Fidelity Investments is rolling out technology early next year trying to help participants draw down their 401(k) accounts and model scenarios for collecting regular paychecks from their retirement assets.
Fidelity, the largest record keeper of defined-contribution plans — which administers roughly $1.8 trillion — is trying to help address what has emerged as one of the biggest challenges for retirement plan participants.
Americans are living longer and shoulder more responsibility for managing their personal finances than in the past, two things that together complicate the decision around turning retirement assets into a regular, lifelong income stream.
"The DC plan is all about self-sustainability," said Philip Chao, principal and chief investment officer at financial advisory firm Chao & Co.
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As the Government Accountability Office noted in a 2017 report, retirees may face additional difficulties since most DC plans don't offer options that can help them draw down retirement assets in a systematic way. But participants, at an increasing rate, appear to be keeping their assets in 401(k) plans after they retire — 55% of participants keep their savings in a DC plan at least a year into retirement, according to a Fidelity analysis looking across its roughly 23,000 retirement plans. That figure is up from 45% in 2015.
Fidelity will begin offering a digital program and cash-flow management system in early 2020 to help retirees who keep their assets in a workplace retirement plan (and don't roll the money to another account) manage asset withdrawal.
The digital program, available to all DC-plan clients, allows retirees to model various income scenarios based on their DC-plan investments, age, income start date, longevity and draw-down options made available by their employer.
The modeling shows, for example, how those inputs are estimated to translate into annual payments, future account balance and time frame for depleting the account. Participants can then implement those actions if they choose. The program helps retirees understand trade-offs around their options, according to Fidelity executives.
Fidelity's not alone in looking at retirement income in 401(k) plans.
Other asset managers, like BlackRock and State Street Global Advisors, have launched or are working on investment funds that help participants efficiently draw down their 401(k) balances in retirement.
The government has tried to spur more adoption of annuities in 401(k) plans. The Treasury Department issued rules in 2014 to promote the use of so-called longevity annuities in 401(k) plans; that same year, the agency also approved the use of annuities in target-date funds, even when the fund is used as a default investment option.
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Uptake has remained low, however. Only 30% of employers offer a retirement plan feature addressing lifetime income, like a systematic withdrawal feature, an annuity or education and planning tools, according to consulting firm Willis Towers Watson.
Legislation in Congress, the SECURE Act, would relax rules around using annuities in 401(k) plans. The House of Representatives passed the bill on a 417-3 vote, but it has stalled in the Senate.