State Street Launches Target-Date Fund Series With Built-In Income


By John Manganaro

This article was originally posted by Think Advisor.

State Street Global Advisors has announced the launch of a new target-date fund series designed to deliver “automatic retirement income” for mass-market investors in workplace defined-contribution retirement plans. Leaders from the firm, which is launching the TDF series in collaboration with Global Trust Company and Annexus Retirement Solutions, say the specific way the new solution addresses longstanding liquidity concerns can “help redefine how the industry delivers in-plan income.”

Importantly, the firm says, the new TDF series is designed to be appropriate for adoption as a DC plan’s default investment, referred to as its “qualified default investment alternative.” State Street says this design approach means the series is poised to deliver retirement income to large swaths of employees who are generating significant wealth in the workplace, given the outsized importance of QDIAs in the investment of DC plan assets.

In-Plan Income Is Here

As emphasized in a joint press release issued by the firms, the provision of in-plan retirement income via the QDIA framework is expanding thanks to the passage of the Setting Every Community Up for Retirement Enhancement (Secure) Act in 2019 and the subsequent passage of follow-up Secure 2.0 legislation late last year.

These laws included various provisions intended to address employers’ liability concerns with respect to the provision of annuities within funds on their DC plans’ investment menus — especially in a plan’s QDIA default investment slot. In the press release, Dave Paulsen, chief distribution officer at Annexus Retirement Solutions, suggests the retirement plan industry has been “stuck in a stale way of thinking,” and many of today’s income products require participants to trade off growth opportunity or access to funds in return for lifetime income.

“It is not enough to simply add lifetime income to an existing product or platform — participants won’t accept it,” Paulsen says. “We designed our solution to ensure that participants no longer need to make sacrifices in exchange for lifetime income. This level of innovation puts the participants at the center and is why we believe they will welcome — and widely adopt — this solution.”

Cost Efficiency Matters

According to the press release, the newly launched target-date series combines State Street Global Advisors’ cost-efficient asset management expertise with Annexus Retirement Solutions’ lifetime income technology to help Americans become more retirement-ready. Global Trust Company is the fiduciary and trustee of the investment vehicle. Bob McGowan, managing director and head of the financial institutions group at State Street Global Advisors, emphasizes the fund series’ low costs.

The Broader Income Context

The launch of the funds comes more than a year after Annexus and State Street first announced plans to collaborate on a QDIA-intended TDF series that includes an automated lifetime income component. Since that time, other major retirement firms have taken their own steps toward providing greater annuity access in the DC plan context. Among them is Fidelity, which remains in the process of launching a retirement income solution called Guaranteed Income Direct. As they track the ongoing product innovation, many advisors foresee more qualified money staying “in-plan” as recordkeepers and asset managers provide greater access to institutionally priced annuities, potentially even impacting the pace of rollovers. In the evolving product environment, sources say, wealth managers must step up their income planning capabilities to meet emerging competitive pressures.

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