Matt Condos, senior vice president of Retirement Plan Services at Lincoln Financial Group and Bryan Hodgens, head of research for LIMRA and LOMA, discuss the evolving role of in-plan annuities in defined-contribution retirement plans. Read the Transcript.

Welcome to Insider Insights, where we dive into hot topics facing the financial services industry. Today, we’re excited to speak with Matt Condos, senior vice president of Retirement Plan Services at Lincoln Financial Group, and Bryan Hodgens, head of research for LIMRA and LOMA. Listen in as Matt and Bryan explore the evolving role of in-plan annuities in defined-contribution retirement plans.

Welcome to the latest episode of Insider Insights, where we explore the evolving landscape of financial services.

I'm Bryan Hodgens, head of research for LIMRA and LOMA.

Joining me is Matt Condos, senior vice president of retirement plan services at Lincoln Financial Group.

Matt has been instrumental in leading initiatives that integrate guaranteed income solutions into retirement plans.

Together, we'll discuss the innovations, challenges, and future of in-plan annuities in the defined contribution space.

Matt, welcome to the podcast.

Hey. Thanks, Bryan. I really appreciate the opportunity to be here and speak with you about this important topic.

You know, Lincoln serves as both a record keeper and a product manufacturer, and so we've amassed some good insights and experience, and I'm happy to share those today with you. Thanks again for having me.

Yeah. Great to have you here, Matt. Well, let's  jump right into this topic.

Let's start with how Lincoln views the role of in-plan annuities in today's retirement landscape.

Yeah. So overall, from the top of the house, I mean, we see a tremendous opportunity to provide millions of Americans with retirement security both outside their DC plan as well as within the DC ecosystem.

And specifically, in the DC space where I operate, I think a retirement plan should include a plan for retirement. And a fiduciary committee should consider that as part of managing their retirement plan in the best interest of participants.

You may remember that last year was the fiftieth anniversary of ERISA, and the RIS in there stands for retirement income security.

The original purpose of this legislation was to provide security in retirement for Americans.

And while  I think we've executed well on the savings piece, we still have some work to do as an industry to make sure that those who save are able to convert those savings into income in retirement and feel confident they're not going to run out of money.

I think a lot about the guaranteed sources of retirement income, and we believe strongly in those. And by the way, those guarantees are subject to the financial strength of the issuing company. So, it's important for plan fiduciaries to get the Secure Act safe harbor certification from the provider. I'm sure we'll talk a little bit more about that later, in some more detail. And, you know, we believe that the guaranteed lifetime options will continue to grow in importance as each successive generation in the workforce has a lower expectation of being able to rely on traditional sources of protected income. You know, I think about things like defined benefit plans in that context.

And, you know, I want to add another point about some research that we've done in partnership with Greenwald that clearly shows employees want lifetime income. About eighty percent of participants believe employers have a moderate to high responsibility to help employees generate income and develop a withdrawal strategy for retirement income.

Yeah, Matt. That last point you made there is a good one. I mean, the polling and the research that's been done over the years around participants, asking them about having a guaranteed income source in their 401K plan has always been highly publicized. And, you know, I think what you shared with, you know, the kind of the purpose and the structure when you think about ERISA starting fifty years ago. And, really, you know, 401K plans were designed as an accumulation vehicle. They really weren't designed for withdrawing assets, in a more systematic way. And I think the in-plan annuity and a guaranteed income source provides that systematic way of withdrawing money and, providing that secure retirement.

You know, thinking about Lincoln and thinking about how you've got products in, you know, in the in the marketplace today, walk me through sort of that development that  goes into your suite of in plan guaranteed income products. How did you come about with the products you have in market today?

Yes. And, ultimately, we want to want to provide, a scalable way for employers to give their employees access to the institutionally designed and priced, products within their plan. And by way of background, we've been in this market for about a dozen years, with proprietary products on our own record-keeping platform as well as partnered solutions that exist on our platform and other record-keeping platforms.

So a couple of things really came together that drove us to where we are today.

The first is we take a client-first approach and listen to what our existing and prospective clients are telling us. You just mentioned a number of surveys that have been publicized.

We relied a lot on those and a better understanding of the desires of individuals. And so we want to help these participants have a dignified retirement.

The second area is around the regulations.

The 2019 Secure Act provided the safe harbor that I referenced earlier for the selection of an insurance provider, and it also supplied some portability provisions.

And then as a close follow on, Secure 2.0 included additional provisions that promoted annuities.

And together, these have had a real positive impact, on our development and our thoughts, and adoption of these solutions.

And then the third piece I think is critical is technology.

We've seen improvements and new firms come to market, with technology that connects people with their guarantees more efficiently. And sometimes in the industry, we call this middleware, and this essentially supports the portability across record keepers.

And so, ultimately, we wanted to leverage all three of these when developing our existing suite of products. We knew we had to make guaranteed income fit into the DC retirement plan. And so we incorporated features that participants find familiar.

