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Episode 1.05 Bob Toth on innovation in employer-sponsored retirement plans
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Bob Toth is an employee benefits attorney specializing in retirement income. He’s practiced employee benefits law for 40 years, focusing on the design, administration, and distribution of financial products and services for retirement plans.
Bob talks about the changing expectations for employer-sponsored retirement plans, what you should know to offer your clients guidance about annuities in 401(k) plans, and what he sees as the next innovation coming to employer retirement benefits.
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Transcript
Introduction to 401Ks and Retirement Income
00:00:01
Speaker
401Ks are one of the key ways that Americans save for retirement. And while they expect most of their retirement income will come from their employer-sponsored plan, an Allianz study found that two-thirds of Americans worried that their plan will run out of money during their retirement. In recent years, we've had legislation that helps give people the option of putting some of their 401K funds into an annuity.
00:00:22
Speaker
As this option becomes more common in employer plans, you can expect your clients to be coming to you with many questions. And today's guest is here to help us with the answers.
Guest Expert Introduction: Bob Toth
00:00:32
Speaker
Welcome to Rebuilding Retirement, navigating a new reality with your clients, a podcast series from Allianz Life Insurance Company of North America.
00:00:40
Speaker
I'm Travis Walker. Our guest today, Bob Toth, is an employee benefits attorney who specializes in retirement income.
Evolution of Retirement Plans: Defined Benefits to 401Ks
00:00:47
Speaker
Bob has practiced employee benefits law for 40 years, focusing on the design, administration, and distribution of financial products and services for retirement plans.
00:00:57
Speaker
Today, Bob is going to walk us through the changing expectations for employer-sponsored retirement plans, what you should know to offer your clients guidance, and finally, we're going to be looking ahead to what Bob sees as the next innovation coming to employer retirement benefits.
00:01:12
Speaker
So, let's get to it. Bob, welcome to rebuilding retirement. Hello, Travis. Good to see you. So, first things first, how did we get here? Like, where do we start in the story about retirement benefits through employers and why are employers so linked to retirement?
00:01:30
Speaker
Well, that's I mean, it goes this goes way back. I mean, the 1st, retirement plan employer based retirement plan that we all know of is probably like 1875. Right? And so it was employer funded. They're all defined benefit programs.
00:01:47
Speaker
where the advisor had very little to do with it that the employer just put up a trust funded plan and they made contributions to it much like the purchase of an annuity contract where they would make contributions and the employers that those plans would then pay to
00:02:03
Speaker
Employees, you know, the benefit, whatever was accumulated under their plan. So, again, it's been around for 150 years. Pension plans for 1 K plans themselves weren't around really. I mean, 4, 3 B plans actually were established in Lake.
00:02:20
Speaker
1918. So they've been around a little over 100 years, but they were actually, they were actually set up as the individual purchase of single life annuities by the employer. So it wasn't really, these things were not asset accumulation plans. They were all designed to provide a monthly benefit to the employees, which would tie them over after retirement. And over the years, pension plans became very much
00:02:49
Speaker
a part of the implied employment contract between employers and their employees. I mean, Phyllis Borsley actually put a once, well, once about 20 years ago as we're talking about this stuff, she says, a good job includes good retirement. It became part of the employment culture that if you're really going to have a serious full-time employment, employers need to fund retirement plans as well as part of that.
00:03:17
Speaker
So we've been there again since 1875 or so. Again, these things are first established as monthly payment programs coming from the employer. The employer would not be out there accumulating assets for the employee, so financial advisors were nowhere to be seen when this was happening.
00:03:38
Speaker
You know, the 401k plan really didn't come into place until, I believe it was the 1976 act, until ERISA came around. I'm sorry. The private sharing plans became more and more involved in the mid 70s or so. And there were a handful of large employers, I worked for one of them, where they actually didn't have a pension plan. They had decided that they were just going to have a private sharing plan
00:04:05
Speaker
where they would put a portion of the company's profits into this Trustee Asset Accumulation Plan, which was controlled by the employer. Now, the company I had worked for was really interesting because they had found out that in the early 80s that this profit sharing plan that they had established was being abused by employees. The employees would run through their money.
