The Principal Financial Group has rolled out a new option for sponsors that will help participants annuitize a portion of 401(k) assets and create guaranteed income streams in retirement.
Coined the Principal Pension Builder, the annuity platform can be added to existing defined contribution menus, giving participants the option to direct lump sum investments or future contributions to annuities.
"Nobody wants to outlive their money, and everybody wants to know they can meet their core financial needs once they stop getting a paycheck," said Jerry Patterson, senior vice president of retirement and investor services at The Principal.
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"This product allows pre-retirees to set the stage for the moment of retirement by purchasing future guaranteed income ahead of time," added Patterson.
Patterson told BenefitsPro that he and his team are definitely seeing growing interest and traction for guaranteed income options in-plan from both sponsors and their plan advisors.
"Given the diminishing number of pension plans and concerns around Social Security, guaranteed income generated through annuities is gaining more and more attention—and not just in the retail advisor space," explained Patterson.
"Regulators and 401(k) record keepers are looking closely at how annuities may play a bigger role in retirement security," he said.
By annuitizing some 401(k) assets via an in-plan option, participants benefit from the purchasing power of group pricing, saving them more money than if they were to cash out an account at retirement and purchase annuities in the retail market, according to a release from The Principal.
The platform is designed for transparency; with each transfer of assets or contribution to an annuity, participants purchase a known amount of monthly guaranteed retirement income.
Annuitizing portions of 401(k) account balances can give pre-retirees the peace of mind of being able to forecast at least portions of their retirement income streams, thinks Patterson.
"Guaranteed income is a key factor in creating a reliable base for retirement," said Patterson. "Think of Principal Pension Builder as a way to supplement your Social Security by adding an additional portion of guaranteed income."
A spokesperson from The Principal explained that qualified longevity annuity contracts, which allow 401(k) participants to annuitize up to $250,000 of account assets in longevity annuities that begin paying income at age 80 or 85, are not offered through the Principal Pension Builder.
The new platform will be available to plan advisors and sponsors by the end of the year. Participants will be able to begin contributing to annuities by March 2016.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
