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Why DC plan sponsors should care about decumulation

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Jules A. Lalonde:

Seems to me to be a conflict between a moral duty to continue to help retired employees make wise choices regarding the conversion of employer sponsored retirement assets into secure income and the potential fiduciary liability associated with the provision of advice in retirement after termination of the employer-employee relationship.

Since management of employer-sponsored DC retirement assets is only one of the important factors retirees must consider in order to optimize their retirement security, I believe the moral obligation actually extends beyond simply the provision of advice to retirees about the retirement plan option but also includes offering members proper and qualified financial planning advice.

Including wholesale-priced or employer-subsidized access to qualified CFP professionals for active members and retirees could provide both a layer of liability protection for the employer sponsor while also offering the retirees the advice and options required to make the most of their retirement income options.

Without access to employer sponsored financial planning advice, the retired member of a DC plan is forced to look to retail advisors at retirement for their answers and those advisors tend to use retail solutions with higher fees and imbedded commissions to compensate for the costs of providing this advice.

It is my view that those who consult employers in the DC market and their clients would benefit from building a team of qualified CFP advisors to serve the members of group retirement plan and the firms could offer the financial planning services of those team members as part of their overall DC consulting services.

Outside of the retail options, members also face higher than average fees charged by the major insurers for payout product options compared to average IMFs charged to the DC plan assets as an active member.

Normally, as a DC member retires and the plan assets are moved to the carrier’s personal plan, the average account size of retirement members is greater in the beginning of the payout phase than it was on average during the accumulation phase.

Why should a retiring member of a DC plan who choses to remain invested in the same funds with the same carrier face higher IMFs for their LIRA/LIF investments during de-accumulation than they received while in the DC plan with the same service provider? This I believe is a disservice to retired members and also contributes to the very high rate of asset migration out of the group retirement options and into retail products. If the payout options were properly priced based on either the continued pricing offered to active members or based on the account size of the retired member, the assets would not be walking out the door at retirement and the member would be better served.

That almost sounds like a Win/Win for the insurers, the consulting firms and the members.

Wednesday, July 09 at 2:12 pm | Reply

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