5 steps to designing an investment menu for retirement income

A well-designed investment menu is key to helping employees achieve their primary retirement goal—a secure monthly stream of income.

By offering the right mix of investments and products that serve your employees’ needs, you can position them to retire with confidence while mitigating risk and helping to meet your obligations as a plan fiduciary. The following checklist provides plan sponsors with five steps to consider when designing or evaluating an investment menu:

1. Understand your employees’ retirement income needs.

Use segmentation to determine who your employees are and what they need to meet their retirement income goals. Some important factors to consider include employee age, expected years until retirement, investment knowledge and preferences and understanding of retirement income options.

2. Build your investment menu with a focus on retirement income.

Offer diversified financial and investment products that can provide a lifetime of retirement income. Include guaranteed products in your line up, such as low-cost, in-plan annuities. Only fixed annuities can provide a guaranteed stream of income that will last a lifetime. (Note: Guaranteed income from annuities is subject to the issuing insurance company’s claims-paying ability.)

3. Include a default investment option.

The use of a default investment option can be effective at engaging employees who aren’t proactive in making retirement planning decisions. Select a default investment option that is aligned with your plan’s objectives and takes into consideration average employee current age and retirement age, contribution levels, income and other demographic factors.

But remember, a default investment option is an important tool in overcoming employee inertia, but it isn’t a substitute for employee engagement—it’s a starting point.

4. Provide advice and education to empower employees.

Offer education and advisory services to help employees make informed investment decisions that can lead to better retirement outcomes. Advice and education can help employees to take actions that can help improve their retirement readiness.

5. Understand your fiduciary obligations and establish a well-thought-out process to meet them.

Meeting your fiduciary responsibilities will help to ensure you are providing and engaging employees with appropriate investment menu options. Consider using the following best practices to help ensure you are on track to meeting your fiduciary obligations:

• Maintain a documented process.
• Create and follow an Investment Policy Statement.
• Establish evaluation metrics and benchmarks, and review them on a regular basis to carefully select and monitor fund options.
• Consider engaging an outside expert such as an advisor or consultant.

Your employees need access to the right investment and financial products to build a portfolio that will get them to and through retirement. That’s why it’s so important to design a plan menu that is built on a foundation of guaranteed income and offers diverse and competitive options.

Ben Lewis is Senior Managing Director of Institutional Strategic Sales at TIAA.

This material is for informational purposes only and represents TIAA’s interpretation of applicable law. It is presented with the understanding that TIAA is not engaged in rendering legal or tax advice. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances. Certain products and services are only available to eligible individuals. Any guarantees are subject to the issuer’s claims-paying ability. Payments from variable annuities will rise or fall based on investment performance. TIAA-CREF Individual & Institutional Services, LLC, Member FINRA, distributes securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), New York, NY. Each is solely responsible for its own financial condition and contractual obligations. ©2019 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, 730 Third Avenue, New York, NY 10017