And that really drove us to using a variable annuity structure with a GLWB, a guaranteed lifetime withdrawal benefit, which we thought fit very nicely within a DC plan. And I can give you some examples on that. So first is, you know, individuals can have an account balance that people can track in addition to their guaranteed income amounts.

This structure allows for upside potential if the market does well. It also provides downside protection, of course.

And then individuals have an option at all times to leave the product or, you know, move their money to other investments within the plan. This isn't an irrevocable election because we know that, people change their mind or their circumstances change in retirement or they have an unexpected health event and they need the money.

And then one other piece, that this structure lends itself well to is the cost.

And we wanted to have a stated cost explicit so that the participant and the planned fiduciaries knew exactly how much they were paying for the income guarantee.

And , Bryan, there's certainly other designs in the market. Those have their benefits too.

As we move ahead, we have a road map which builds out our product suite to other designs. But I would say at this point, we intentionally started with the GLWB design because it appealed to the broadest audience.

So yeah. I think  that's true. And  you see a lot of different product designs, right, today, Matt, in the marketplace. A lot has emerged over the last five years since Secure came out, Secure 1.0.

And, you know, there's been a lot of partnerships. There's been a lot of, combinations of insurance companies working with asset management, companies to develop product. There's been standalone, individual sleeves, introduced into the marketplace. You've got managed accounts.

You've got, you know, target date funds with the structure embedded inside, the target date, outside the target date. There's all kinds of, structures going on, but interesting to hear how Lincoln approached that  how you've come to market.

So alright. Let's pivot. Let's talk a little bit about, you know, where are we heading, Matt, in the next few years. I mean, there's been a lot talked about with all these products introduced into the marketplace. I know record keepers, Lincoln's a record keeper.

You know, integrating these into their into their platforms. Plan sponsors are starting to look at them closer. Give me your outlook. Where are we heading in the next few years with the adoption of these products?

Yeah. Well, I agree with your comments, Bryan. I mean, we take that step back and we say, hey. There was growing regulatory support for these solutions in the last few years.

Certainly, we've seen a growing interest and inquiries by plan sponsors and their advisers, and then that led to increased adoption.

We currently see utilization across products, in the market, and we also see momentum growing in really all segments of the market, all sizes of  plans from the very small start ups all the way to the to the jumbo and then across tax codes too.

So where do we go from here? I think it's a couple of the points that you made in terms of getting greater customization and how annuities are used and incorporated to really add more personalization for participants.

And  we're doing personalized approaches across the board, not just in the annuity space or the income space, but this is certainly, a natural extension here. And how do we take the income component and embed it within managed accounts or advisor-managed accounts?

As you mentioned, either a component of a custom target date offering as plans work with their advisor to develop something more customized to their demographics.

We've also seen offerings that wrap an entire target date fund. So it can be used, you know, as a full component of an individual's retirement program.

And then there's certainly going to be other innovations like these going forward. I think the key is to marry these up with other things going on within the retirement plan. So it feels like a natural extension, and it's something that's familiar to participants.

And maybe on that point, you know, I think a lot about auto income and how do we generate that.

Where we've been is auto enrollment, auto escalation, auto rebalancing, and how do we build the auto income component to that as a natural extension and make, retirement and the transition into retirement seamless for participants? And I think this is, really an area that's ripe for some innovation and, exciting things to come in the next couple years.

Yeah. That auto income, that's a great idea. And you're right about all the different mechanisms that, have been put in through legislation around giving, employers incentives to get more, you know, participants, more Americans saving, and there's auto escalations, auto enrollment. All of those things help in in embed that. That's great.

What about the plan sponsor today, Matt? Thinking about, you know, they're evaluating these products, you know, trying to think about putting them in front of their investment committees to make decisions around adding them to their to their plan. Any thoughts on just kind of some of those kind of the view of the plan sponsor? What's most critical in their decision making? What are they looking at?

Yeah. And so I think about the purpose of the committee, and that is the prudent management of the employer's retirement plan and the function of acting as a fiduciary and making decisions in the best interest of plan participants and their beneficiaries.

And so much like they would evaluate any other feature in the plan, we encourage them to follow a documented process that gives consideration of the value from the, various options available to the plan and in working through those trade offs. Many providers in the, industry and some thought leaders have made available some checklists and process maps that really help walk a committee through, you know, a prudent process, how they can compare and contrast features and benefits and having something documented that they can put in their files, and feel good about the decision that they're making.

We've certainly got the checklist on our website and the suggested process, but I can't stress this enough to go through that exercise.

And then also don't forget to get the Secure Act's safe harbor provision and the insurer representation from the annuity provider. So you want to make sure that committees are mindful of that as well.

Yeah, Matt. You know, you're alluding to this, all the fiduciary responsibilities that, the plan sponsor has. And you're right. A checklist is, in that prudent process is very important for them to follow in evaluating the products, evaluating the insurance companies. And, it's  I think a lot of times, when we're thinking about we manufacture products, we're trying to get them ultimately to the consumer through to the participants in this case.