00:04:31
Speaker
They would actually, so one of the first jobs I had when I joined this employer back in 85 or so, we had to establish what is called a gratuitous retirement plan for these former employees of this company, because we had employees going out and taking this big chunk of money in their profit sharing plan.
00:04:49
Speaker
and doing things like buying RVs that would rust out or buying gas stations with leaking underground storage tanks. And it was an embarrassment for the company where a significant number of their former employees and retirees were now on the welfare rolls in the county because they would take their accumulated account balance in their profit sharing plan and actually didn't spend it and waste it. They didn't have the money anymore. So we didn't actually establish the first
00:05:18
Speaker
pension plan for that company, which is really unusual, until the 1980s. So how we got here is that where we are now. So when you say where we how we got here. So now we're in the circumstance where these things that he's defined benefit pension plans that we all thought were sliced bread, right? And they're so critical to participants. Good life after retirement is that
00:05:46
Speaker
They're a quirky thing. Finding out the defined benefit plans rely upon an employer always to be there. Companies go out of business. They're designed to do that. That's what competition is all about. When they go out of business, oftentimes their pension plans shut down and there are a lot of bad things that happen when that happens. One of the classic defined benefit stories is what led to ERISA is Studebaker. ERISA passed in 74.
00:06:15
Speaker
Studebaker was a car manufacturer up in South Bend and Elkhart, Indiana, where they had a defined benefit pension plan. The company was having a lot of struggles. What had happened is that the company decided to borrow money from the pension fund to get the company, keep the company's business going, but then they went out of business and there were 4,000 employees and we left without a pension.
00:06:42
Speaker
That was the straw that broke the camel's back for ERISA. And that's when ERISA was passed in order to protect employee rights.
00:06:51
Speaker
That actually was the sign of the times that defined benefit plans as valuable as they are, were difficult to fund, difficult to run, and they depended upon the employer always being there. So what we have seen in the past 20 years particularly is a serious decline in defined benefit programs.
Shift in Retirement Fund Management: Employers to Employees
00:07:15
Speaker
and instead a huge increase in 401K plans, profit sharing plans, 403B plans, where instead of putting money into a trust fund that will fund a future payout of benefits, employers started funding asset accumulation vehicles for employees. And they would rely upon that to help fund their retirement once they left the company.
00:07:43
Speaker
And so for the advisor, think about that for the advisor. So now we have, we're moving from a spot where you're getting a set amount of money, a by just getting a set amount of money per month, supposedly for the rest of their lives being replaced. Now they have a chunk of money, which they can run out of unless they seek the advice of somebody like the advisor to help them figure out how to manage that pile of money that will last for the rest of their lives.
00:08:12
Speaker
So that's how we got there. It's been kind of like this gradual sort of evolution on retirement. So where we are now is that, of course, defined contribution plans are the dominant form of retirement plans. What are some of the biggest changes you've seen in the employee benefit space since the 1980s?
00:08:34
Speaker
The biggest thing is the shift from the employer's responsibility for determining to managing lifetime income from the employer to the employee. Think about an old DB plan, an old defined benefit plan. You know, you'd get a guarantee $200 a month for the rest of your life and you just get a check coming in the mail all the time. With those plans now virtually disappearing,
00:09:02
Speaker
The responsibility for you, instead of having a pile of money there instead of the $200 check a month or $500 check a month, you now have the responsibility for, number one, getting your money in there, but number two, managing the payout of the investment and the payout of those monies. That has probably been the biggest shift. A heavier burden has been placed on the plan participant, one, for acting responsibly and accumulating the benefits
00:09:31
Speaker
And then not accessing those benefits during your employment and spend it on things like you want to have a big wedding for your daughter, right? So you go take a hardship distribution or a loan from your plan and it reduces your retirement benefit. So that has been the most fundamental shift is that more responsibility moving from the employer to the employee and trying to figure out how to have a secure retirement.
00:09:57
Speaker
Gotcha. So speaking of secure and we'll get to that. But first we're going to fast forward to 2019 and the 401k is king. How did the original secure act come about? And what were the pressures that led to that legislation? Well, you know, secure act one is was a dozen years in the making.
