A new issue brief from the nonprofit Institutional Retirement IncomeCouncil tackles dilemmas and issues surrounding guaranteedlifetime income options that are just starting to pop up within theretirement plan market.

As companies migrate from traditional pension plans toward401(k) and other defined contribution plans, IRIC says thatguaranteed lifetime income options (GLIOs) have captured theattention of many – including insurers, financial services firms,plan sponsors and regulators – as a way to help retiring employeesprotect their incomes over a longer retirement timehorizon.

Guaranteed lifetime income options - or GLIOs - were designed toprovide a steady stream of income for retirees. Though a variationof these products have been sold for years in the retail market,they have yet to break into the retirement plan market.

But, says Ben Yahr, an executive at Ernst & Young LLP,advisor to IRIC and co-author of the issue brief, “While GLIOs looklike an attractive choice for those who experienced sudden drops inthe value of their retirement plan assets during the last fewyears, they are not necessarily a good fit for everyone."

“As a result, plan sponsors must assess this new type ofinvestment vehicle in light of their fiduciary duties, thelikelihood of evolving regulations and potential future marketimpacts.”

The IRIC issue brief, “Effective Due Diligence for GuaranteedLifetime Income Options,” highlights key issues and questionsthat plan sponsors should consider as they evaluate GLIOs for theirown retirement plans and also conduct due diligence about specificproducts in the marketplace. The issue brief alsoprovides an in-depth discussion about the appeal of GLIOs versustraditional investment options and helps plan sponsors address keyissues such as:

• Are GLIOs a good solution for some, or all, of theirworkforce?
• What impact will offering GLIOs have on their retirement plandesign and administration?
• What is the best way to offer a retirement income solution thatwill encourage workers to use it appropriately?

The issue brief also discusses various qualitative issues suchas workforce risk profile and sophistication, participants’ currentinvestments and savings levels, and the overall need for long-termincome replacement to help plan sponsors determine whether addingGLIOs should be a top priority. Additionally, the briefprovides a step by step approach to seeking the right partners,providers and plan design in cases where offering a GLIO makessense for the organization.

IRIC notes that while adoption of GLIOs remains relatively lowtoday, there are many signs that more employers will begin offeringGLIOs, especially those employers who are looking to strike abalance between the cost and security of defined benefit plans andthe higher risk of self-directed plans.

“We believe that plan sponsors should begin discussions withtheir investment committee on how to modify their due diligenceprocess to determine whether a GLIO is appropriate for their planand, if so, how to select the right GLIO for their workers.Organizations must ensure that GLIOs are consistent with theirinvestment policy statements and benefits philosophy, in additionto following a diligent selection process. Further, they shouldmake sure that potential partners can work within the existing planinfrastructure,” concluded Yahr.

To obtain a copy of the issue brief, “Effective Due Diligencefor Guaranteed Lifetime Income Options,” please visit http://iricouncil.org/thought