By Brian Anderson
This article was originally published by 401(k) Specialist.
State Street Global Advisors is launching a new target date series that lets 401(k) participants convert their retirement nest eggs into a steady stream of retirement income via an annuity.
Global Trust Company (GTC), along with State Street and Annexus Retirement Solutions, a designer of institutional lifetime income products, announced the launch of the State Street GTC Retirement Income Builder Series today.
This target date series combines State Street’s asset management expertise with Annexus’ patent-pending lifetime income innovation, while GTC is the fiduciary and trustee of the Series investment vehicle. State Street is the world’s fourth-largest asset manager with $3.26 trillion under management.
“With the Series being offered as a low-cost fund, Americans can invest more of their hard-earned dollars. Even a small difference in fees can mean a big difference over the life of an investment, and a higher accumulated value often translates to greater income in retirement,” said Bob McGowan, managing director and head of the Financial Institutions Group at State Street.
The State Street GTC Retirement Income Builder Series embeds the Annexus Lifetime Income Builder directly within the target date fund’s glidepath as a separate asset class. In a press release announcing the launch, the companies said this helps promote growth opportunity and permits liquidity and portability, pre- and post-income activation.
By integrating Lifetime Income Builder into a TDF, the solution gives DC plan sponsors an efficient investment option which a plan sponsor could consider to be Qualified Default Investment Alternative (QDIA)-compliant. For participants, it offers a combination of liquidity, portability and ease of use leading up to and throughout retirement.
The participant-centric solution also helps to mitigate two of the most critical risks in retirement—sequence of return risk and longevity risk—by capturing quarterly high-water marks on the full account value and providing lifetime income. The fund targets a 6% annual income rate at income activation, calculated using the highest captured high-water mark of the fund.
The Wall Street Journal reported today that State Street’s new target-date fund starts replacing its bond holdings with a fixed indexed annuity when the saver is around age 47. The cost of the fund is about 0.10% a year before the portfolios add the annuity and about 0.20% afterward.
“The industry has been stuck in a stale way of thinking, and many of today’s income products require participants to trade off growth opportunity or access to funds in return for lifetime income,” said Dave Paulsen, chief distribution officer at Scottsdale, Ariz.-based Annexus Retirement Solutions. “It is not enough to simply add lifetime income to an existing product or platform—participants won’t accept it. We designed our solution to ensure that participants no longer need to make sacrifices in exchange for lifetime income. This level of innovation puts the participants at the center and is why we believe they will welcome—and widely adopt—this solution.”
Lifetime Income Builder is backed by some of the nation’s top-rated insurance companies. At product launch, the insurer lineup consists of Nationwide and Athene; however, but the press release noted there are additional well-known insurers currently in the process of joining the Series. Having multiple carriers spreads the risk between the companies, enhancing the possibility of more competitive pricing and greater growth opportunities.
State Street Global Advisors will provide glidepath recommendations to the trustee, GTC, and manage a portion of the solution’s underlying assets. Annexus Retirement Solutions is providing its Lifetime Income Builder design and the Annexus Retirement Data Exchange (ARDX), a proprietary middleware solution that streamlines data communication and administration. ARDX also enables faster, seamless fund implementation and processing capabilities for the recordkeeper and all other parties. GTC is the trustee, maintaining fiduciary authority over the management of, and investments made in, the State Street GTC Retirement Income Builder Series. The Series will be available across multiple recordkeeping platforms.