00:10:18
Speaker
But there were a number of very fundamental changes that the law brought in, but it actually was the first one to actually address some of the fundamental issues we had in trying to provide lifetime income from these 401K plans to replicate in some way the guarantees that you're used to be getting out of your defined benefit plan. So we argued about all these terms in Secure 1.04, like I said, a dozen years.
00:10:47
Speaker
One of the biggest issues had to do is should an employer who's a fiduciary to a plan, if they choose an annuity contract, an insurance company in order to provide lifetime income to a 401k plan participant and the insurance company goes belly up 10 years from now, the employer didn't want to be held responsible for that. So that had always been in the background trying to figure that one out.
00:11:15
Speaker
There's also been this huge problem is how do you, let's say if you start establishing a guarantee underneath your 401K plan, you're gathering some lifetime income credits and things like that, but the employer goes and terminates a plan or they fire the insurance company, what happens to your guarantee?
00:11:37
Speaker
And the portability of all that, that was a big problem. And then one of the biggest issues, out of secure 1.04, that incurs a denutization, where there are a pile of economists saying, we need to let people know what their 401k account balance will translate into as a monthly payment. I call it the six pack a beer a month.
00:12:00
Speaker
theory that is. Oh, let's hear about this. I argued with these economists and I was part of this whole process that went to be trying to secure 1.0 is I said, look, we've got a lot of things, other things we got to do. There are a lot of technical rules that we need to be able to implement to make a 401k plan into a DB plan that without to make it work as providing lifetime income. And there's a host of people out there that believe well, as long as we tell people that they're
00:12:28
Speaker
401k account balance, how much that's going to buy them in a month, in a monthly pension. I said, yeah, for most of these people, it's going to be a six pack a beer a month. We have other things we can spend our time. Well, I lost that argument in this. So it became a part of one of the central parts of secure. It's been very successful, by the way. I'll admit when I've been wrong. So what was happening now and started a couple of years ago, you see your clients, the advisors clients, they'll get a 401k statement.
00:12:56
Speaker
And on it will be an estimate of how much of a monthly benefit will their current account balance provide when they go to retail. So those are the key parts of Secure 1.0. Secure did a bunch of other things, but those 3 things really, really goose the market.
00:13:17
Speaker
What it did, it made employers more interested in pursuing this because it reduced their liabilities and it gave more sure from the business side, from the insurance company side, it gave them more solid grounds to stand on to do certain things in order to make these things work. So secure has really been a watershed moment for lifetime income because we've been trying to do this prior to secure. I wrote a paper back in 2007.
00:13:44
Speaker
about how you actually turn a 401k plan into a defined benefit program. So we've been trying for a dozen years prior to that to get some interest in the marketplace. Well, there has been an explosion since the securities passed with those three simple rules. There has been a tremendous interest by employers as well as insurance companies to provide products that were made for 401k plans.
00:14:10
Speaker
It's got just the retail annuity. They actually have to be designed a little bit different and we'll talk about that in a few minutes. I'm sure, but so it really created. It was a watershed moment. Secure 1.0 for sure. So I think people are going to be able to buy that 6 pack of beer after all and you have secure. Yeah, it's it scares them. Actually, the economists were telling me that we got to scare them a little bit. Say, look, when you see that you think you've got that account balance there, it looks pretty good. Well, you tell them it really, it shows.
00:14:40
Speaker
Yeah, red, white and blue every month that then they start have to scare them into saving. I don't want to live in a bearless society. So secure acts so nice. We had to do it twice. We have a 2.0 version. It comes. How have these secure acts accelerated the provision and acceptance of guaranteed lifetime income products in the defined contribution plans?
Legislative Advances: Secure Act 1.0 and 2.0
00:15:02
Speaker
For the advisor, when you think about it, the Secure 2.0 was actually a nerd's dream, right? They were probably, I mean, Secure 2.0 was huge. There were, I don't know, 90 different provisions in it. About a dozen of them actually affect lifetime income. But honestly, almost none of them meant anything for,
00:15:27
Speaker
Anybody who wants to receive money or a plan sponsor who wants to adopt a plan, there are highly technical rules in Secure 2.0. There are about a dozen of them that apply to lifetime income, but they apply to geeks like me who actually build these products, right? So there are some technical problems with trying to build it.
