Page 44 - Investment Advisor March 2021

RETIREMENT PLANNING

“Social Security benefits aren’t don’t have complete information on a substitute a portion of their bond assets
affected by interest rates (and haven’t participant’s complete situation, so I see for immediate and deferred annuities.
been updated for improvements in life lots of practical roadblocks to any kind “Also, the bridge approach can take
expectancy in a long time) so delay- of product here.” advantage of a client’s lower marginal
ing is — comparatively — a lot more Finke noted that his research shows tax bracket before RMDs begin. This
attractive than buying a private annuity,” that “annuity income payments are so-called ‘tax-bracket management’
Blanchett noted in an email. “Should incredibly competitive right now com- is an important way to minimize the
interest rates increase dramatically, that pared to conventional bond invest- expected taxes paid from a traditional
wouldn’t necessarily hold.” ments,” adding that ideally retirees could IRA,” Finke said.
The Morningstar retirement expert
added that Social Security still beats
deferred annuities given “competitive
rates, tax advantaged nature of the ben- 4 Big Trends in 401(k)s,
efit, it’s link to inflation, spousal ben-
efits, etc.” Retirement Plans
Finke was more open to annui-
ties than the study, which stated that ey trends in the retirement plan Advisors founder & president, agreed,
“annuities are expensive for the aver- Kbusiness were the subject of a stating that this is a great product for
age person.” recent webinar hosted by Vestwell, a small-business clients, those that who
He noted in an email that an inflation- digital retirement platform. Although don’t have a separate human resources
adjusted income annuity “is especially looking at 401(k)s in particular, the department but want to do something
attractive for higher-income clients who group of industry experts saw ways the for their employees at a fair cost.
have made significant gains in longevity advisory industry will keep expanding
over recent decades,” referring to find- and changing, especially in retirement 2. The Biden administration could shake
ings that the wealthier are more likely plan area. things up.
healthier thus have longer lives. Here are four highlights of the session: Three areas where the Biden admin-
“This creates an opportunity for istration could make retirement plan
healthy retirees to buy annuitization at 1. Pooled employer plans will gain traction. changes are in the relaxation of rules
a below market price,” Finke explained. About 50 entities have filed to roll out to allow environmental, social and gov-
Also, a deferred annuity “can be pooled employer plans or PEPs, which ernance products into retirement plans
even more efficient than delayed Social through the SECURE Act, allows small- without Labor Department hurdles; tax
Security,” he said. “I consider deferred er employers to group together to form rebates; and by allowing student loan
annuities in the form of a qualified a 401(k), though these efforts are in the repayment options within retirement
longevity annuity contract to be a ‘no- early stages. plans, said Aaron Schumm, founder and
brainer’ for a healthy retiree. They get Fidelity recently said it was planning CEO of Vestwell.
the efficiency of a deferred annuity and a PEP for the smaller firm market, said Barstein agreed that Labor’s ESG
a tax break because they don’t have to Fred Barstein, founder and editor-in- rule will be reversed “right away,” and
pay RMDs on up to $135,000.” chief of 401k TV. “This [can be] the most it’s possible it will become “the default
Although the study states that the dramatic change and an opportunity for option” for funds. He added that as
Social Security bridge option “would not retirement plan advisors,” Barstein said. “retirement seems to be one of the few
require any new legislation or any new “Or not.” bipartisan areas” for Congress, he sees
formal bureaucratic structure, not does Advisors should understand these passage of some type of bill that man-
it involved contracting with an insurer,” products could help their business cli- dates more than auto-enrollment and
Blanchett is not so sure it’s that easy. ents because they could limit fiducia- auto-escalation in 401(k)s.
He doesn’t disagree with the strategy, ry liability and lower costs. “Advisors “We’re starting to hear rumblings that
but he does question the implementa- should be looking at these as they could [changes will] focus on the decumula-
tion: “For example, they mention using be a game changer, a Retirement 3.0 — tion phase … there’s a proposal out there
it as a default. I’m not sure how that 2.0 being the Pension Protection Act of that [a certain] percent of your outbal-
plan would work. Plan sponsors don’t 2006,” Barstein said. ance goes into some sort of annuitiza-
have complete wage history … [and] they David Stofer, Mariner Retirement tion,” Barstein said.

42 INVESTMENT ADVISOR MARCH 2021 | ThinkAdvisor.com