A new issue brief from the nonprofit Institutional Retirement Income Council tackles dilemmas and issues surrounding guaranteed lifetime income options that are just starting to pop up within the retirement plan market.

As companies migrate from traditional pension plans toward 401(k) and other defined contribution plans, IRIC says that guaranteed lifetime income options (GLIOs) have captured the attention of many – including insurers, financial services firms, plan sponsors and regulators – as a way to help retiring employees protect their incomes over a longer retirement time horizon.

Guaranteed lifetime income options - or GLIOs - were designed to provide a steady stream of income for retirees. Though a variation of 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 look like an attractive choice for those who experienced sudden drops in the value of their retirement plan assets during the last few years, they are not necessarily a good fit for everyone."

“As a result, plan sponsors must assess this new type of investment vehicle in light of their fiduciary duties, the likelihood of evolving regulations and potential future market impacts.”

The IRIC issue brief, “Effective Due Diligence for Guaranteed Lifetime Income Options,” highlights key issues and questions that plan sponsors should consider as they evaluate GLIOs for their own retirement plans and also conduct due diligence about specific products in the marketplace. The issue brief also provides an in-depth discussion about the appeal of GLIOs versus traditional investment options and helps plan sponsors address key issues such as:

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

The issue brief also discusses various qualitative issues such as workforce risk profile and sophistication, participants’ current investments and savings levels, and the overall need for long-term income replacement to help plan sponsors determine whether adding GLIOs should be a top priority. Additionally, the brief provides a step by step approach to seeking the right partners, providers and plan design in cases where offering a GLIO makes sense for the organization.

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

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

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

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IRIC: Guaranteed lifetime income options aren&#039;t for everyone

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IRIC: Guaranteed lifetime income options aren't for everyone