00:15:47
Speaker
Tried to put an annuity into a 401k plan, right? There's some technical problems with that. And so one thing that 2.0 did is provide the answer to a lot of these technical questions. So the key watershed moment still remains secure one, the first secure. Secure two actually made it easier for people like me to actually design these programs that will make it really possible to have innovative products that you can now
00:16:15
Speaker
The plan sponsors can now adopt in their 401k plans. You know, before the DB plan, you got your. $500 a month for the rest of your life and that was it right? Yeah, it's inflexible when you die, it died, except for the drinks of our benefit. You had no rarely had you any inflation protection. So, but with what 2.0 did.
00:16:38
Speaker
1.0 did is enabled us to actually start putting in things like the living benefits, like the GLWBs and the TMIBs and the enhanced death benefits that have been dominant in the marketplace for years in the individual marketplace. We have now been able to design those kind of benefits into a 401k plan to take away the
00:17:00
Speaker
the ugliness and the sting and the inflexibility of that old pension benefit. So the value of the 401k lifetime income benefit is that it can look a lot like that retail product advisors have been selling for years, which we do accommodate the individual's financial needs better.
00:17:17
Speaker
I just wanted you to elaborate a little bit on that switch from the defined benefit plans to the defined contribution plans, that big shift, and how did it change the ways that financial professionals work with clients? Oh, it's dramatic. In the past, under the defined benefit plan, a financial advisor would know how much per month
00:17:42
Speaker
The your client would be receiving from the company's pension plan. Yeah, it's called 500 dollars a month and you can plan around that and you could establish your plans all around around that and it's done. And as simple as that. But now the financial advisor, I think is now going to serve a central role. Under the 401k plans that are now providing to find providing the lifetime income and a couple of ways. 1st of all.
00:18:10
Speaker
You have to determine, you have to help them figure out how much of their account balances should currently be allocated to these lifetime income programs, which are actually set up as investments in their 401k plan. It's not like a set benefit under the plan. These are investments. So they need the investment advisor to help them understand what percentage of their own
00:18:35
Speaker
assets should be in the investment accounts, should be allocated to the purchase of the lifetime income product. And then you raise the question, Travis, of when do you start doing it? Yeah. And is it worth it? And then where do I move it? Now, I'm moving on. How can I move it? And when do I start taking that benefit out of the program? So unlike the
00:19:05
Speaker
the defined benefit programs, when you left, the A65, you started getting that monthly check, period, end of story. You can actually delay taking these payments from these 401k lifetime income programs, and how does that fit into when you take Social Security, when you start taking, when you're doing systematic withdrawals from the rest of your plan? So it's a fundamental shift.
00:19:31
Speaker
where these decisions that used to be made by the employer now need to be made by the individual and there isn't an individual out there outside of that can do it without the assistance of a financial advisor. They need to be an integral part of this process. Lifetime income out of 401k plans doesn't work without the active involvement of the financial advisor.
00:19:53
Speaker
Okay. Well, thanks for giving me insight into, uh, what nerd stream about it's, um, I'll just keep my own dreams if that's all right. Yeah. So it's been a few years since the first secure
Annuities in 401K Plans
00:20:06
Speaker
act pass. Um, when should financial professionals anticipate seeing clients with annuities and their 401k plans?
00:20:13
Speaker
Well, I suspect you are seeing it now. I mean, there was a big moment about a year or two ago when the California University of California retirement plans adopted Q-LACS as part of their program. Now, a Q-LAC is something called a Qualified Longevity Utility Contract.
00:20:33
Speaker
And it was designed, what a QLAC did is it allowed you to subtract the value of annuity contract purchase of your 401K plan from the amounts used to determine what your requirement on distribution would be. Now it sounds silly, right? But what had happened when California adopted the QLAC as part of the retirement plan and made annuities in 401A plans available to now millions of participants?
