AllianceBernstein finds anchor tenant for customized retirement fund

Product includes a lifetime withdrawal benefit backed by trio of insurers; UT says yes

United Technologies Corp. is adding AllianceBernstein LP’s Lifetime Income Strategy to its retirement plan, bringing on a lifetime income guarantee that’s backed by three carriers.

The aerospace and building systems firm is AllianceBernstein’s first client for the product, which combines a custom target date fund with a lifetime income guarantee that’s issued by Prudential Financial Inc., Nationwide Life and Annuity Insurance Co. and Lincoln National Life Insurance Co.

Essentially, the Lifetime Income Strategy is a default investment for UTCs workers. At a certain age, workers begin dollar-cost averaging into the income protection. By the time a participating employee reaches retirement, all of that person’s money is protected. The all-in cost by the time the client reaches retirement age is 100 basis points.

When workers begin taking income, their own savings get distributed first. Since the product is a GLWB, the account value is accessible to the workers’ heirs, provided there is something left in it after the employee’s death. Further, the retiree can get more income if the earnings in his account outpace the rate of withdrawals. The insurance coverage doesn’t kick in until the worker’s account value hits zero.

“In an abstract sense, we’re taking an asset class and using it to eliminate longevity risk,” said Mark Fortier, head of product and partner strategy at AllianceBernstein Defined Contribution Investments. “The reason large employers are doing this in their plans isn’t just to eliminate planning and longevity risk,” but rather to help get participants actively saving in the plan, he added.

It took about four years to get the Lifetime Income Strategy onto UTC’s plan. Mr. Fortier said the effort began with eliminating 30 to 40 of the mutual funds that had been available on the company’s platform. Ten baskets of investments and a number of diversifying asset classes were set up as the components underlying the target date fund. The investments themselves are held in separate accounts, Mr. Fortier said.

Part of the difficulty in getting employers to adopt insurance products that give clients lifetime income stems from employers’ anxiety over having one company provide the lifetime income guarantee. Other issues include plan sponsors’ concern about whether they have safe harbor when they use these investment options, along with portability should a worker leave for another company.

Mr. Fortier noted that the Lifetime Income Strategy can be rolled over into an individual retirement account, or a participant who leaves the company can opt to keep assets with the plan. He added that to some extent, there’s a risk management bonus to insurers covering a pool of retirement plan participants, and that the number of individuals covered by a company plan makes it an easier risk for a carrier to manage.

“You’re really decreasing risk by getting a wide spread across ages,” Mr. Fortier said. “You pool the risk, and it’s better risk management. In retail, the only control mechanism insurers have is to turn off the spigot.”