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Is the Retirement Income Floodgate Open?

United Technologies Company last week took the plunge into providing its employees a steady stream of retirement income. The 199,900-employee Hartford, Conn.-based firm added the Lifetime Income Strategy, a customized age-based default investment program designed by Alliance Bernstein, into its $14 billion 401(k) plan.

The UTC 401(k) plan is the largest plan to date to embrace the otherwise unpopular plan option. An executive at another asset management firm said that: "While the [Department of Labor] and Treasury have been very encouraging and supporting innovation of annuities within 401(k)s, there are no safe harbors at this point, or even fiduciary guidelines for how sponsors select insurance partners."

So what's the special sauce of the Lifetime Income Strategy plan? The product's insurance providers include The Lincoln National Life Insurance Company, Nationwide Life Insurance Company and Prudential Retirement Insurance and Annuity Company. AllianceBernstein provides the fiduciary support including asset allocation services, the open architecture platform and the participant service support necessary to manage the Lifetime Income Strategy.

UTC always had a strong interest [in retirement income]," said Mark Fortier, Head of Product and Partner Strategy at AllianceBernstein Defined Contribution Investments. "What we did was we help address the risks of price competition and capacity that they were worried about."

So what's the key to the success of the plan option? Defaulting UTC employees into the option. "That is one of the keys to all of this working because it is also one of the key benefits to the insurers," said Fortier.

According to Fortier, the fact that participants are defaulted into the option is a boon for the plan and insurers, which are now guaranteed a more diversified age and asset base "because if you look at any of these solutions sold on a retail basis, they're typically bought by the mass affluent," said Fortier.

"Helping sponsors decrease risks in their DC plans but with similar benefits to their defined benefit plans is really what we're doing. In a world where participants don't understand how and when they can retire, it's really become a concern for sponsors as a business. It's moved away from just about helping people to helping the company help their people," he added.