00:21:01
Speaker
And so now they can go do it. But now we've also seen companies like Allianz and many others have now designed products and they're now have been coming to the market in the last couple of years that will provide these
00:21:16
Speaker
Living benefit type of lifetime income programs to a 401k plan and so it's happening now I I would be surprised if the advisor Isn't seeing a lot of it now. It is starting. It's I think we've reached finally hit a tipping point. So if you've not seen it yet You're actually going to be seeing it soon or you're going to be getting telephone calls There's enough marketing going out there. People are talking about it a lot, you know, and the uptake is beginning and
00:21:45
Speaker
Gotcha. So you mentioned the product and the products are great. I've seen the, you know, the one, for example, that Ali on sales, but selling the product and selling the idea, you know, and the concept are a little different, right? So many clients have never considered an annuity before seeing it as a part of a 401k plan. How should a financial professional explain the offering?
00:22:08
Speaker
Well, here's the, here's the key for the financial professional. You need to get in touch with your client and say, if you've got the advisory agreement with your client. You can't sell. That client.
00:22:23
Speaker
the 401K annuity, it always has to be bought by the plan. So the plan of the employer is the key, is the cog here. What you need to do, if you have a client who is actually in a 401K plan, who has an annuity offering in it, get in touch with the plan sponsor. That plan participant is entitled to all kinds of information about that annuity offering in that plan.
00:22:49
Speaker
Now, you as an advisor may not like it. You may think that you've got a better product on your hand and you still may be able to do it if that person can roll their money out of the 401k plan into your favorite product. But for the most part, for the person who is employed, they're not going to be able to roll that money out of that 401k plan into the product you think is best for them. You're stuck. You've just got it. Typically, they're only buying one product of one design and you have to understand it.
00:23:17
Speaker
So that's the key talk to get the name of the HR person that has the summary plan description. Every 1 of these annuity products that are in 401k plans have a lot of. Corollary materials that explain it all these employers are trying to get their employees comfortable with it. So you need to go get familiar with it.
00:23:39
Speaker
It's still an annuity which requires a lot of expert knowledge that the financial professional has, but the person who's an employee has no interest in knowing about it. They need you. They need you to figure out how much of their money they should be putting into this annuity program. But in order to do that, you need to find out what it is. I mean, what are the terms? Is it a GLWB or not? Is it a standalone or not? Is it part of a managed account or not? And how does that fit into your customers?
00:24:08
Speaker
uh, your customer's plan. Right. So you say, you know, Hey, it's still an annuity, but how are annuities within 401k similar to retail annuities? And how are they different?
00:24:19
Speaker
The difference is actually, there's two differences. One, the only thing you can put into them is money that's in the retirement plan. So that's fundamental, right? But it's purchased based upon a contract between the insurance company and the 401k plan and the employer, not with the individual. So there are a whole pile
00:24:42
Speaker
of technical rules that apply differently to an annuity contract that's purchased by a plan than that retail annuity that the the advisor would be selling to the individual if they and if they just had their IRA and they were talking about purchasing an annuity contract the IRA compensation so you're not going to be able to get compensation off that contract that's a big deal right you're going to have to make sure that you're you work out with your
00:25:08
Speaker
With your client and how you how that's fold into your own fees. There are the pricing is going to be different. You know, of plant purchase annuity.
00:25:20
Speaker
it's going to be in a retail annuity. For one, the plans often can buy at scale. They can get kind of pricing on this thing. And how pricing is reflected is usually in things like the crediting rates under the contracts, some other ancillary benefits and enhancements to the benefits. So typically a 401k plan will be able to offer to plan participants
00:25:44
Speaker
a level of annuity with kinds of designs and benefits that they could not get individually because scale is not there. I mean, when you're selling an individual annuity contract, there's all sorts of things that make it more expensive than if a plan could buy it.
00:25:59
Speaker
Keep that in mind. So that's where you're going to see a difference in the benefits and pricing of it. There may be even the crediting rates. There's a whole pot. I tell you what I would do warn you against it. Let's say if you have a small employer who wants to, you know, they're a customer or client of yours, you've sold them an annuity.
00:26:20
Speaker
The annuity that you have sold that person individually may not serve well if it was put into that person's 401k plan that they sponsor because they own a small company. You really need to be careful about that because you can get your employer or your client in a whole bunch of trouble if you try just putting that same annuity that you sold to them personally into the 401k plan because the compliance rules just aren't there.
