried clients may come to you with 401(k) plan accounts or other retirement accounts that include annuitization options.

Advisors will have to help clients compare in-plan annuitization options as well as the ordinary plan investment options and the mutual funds, annuities and other investment options available outside the client’s retirement plan.

Q1 earnings: BlackRock reported $1.6 billion in net income for the first quarter on $4.7 billion in revenue, up from $1.2 billion in net income on $4.2 billion in revenue in the first quarter of 2023.

Assets under management increased to $10.5 trillion, from $9.1 trillion.

The LifePath Paycheck program: BlackRock helped create the modern target date fund market in 1993, when it introduced the LifePath funds, or diversified mutual funds with a mix of stocks and bonds designed to become more conservative as investors in the targeted age group near their planned retirement age.

LifePath target date funds now hold about $470 billion in assets.

The company filed a trademark application for the LifePath Paycheck program name in November 2018, and it announced the creation of the lifetime income option program in May 2020.

BlackRock said then that Brighthouse Financial and Equitable would provide the lifetime income program options.

Fink said in his annual chairman’s letter to investors that the program will launch this month with 14 retirement plan sponsors as customers and 500,000 participants in the sponsors’ plans.

The participants have $25 billion in target date funds, or $50,000 in target date funds per participant.

The program will help ease the financial uncertainty that the shift to defined contribution plans, from defined benefit pension plans, has created for retirement savers, Fink said.

The future: Fink said during the conference call that anxiety is a problem throughout the investment world, not just for retirement savers.

“There is still a record amount of cash on the sidelines, and money market fund balances are now approaching $9 trillion,” Fink said. “I think this stems from fear and uncertainty, but it’s hard to achieve retirement or long-dated objectives by holding cash.”

Fink said increased longevity makes investment uncertainty especially painful for retirees.

Individual savers “have to first build up the retirement estate, which in and itself is a formidable challenge,” Fink said. “Then even as they have this sizable savings at retirement, there’s not much guidance about how to spend these savings.”

Morningstar analysts suggested in a recent report that growth prospects for defined contribution plans with built-in annuitization options are uncertain, partly because of employers’ concerns about program fees, implementation and performance.

But Fink predicted that many employers will add lifetime income options once they see how the launch of BlackRock’s program goes.

“Many clients wanted to see actual implementation of these plans,” he said. “The conversations are also now beginning in Europe and other places, too. I do believe it’s going to transform BlackRock as a leader in retirement benefits.”

Credit: Bloomberg

Allison Bell

Think_Allison

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