Nearly two-thirds of the largest and mid-sized 401(k) consultants and advisors believe plan sponsors want to retain and continue to serve individual savers once they retire, up 14 percentage points from the year before, noted Rosenberg, citing data published in Pimco’s 13th Annual Defined Contribution Consulting Study.
With the decumulation/distribution phase, “there’s not yet a silver bullet,” he said, “and I’m not sure there’s going to be a silver bullet, because it’s a much more complicated track than accumulation.” Target-date funds and peer-group performance rankings can help with investment selection during the asset accumulation phase.
Savers in the distribution phase need to understand how to distribute money, where to take it from and how to allocate assets, said Rosenberg. They also need to determine how much income is coming from dividends, understand the resiliency of that income, and consider sequence of returns (what investment returns to take first) and the tax consequences of different types of distributions, he said.
“It’s time we think about distribution differently, approach it differently and perhaps even have a suite of investment products that are meant to be focused on the distribution phase,” said Rosenberg. This could include having a separate qualified default investment alternative (QDIA) for this phase.
Plan sponsors don’t need to immediately build out a full retirement tier, he said. They should first consider whether they want to give plan participants the option of staying in the plan through retirement. If the answer is yes, they must consider the plan design and investment menu. A good question to ask, he said, is whether there’s a menu option that considers distributions.
“Don’t think you have to go from where you are today to something that’s a dramatic change to your lineup,” said Rosenberg. “Make small changes to start.”