00:26:46
Speaker
And there's some serious financial penalties if you don't comply with the rules. So you might leave the idea and your client who owns a small business might be very comfortable with. The idea of your annuity of that product, but. You will need an institutional version of that product to put forward. Now.
00:27:05
Speaker
There has been for a long time, you know, these one or two employer shops that you have an annuity, a retail annuity in their 401k plan. Typically when you're in that very small shop, typically those will work. But if you have any number of employees, then you start getting into trouble and make sure you go to your insurance company and ask them what is their institutional version of the product that you've sold on the retail side.
00:27:31
Speaker
Gotcha. A very good point, and thanks for that warning. So I understand the conversations that a financial professional should be then having with a planned sponsor or that person in HR, but what question should financial professionals ask about the annuity in the employer-sponsored 401k plan to help offer the client some guidance?
00:27:51
Speaker
Um, boy, there's stuff or there's a bunch of stuff they can, they can ask, get, get to know the specifics of the actual design and what the guarantees are. Let me use an example of a GLWB. So an advisor selling an FIA with a GLWB, they know how it works, right?
00:28:09
Speaker
And, um, but they need the advisor needs to help the client understand. What happens if the plan terminates or what happens if the employee terminates, how do they get that guarantee? And how can they take that guarantee with them and not lose that guarantee? They've been, they've been working on for all that time. Understand their investment rights underneath the contract. Every contract, every lifetime income program has a little bit of different design.
00:28:38
Speaker
they need to understand the restrictions on it and any kind of risks that may be for their own, for their client, what risks they have when things change, you know, how firm are the guarantees. Again, and they need to know how you transfer the money between that contract, that's how in the plan, and other investments in the plan, they need to know those details. And then they need to know when the participant leaves that employer
00:29:09
Speaker
How can they take those guarantees with them? Kind of go to an IRA, kind of go to another plan, roll into another plan. They specifically know the employees, the participants gonna rely upon that advisor to find out, hey, what happens if I quit jobs? What's going to happen to my GLWB then? That advisor, they're gonna look at that advisor and say, look, you told me. So they gotta know.
00:29:33
Speaker
Yeah, no, for sure. For sure. No, I'm glad we're having this conversation. Obviously you have a wealth of knowledge on it, so that's obviously a plus. And it sounds like you need to be a financial professional in every sense of the word if you're going to delve into this and try to explain it.
Future of Retirement Plans: Universal Portability of Lifetime Income
00:29:49
Speaker
Typically the rule of thumb is that financial professionals would talk about adding an annuity into a client's portfolio about, I don't know, five to 10 years before they retire. What about for these annuities within a 401k plan? Like when should clients start allocating funds there? Um,
00:30:09
Speaker
Everybody who sells annuity contracts to these 401k plans has their own number, right? They all say they typically get to an age. You know, this age, it could be age 35. It could be age 45, age 55. It's going to depend upon the actual design.
00:30:33
Speaker
That's one thing about 401k lifetime income. It really does require the individual financial advisor to be involved. They need, again, it might be the same answer. Start buying that thing 10 years beforehand. You know, in some of these products in the retail space, what happens is you are buying, the longer you're in it, the greater of the lifetime income benefit you get on the back end. They have something called the benefit base, right? That actually grows over time.
00:31:00
Speaker
in a way that you couldn't get if you just went out when you retired to buy the annuity with your retirement account. So I don't have an answer to that question. That financial professional does though. Once he knows what that product is, they should be able to tell you how that fits in with your rest of your financial plan and when you should start allocating your 401k account to that annuity. This is where the advisor really will pay a key role.
00:31:30
Speaker
Right. No, absolutely. Again, that's what I said. They had to be a financial professional, truly, in every sense of the word. In your work, what have you learned about the effectiveness and best uses for annuities and 401k plans? And what are some of the top considerations for financial professionals who want to work in the best interests of the clients? I think one of the key issues that has to be resolved is the ability to roll over the guarantees.
00:31:56
Speaker
So, let's say you're, I will use a GLWB as a great example. So, when you're purchasing a GLWB in a plan, you are actually purchasing some floors and guarantees, some enhanced benefits.
