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A Definitive Guide for Defined Contribution Plan Sponsors on Retirement Income Solutions

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Guidance for plan sponsors on adopting retirement income solutions for improved pension investments.

pensions and investments

Research In today's world, retirement planning has become more complex than ever before. With the shift from defined benefit plans to defined contribution plans, individuals are now responsible for making investment decisions that will impact their retirement income. As a result, plan sponsors are under pressure to provide participants with retirement income solutions that can help improve their investment outcomes. In an article for Pensions & Investments, attorneys Claire Rauscher and Sarah Motley Stone offer guidance on what could prompt an inquiry and best practices for plan sponsors to approach and adopt retirement income solutions.

One of the main challenges plan sponsors face is understanding the different types of retirement income solutions available. Retirement income solutions typically fall into two categories: guaranteed income solutions and investment-based solutions. Guaranteed income solutions, such as annuities, provide a guaranteed stream of income for life. Investment-based solutions, on the other hand, use investment strategies to generate income in retirement.

Another challenge is selecting the right retirement income solution for the plan's participants. Plan sponsors need to consider the needs of their participants, including their retirement goals and risk tolerance. In addition, they need to consider the cost and complexity of the solution, as well as the level of fiduciary responsibility involved.

Plan sponsors also need to be aware of the regulatory environment surrounding retirement income solutions. The Department of Labor recently issued a proposed rule that would make it easier for plan sponsors to offer lifetime income options. The proposed rule would provide a safe harbor for plan sponsors who select an annuity provider and offer a lifetime income option.

In addition, plan sponsors need to understand the role of plan design in retirement income solutions. Plan design can impact the effectiveness of retirement income solutions by influencing participant behavior. For example, plan sponsors can offer a default investment option that is designed to provide retirement income. They can also offer automatic enrollment and escalation features to encourage participants to save more for retirement.

Pension funds are also facing political pressure to incorporate social goals into their investment approaches or to do the opposite. This trend is driven by a growing interest in environmental, social, and governance (ESG) investing. However, incorporating ESG factors into investment decisions can be challenging for plan sponsors, as they need to balance their fiduciary responsibility with their desire to invest in socially responsible assets.

In terms of investment performance, U.S. corporate pension funding ratios hovered around 100% in March, with falling discount rates at least partially offsetting investment losses. Moody's raised its general obligation bond rating for New Jersey to A1 from A2, the second upgrade since March 2022, indicating that the state's pension funding has improved.

On the stock market front, Star Mountain Capital, LLC is a rapidly growing specialized investment company targeting middle-market companies, specifically underserved areas. Meanwhile, the Cboe Volatility index closed at 19.08 on April 5, down from March 13's 26.52.

Lastly, Pensions & Investments is recognizing top firms for the 11th anniversary of its Best Places to Work in Money Management program. The program recognizes firms that create a positive work environment for their employees.

Overall, plan sponsors need to be proactive in adopting retirement income solutions that can help improve pension investments. By understanding the different types of solutions available, selecting the right solution for their participants, staying up-to-date on regulatory developments, and incorporating plan design and investment performance considerations, plan sponsors can provide their participants with a more secure retirement future.

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