Pru Bundles Income Into 401(k) Offerings
November 9, 2009
With investors and employers alike still shaken by retirement plan losses, despite the market's rebound since March, Prudential Financial is hoping a bundled package of products inclusive of guaranteed retirement income can help it draw assets from a skeptical marketplace.
Individually, the products are not new, but the insurance giant hopes that by bundling them together it can attract assets.
The packaged retirement plan includes streamlined administration and lifetime income guarantees. The bundled product, called Redefining Retirement, is aimed at employers with 100 to 5,000 employees.
"The U.S. retirement system is in need of help," said John Kalamarides, senior vice president of retirement solutions with Prudential. "Traditional approaches haven't helped because they have been implemented piecemeal."
Thus, Redefining Retirement is just "the beginning of a broader, long-term shift in the design, management and administration of retirement programs" that Prudential is planning, Kalamarides said.
Doug Dannemiller, a senior analyst at the research firm Aite Group, said that while the product's elements are not new in and of themselves, following the devastation that 2001 and 2008 wrought on investors' savings, there could be renewed market demand for guarantees. "I challenge how innovative it is," he said, but, "to be a better mouse trap, you only have to be a little bit better." And if Prudential is offering quality components and packaging them in appealing, easily understandable and usable way, that could very well resonate with sponsors and investors, Dannemiller said.
"You've probably never seen the elements all packaged together in a way that plan sponsors can adopt all of it at once," he said.
Automatic All the Way
Prudential's product combines a number of autopilot features such as automatic enrollment, automatic contribution escalation and automatic asset allocation with a guaranteed minimum withdrawal benefit product. The goal is to help ensure adequate savings and a guaranteed stream of income in retirement, according to Prudential.
The retirement income guarantee is the lynchpin of Prudential's Redefining Retirement, according to Prudential, and Dannemiller agreed that this is a key component, commenting, "These guaranteed products are relatively new, and are definitely a good thing."
However, Dannemiller said the value of the product hinges on its costs. Kalamarides said employers would find the cost of the product 10% to 15% lower than the cost of buying the pieces individually.
Prudential is also touting the product's "additional levels of fiduciary risk support and enhanced levels of indemnification."
Redefining Retirement adopts the best safe-harbor practices available, Kalamarides said. That includes Prudential's pledge to take responsibility if a sponsor that adopts the whole package is later sued successfully by a participant for having made an imprudent choice, he said.
The investments within Prudential's bundled product include qualified default alternatives, including Prudential's target-date funds. Participants have access to Prudential's sub-advised options as well as access to retail mutual funds.
And Prudential is touting the inclusion within the product of its stable value offerings, which include guarantees. Stable-value funds are available in most 401(k) plans, and are an alternative to money market funds and bond funds. They are designed to shelter investors against losses while providing upside potential.
Prudential's product includes a plan designed to optimize employee participation through auto-enrollment and better contribution matches. An automatic contribution accelerator boosts savings, and the plan encourages continuous saving by discouraging loans. Costly inactive accounts are eliminated by allowing small balance rollovers, and participants' savings are maximized as the product helps them follow what Prudential calls "a thoughtful planning strategy." The product release comes amid concern about the defined contribution retirement plan model, in which responsibility has been shifted from employers to employees.
Kalamarides described Redefining Retirement as a way to ensure better outcomes for plan participants, lessen fiduciary risk and lighten the administrative burden for plan sponsors. Another selling point of the product is its streamlined processing, in which transactions are automated and certain administrative tasks are outsourced. Such tasks might include hardship loan evaluations and those related to qualified domestic relations orders, in which retirement plan assets are divided between divorcing couples, Kalamarides said.
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