JPMorgan Jumps Into 401(k) Annuity Market

J.P. Morgan Asset Management has joined the rush to package annuitization options with the target-date funds offered inside 401(k) plans.

The asset manager last week unveiled the SmartRetirement Lifetime Income program,

The JPMorgan program is likely to include annuitization options from Equitable and Prudential, the company said.

What it means: Another asset giant is throwing its sales and marketing muscle behind the idea that the same workers who are using target-date funds to save for retirement can buy annuitization features within the plan, rather than having to shop for outside annuities or other mechanisms to generate retirement income.

For advisors, the movement could mean that more clients will come to them with access to some kind of lifetime income arrangement.

The programs could also increase workers' interest in outside income planning advice, by introducing them to the concept of income planning.

But the programs could also cause headaches for advisors, by increasing the odds that some retired clients will come to them with nest eggs already locked into in-plan annuitization options that turned out to be a poor fit.

The backdrop: BlackRock CEO Larry Fink has predicted that packages combining target-date funds with annuitization features will soon be the most used investment strategy in the world's defined contribution retirement plans, because many retirement plan participants need help with using their plan assets to create stable sources of retirement income.

Annuity-based defined contribution plans have always offered in-plan annuitization options.

Some of the provisions in Setting Every Community Up for Retirement Enhancement Act of 2019 and its sequel, the Secure 2.0 Act, were designed to support the sale of in-plan annuitization options.

AllianceBernstein, State Street and TIAA are examples of other companies that have introduced lifetime income spigots for target-date funds.

BlackRock recently launched the LifePath Paycheck program. Like the SmartRetirement program, BlackRock's program emphasizes participants' ability to choose annuities from large, well-known annuity providers.

Equitable executives said during a conference call with securities analysts that Equitable had received about $500 million in deposits from four BlackRock LifePath Paycheck clients in the second quarter, and Brighthouse Financial executives said Brighthouse had received $340 million in deposits from the LifePath Paycheck program.

The J.P. Morgan program: Participants in the new J.P. Morgan can start by choosing target-date funds that align with their expected retirement years, the company said.

When a participant retires, the participant can create a personalized retirement income plan using program funds.

"The new lifetime income feature will allow electing participants to draw down their stable value balance over an expected time horizon correlated with average life expectancies," J.P. Morgan said. "And then, upon meeting certain requirements, the participants will begin to receive annuity income directly from the supporting insurers."

The program was created by the people who manage J.P. Morgan's target-date funds.

(JPMorgan's headquarters in New York. Credit: John Marshall Mantel/Bloomberg)