BLK BlackRock Inc

By Dawn Lim 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 24, 2019).

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The current retirement system is falling short for many Americans as traditional, defined-benefit pensions have been replaced by defined-contribution plans such as 401(k)s. Millions are now at risk of outliving their retirement savings.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 24, 2019 02:47 ET (06:47 GMT)

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