MetLife is Nudging the World of Defined Contribution toward Income Annuities

Jody Strakosch is the National Director for MetLife’s Retirement Products Group.  In this role, Jody has a broad perspective on developments in the institutional space.  In other words, Jody is intimately familiar with how in-plan accumulation and point of retirement annuities are evolving in the defined contribution arena. 

The MetLife perspective is valuable as the company has been at the forefront of the industry in terms of income annuities in the workplace.  For example, MetLife was the first to market with an in-plan accumulation option in 2004 through an alliance with Bank of America Merrill Lynch, and also introduced longevity insurance that year in the institutional market.  MetLife then teamed up with BlackRock to offer the first deferred income annuity embedded in a target date fund in 2008.  

I was able to spend some time with Jody in MetLife’s New York offices in early October.


Annuity Digest: Can you provide some high-level comments on what you are seeing in the defined contribution space?

Jody Strakosch: There is a strong foundation for interest in creating retirement income solutions for DC plans.  People are living longer and the traditional support mechanisms such as defined benefit plans are not as sound.  We also know that in many people’s minds, there is an open question about the future viability of Social Security.

In general, what we’re seeing is a continued shift from defined benefit to defined contribution, and this dynamic puts employees squarely in the driver’s seat in terms of accumulating enough retirement savings to last a lifetime.

Annuity Digest: The first in-plan accumulation option came to market in 2004.  Are we still in the early stages of development?

Jody Strakosch: We are at the very early stages in the defined contribution arena from a retirement income standpoint.  Over the last five or six years, a range of innovative retirement income products has been introduced but it will take time for these products to gain traction. The good news is that all of the stakeholders – plan sponsors, consultants, recordkeepers and providers – are working together on the best ways to make these solutions available to plan participants.

Annuity Digest: What are your thoughts on the recent retirement income hearings with the Departments of Labor and Treasury?

Jody Strakosch: Both Treasury and Labor appear to be focusing considerable attention on retirement income issues, and this is clearly a good thing because without legislation and clear guidance from Washington, we believe that plan sponsors are not going to adopt in-plan annuitization or point of retirement in a meaningful way.

There seems to be an understanding and awareness of the need to address the fiduciary issue.  From a plan sponsor perspective, lack of clarity on the fiduciary safe harbor is barrier to more widespread offering of these products in the workplace.  The other issue involves distinguishing between education and advice (IB 96-1).  Near-term movement on this issues seems fairly likely.  We are hopeful that, given the extensive amount of information gathered by the DOL, Treasury and the IRS in the Request for Information and recent hearings, we will see some regulatory action.

Washington is also clearly interested in longevity insurance.  The biggest hurdle with longevity insurance in the 401(k) marketplace is the required minimum distribution rule.  This was addressed at the recent hearings.  What might be actionable in the near-term is unclear.

Annuity Digest: What are you seeing on the plan participant front?

Jody Strakosch: As the Administration and public policymakers consider measures to strengthen Americans’ retirement security, interest on the part of employees in lifetime income options is strong.  Defined contribution plan participants clearly want their plan sponsors to do something about retirement income and security. 

There are some very interesting data points in our 8th Annual Employee Benefits Trends Study.  Nearly half (49%) of those who have a retirement nest egg are interested in learning about how to protect their retirement income. Four in ten (40%) are interested in learning more about how they could use annuities as part of their DC plan, and 44% would like their employer to offer an annuity option in their 401(k), 403(b) and/or 457 plan.

The still challenging market environment is likely a big factor driving this interest.  What will change things even more (and I hope we don’t get there) is people actually running out of money in retirement.

At this point, it remains to be seen if employers will heed employees’ calls by providing education about the need to calculate how much retirement income their savings will generate, and offering options that will allow them to convert their nest eggs into guaranteed income. 

Annuity Digest: Can you share any success stories?

Jody Strakosch: MetLife has seen quite a bit of success when partial annuitization is offered. 

When given the choice, plan participants will typically not go into guaranteed income because they do not know “how much” to annuitize.  MetLife does not believe people should annuitize their entire account balance—there is no perfect, one-size-fits-all solution. 

In the near term, we believe there will be a continuing evolution to solutions like BlackRock’s LifePath Retirement Income (formerly SponsorMatch), a target date fund that that has an income option embedded in the program.  People are starting to talk about this type of change—how people make decisions about whether and how much to annuitize—which is clearly a step in the right direction.  One of the important features of the BlackRock product design is that it makes it easy for the participant to create retirement income.

Annuity Digest: What developments are you seeing among plan sponsors?

Jody Strakosch: The role of the plan sponsor is hugely important because people trust their employers.  Plan sponsors really can make a difference—they just need help and clarity from Washington.

Participant education is such a critical issue and plan sponsors are a natural conduit for educational resources.

For example, the notion of annuities as investment (what people think often) versus insurance (which is accurate) is a hurdle that can be addressed through education.  There are many, many people who would benefit from understanding this basic distinction.

Also, understanding how annuities can be used to fill the gap (the base spending gap) is really important.  People need to understand that they have the ability to create their own guaranteed paycheck.  Our research shows that people who have guaranteed, fixed payments in retirement are much more comfortable than those who don’t.

In the coming years, we expect more workers to be given an opportunity by their employers to annuitize at least a portion of their retirement savings.

Annuity Digest: Thank you Jody.

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