00:32:12
Speaker
Having the ability to save that and not lose it when you leave the plan. Or when it leaves you to me, that is number 1. And that's that's the key is really portability of the benefit. And that's what we're all working on to make these things really more portable. So.
00:32:33
Speaker
Every product is a little bit different. Every insurance company's products has a little bit different features, upsides and downsides. But when it really comes down to it, no matter how it's designed, you gotta know how you can take the guarantees with you.
00:32:49
Speaker
Yeah, yeah. Well, I mean, you mentioned the word portability throughout today's discussion. And I mean, that's really key in everyone to hone in on a word. It's probably the one because that kind of makes sense for it all to come together. How do you think annuities within 401ks will change retirement planning for clients and the professionals who help them?
00:33:13
Speaker
I think it's now going to be, before when you think about how 401k account balances have always fit into an individual's financial plan, most of the advisor would do, would advise them how to allocate their investments between the investments that are available in the 401k plan, and that's the extent of it. I think what the change will be is now that you're going to be able to purchase, the individual's gonna be able to purchase
00:33:41
Speaker
Lifetime income at scale, at good pricing, it's gonna become now a critical portion of the individual's financial plan well beyond the allocation of the assets within the 401K plan. So I think the successful advisor and professional will see that it is now critical that they know what the terms and conditions
00:34:10
Speaker
Of that lifetime income program being offered under the 401k, and they'll need to incorporate it into their financial plan more than just kind of an aside. This is how you're going to locate becomes a critical part of your entire financial. Sure. Yeah, I want if I can say one more thing about that was about portability. Please do be careful about portability. I've seen a lot of these products that are out there that the claiming that the guarantees are portable.
00:34:38
Speaker
make sure you go into the details of what that means. Does that mean that they have to sell your annuity that's in the plan and then buy a new one at a different pricing level? Are you guaranteed to actually go and get that new product once you leave? What are you losing? There's not a vendor out there right now who isn't saying that their product is portable.
00:35:06
Speaker
Don't take it as face value dive into the details on what it takes. To actually port that benefit that you've accrued under the plan to wherever you're going, whether it be your arrow into another plan or things like that. Everybody says supportable.
00:35:23
Speaker
Yeah, professional. You can understand the terms, go find out what that really means. You really be helping your customer that way, your client that way. Absolutely. So last question here, what do you see as the next innovation coming to employer retirement benefits? I mean, are we going to see a secure act three and turn this thing into a trilogy where the third movie is the worst amongst the bunch? But what do you think is next in terms of innovation?
00:35:49
Speaker
The next innovation is going to be finding a way. We don't see it coming yet. A way to. You know, you're hearing a bunch of stuff like the now that you're making the federal Thrift plans available as 401k plans. You're hearing a bunch of really odds and ends. One of the big issues are for 3B collective investment trust. I mean, there's a bunch of big issues like that out there, but the.
00:36:16
Speaker
So, it really goes to sound of portability what I still think there has to be a universality of all this. You have to be able to easily.
00:36:25
Speaker
move your lifetime income guarantees from one place to another. And I think that I've seen some people try to actually patent certain processes. A lot of people are thinking about how to do this. And we will need some legislation for it. But I think really the next big thing, and we're nowhere near seeing it yet, will be some kind of the universal portability
00:36:51
Speaker
to move these things around wherever you go and preserve them personally. Gotcha. Now that's going to be huge.
00:36:57
Speaker
Well, I tell you what, for the millions and millions of people who have enjoyed today's conversation, where can they find you online? I maintain a website, a blog site where I've been blogging on lifetime income and all sorts of retirement products for the last 12 or 13 years. It's businessofbenefits.com. So thank you so much for your time, your wisdom, and being here today. Travis, I've enjoyed it. As always, this has been fun.
00:37:27
Speaker
So, what we learned from Bob is that you need to understand the offerings and employer-sponsored retirement plans. After all, these plans hold a majority of retirement assets. Newer options, like annuities within 401k plans, can help Americans address risk and the new reality of retirement. Thanks for listening to Rebuilding Retirement. I'm Travis Walker. Join us next time.