BlackRock Examines Ways to Bring Annuities to 401(k)s
June 23 2019 - 9:29AM
Dow Jones News
By Dawn Lim
BlackRock Inc. is planning for a future in which annuities could
come to more Americans' 401(k)s.
Congress is debating a bill that would encourage more companies
to offer retirement savings plans with annuities as part of
sweeping changes. Last month, the House passed a version of the
bill, and now the Senate is considering legislation.
The world's largest money manager lobbied for at least three
years on key aspects of the bill, the Setting Every Community Up
for Retirement Enhancement Act. The effort is part of a series of
attempts over the past decade by the firm to advocate for changes
in the retirement system.
BlackRock, with $6.5 trillion in assets under management, is
building products for workplace-savings plans that incorporate
instruments to help participants convert balances into steady,
lifetime income.
While BlackRock isn't currently in the annuity business, the
firm is now in talks with insurers to provide such instruments as a
part of retirement offerings it wants to launch. The firm joins
financial companies from State Street Corp. to TIAA that are
competing to reshape 401(k)-type plans.
The current retirement system is falling short for many
Americans as traditional, defined-benefit pensions have been
replaced by defined-contribution plans such as 401(k)s. Millions
are now at risk of outliving their retirement savings.
Some financial firms and government leaders argue that
guaranteed lifetime income products such as annuities are one way
to help retirees. They say annuities would enable companies to
incorporate an element of old fashioned pensions -- regular checks
-- into 401(k)-type plans.
The legislation passed by the House could open the door for
annuities in 401(k) plans. As currently written, the bill gives
employers added protection from liability if insurers fail to pay
annuity claims. It also requires companies to disclose to employees
how savings translate into income throughout retirement. BlackRock
supported the provisions.
"Asset managers who long had the field to themselves will have
to deal with the insurance industry playing a more meaningful
role," said Ken Mungan, chairman of consulting firm Milliman.
The effect wouldn't likely be an immediate burst of flows into
annuities. Many employers have been uneasy about their costs and
complexity. If employers include annuities, it would likely just be
part of a menu of options. Some consultants estimate about 10% of
U.S. defined-contribution plans include annuities as choices.
Vanguard Group, the nation's second-largest money manager,
doesn't incorporate annuity features as part of its target-date
offerings and has no plans to do so, a spokeswoman said.
Target-date funds are a common offering in 401(k)s that are
designed to shift to a more conservative blend of investments as
workers age.
State Street Global Advisors plans to roll out in 2020 its first
workplace retirement offering with a lifetime income feature for a
multibillion-dollar U.S. client. When a participant in the
target-date-like offering turns 65, he or she can choose to move a
portion of funds out into a group-deferred annuity.
"The bill will nudge individuals to change their mind-set on a
401(k) from a savings vehicle to a retirement income vehicle," said
Dave Ireland, head of State Street Global Advisors'
defined-contribution practice.
BlackRock's plan is multifaceted, and the firm opened talks with
insurers last year. BlackRock envisions putting workers in
portfolios that become more conservative over time. A greater share
would eventually shift out of BlackRock-managed assets into
annuities as participants age.
The firm approached companies about a decade ago about offering
similar products relying on a single insurer, but the effort proved
a tough sell.
Public awareness of the difficulties of retirement is adding to
pressure for new offerings.
"Demographics have brought things to the fore," said Joseph
Craven, a managing director named last year as the first person at
BlackRock to work full-time on U.S. retirement policy efforts.
BlackRock and others hope that by pooling larger groups of
workers, they can help individuals secure lifetime income at lower
prices.
In a letter to the House of Representatives this year, BlackRock
made the case that "annuities and other lifetime income products
have an important role to play in providing a basic level of income
security throughout retirement."
In 2018, BlackRock teamed up with Microsoft Corp. to build a
technology portal to give workers ways to interact with their
retirement accounts.
Write to Dawn Lim at dawn.lim@wsj.com
(END) Dow Jones Newswires
June 23, 2019 09:14 ET (13:14 GMT)
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