There's a lot that goes into, you know, getting products, and in this case, on the on the platforms and available  to the employees.

And going through that and guiding them as you do, with some of that checklist and other things that they have to think about as a fiduciary. That's really important. I, and there's also another component to this, Matt, I think in terms of getting products placed into plans, and that's the role of the financial adviser, the retirement plan adviser.

They play a critical role in all of this, and there's been a lot of education going on in the industry over the last few years. Your thoughts about that? How is Lincoln approaching that with advisers, retirement plan specialists?

Yeah. And you're absolutely right. Financial advisers are key to the whole process here. And just by way of background, at Lincoln, we do all our business through intermediaries.

So collaborating with advisers is very, very important to us. And they can certainly play a big role in the evaluation process and the checklist and working with a committee that we just talked about. And we're also doing other things to help them.

I'll just rattle off a few here that that come to mind. We're certainly supporting them with, collateral that they can use with individual participants to the extent they want to meet with individuals.

We have some data that we can give advisers that'll show the impacts on a particular plan's populations. So, I think about things like case studies, but also projections that may be specific to their clients. So, if they want to work directly with the plan sponsor, they've got some backup, and material that they can use.

Additionally, we've hosted a number of online and in-person events to help give advisors an overview of the in-plan market.

We find these very helpful, because we outline the why for in-plan guarantees.

We also supply the what, which gives them a landscape view of the various options in the market and some of the benefits and features and trade offs.

And then we also talk a little bit about how.  So they can think through the process, how they can incorporate, into their practice.

And then, one other piece that I think is important is we do a lot of stuff, you know, to support our own educational efforts out in the market, but it's also very, very important, that we join with others in the industry. And we do that through various webinars. We've collaborated on industry white papers.

We've participated in various industry panels where we talk about, these items and really educate and collaborate with the adviser community.

Yeah, Matt. That I think it this is a great example where the industry working together, you know, around education of these advisers, consultants in this space is so important.

I'm just curious. From a  wholesaling perspective, do you have a dedicated team to the defined contribution space that, covers these retirement plan specialists?

We do, and they go out and talk to these advisers about everything related to the retirement plan so that it's an integrated story and, you know, we help, collaborate with them on what pieces do they want to bring to their clients and how do they elevate and expand their practice.

Yeah. I think that's great that you've got those dedicated resources there.

So, Matt, let me wrap with, a quick thought. If you're peeking out and you're looking at your colleagues in this space, what advice would you offer to other financial institutions or plan sponsors considering these products, to be put into a plan or want to get into this market? What advice do you give?

Yeah. Well, I hope, we've covered a lot of ground here today, Bryan, and I hope, you know, my comments have shown that, we feel strongly about this space, and we believe that integrating annuities into the retirement plan is very important.

But maybe I'll add a couple other things. And first, I would say, look at the plan through the lens of the average participant.

You know, they are looking to their employer to provide it all, the plan design, the tools, the education, the investment options, and products that help set them up and sustain them in a dignified retirement.

It's incumbent upon the fiduciary committee to explore these options and make sure, you know, that they meet participants' needs. And I think a good fiduciary will at least evaluate and then determine whether to include or not.

Second, I would say not just focus solely on cost. You know, there's no requirement in ERISA to select the lowest cost option. You know, rather, it's about focusing on the value and setting goals for what you're trying to accomplish with the in-plan annuity. And the benchmark here on cost is not an index fund. You know? So this may be a bit of a new concept for some committees.

I would encourage them to focus on, surveying the market, evaluating features, cost, flexibility, portability, all those other factors that are important and balance that with cost. And certainly, an advisor can help in that capacity.

And then, one other piece that I don't think we touched upon yet was really considering how adding a lifetime income benefit can serve as an effective human resource management tool.

And by that, I mean, we've seen, that by adding an in-plan guarantee, plan sponsors can help attract and retain talent.

They can allow participants that are fearful of retiring due to concerns about market volatility to actually be able to retire with confidence.

And, you know, that in turn opens up opportunities for younger employees within the organization.

And then lastly, you know, this can also help lower an organization's medical expenses that are normally associated with employees that delay retirement.

So, Bryan, those are just a couple of additional things I'd highlight.

Matt, thanks for those great thoughts there at the end. Thanks for sharing your insights today and your expertise with us. It's clear that implant annuities are not just a trend. They're a powerful tool for helping Americans achieve greater confidence and security in retirement.

And as we discussed today, success really depends, in this space around innovation, you know, of products, strong partnerships between providers and plan sponsors, and a commitment to education, both to advisors and participants.

At LIMRA, we're proud to support this evolution with data, research, and collaboration across the industry.

To our listeners, thank you for joining us. If you found today's conversation valuable, be sure to subscribe and share this episode with your colleagues.

Until next time, I'm Bryan Hodgens, and this has been Insider Insights.

Thanks for listening to LIMRA’s Insider Insights podcast series. To hear future podcasts, subscribe at LIMRA.com/podcast.

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