Webcast transcript: What plan sponsors need to know about retirement income

Transcription

1 Webcast transcript: What plan sponsors need to know about retirement income Hello, I m Scott Conking and you re watching a recent video webcast on what plan sponsors need to know about retirement income. We hope you enjoy it. Meet the speakers Scott Conking: Hello and welcome. On behalf of Vanguard, thank you for joining us for this live webcast. I m Scott Conking, head of Vanguard s Institutional Client Services. I m pleased to host another webcast featuring key Vanguard thought leaders. The sign-ups have been tremendous. After years of focusing on getting participants to save for retirement, plan sponsors are now turning their attention to retirement income. It s a complex issue with many facets, but a vital one as the first wave of baby boomers enter retirement. That s why we re pleased to host this live discussion featuring two of my Vanguard colleagues, Steve Utkus and Amy Cribbs, who have given a lot of thought to this subject. Steve Utkus Principal and Director Product Management and Research Steve is director of Product Management and Research, while Amy heads up Vanguard s Participant Experience. Today, they ll offer their candid views on: Retirement income programs both within and outside the plan. Different guaranteed and nonguaranteed approaches to retirement income. And, how to make sure your employees know how to use their retirement savings wisely in retirement. But one note, we won t be getting into the mechanics of how annuities work. We ll stay focused on plan sponsor considerations around retirement income. Steve and Amy, thank you for being here today. Amy Cribbs Principal and Head Vanguard Participant Experience Steve Utkus: Thanks for having us. Scott Conking: Before we delve into the topic, it might be helpful to define what retirement income really is. So Steve, why don t we start with you? How do you define it? Steve Utkus: Sure, Scott. I think if we were hosting a seminar several years ago, and we said we were hosting a seminar on retirement income, the typical plan sponsor, the typical consultant would have said perhaps this is about retirement readiness, retirement preparedness, maybe sources and uses of funds in retirement, Social Security pensions, 401(k)s. But in recent years, the term retirement income s evolved into a term of art, meaning the drawdown phase, how participants are going to translate account balances, or lump sums, into a regular stream of income. You sometimes hear the regulators use the term lifetime income. Sometimes the sort of the practical term is a paycheck for life, making your money last for life. Scott Conking Webcast Moderator Principal and Head Vanguard Institutional Client Services

2 As we all know, this is particularly critically important. Most defined contribution [DC] plans pay benefits in the form of lump sums or they express their benefits as a balance, and defined benefit [DB] plans increasingly pay lump sums. So it s obviously the issue of the next decade. Scott Conking: So a question I get from plan sponsors a lot is: When we say retirement income, Are we talking solely about annuities? Steve Utkus: No, in fact that s, I think, one of our key insights when it comes to retirement income. There are really two broad strategies. One is drawdown programs. If we lapse into technical terms, we ll call them SWPs, S-W-P, systematic withdrawal plans for the audience, but we ll try to keep it simple. Drawdown plans, we actually think are the cornerstone approach that most participants will use. People value liquidity of assets in retirement. They view that as sort of a safety net, and they value the flexibility of spending down a portfolio gradually. But yes, annuities then are the second pillar. The way I like to think about it if you re a retiree, or approaching retirement, the first decision you really want to make is, How do I get some regular income from my account using a systematic withdrawal plan? something simple, basic. And then later throughout the initial years of retirement, Should I buy any additional guaranteed income through an annuity? Scott Conking: So Amy, do you agree? Amy Cribbs: I do. I think one of the major findings we ve seen is that participants want some level of control. It gives them a sense of flexibility as well as kind of a hedge against any uncertainties that they can t foresee when they set up that income stream. Locking that down in an annuity feels very scary to them. It feels like they won t be able to deal with life s uncertainties, something that might be unforeseen at the point of age 65 that comes along 10 years later or 15 years later. Scott Conking: So we expect withdrawal plans to be the predominant approach, but as Steve mentioned, there will always be participants looking for additional guaranteed income on top of Social Security and any pension if they re offered that. Steve, what does that mean to plan sponsors? Will these strategies come to the DC plan or will participants undertake it outside of the plan? Steve Utkus: Well, it s useful to distinguish between what s happening today with what the system might evolve in to the future. What s happening today, very clearly, within five years of retirement, most participants leave defined contribution plans for the IRA space. They re making a lot of these retirement income decisions in IRAs. And to be honest with you, there are actually some very practical reasons. One, there aren t many income solutions in plans today in any event and also it s a legacy of the old sort of system that a lot of plans are inflexible. For a lot of plans, it s actually prohibited to tap your savings in a flexible way throughout retirement because of sort of old plan rules.

3 So that s sort of today, but in the future I think there will be more and more income options. But the question is whether it will be guaranteed income options. We definitely expect to see in the future, more and more services in the plan to help people spend down, but the annuity options are sort of stuck in the crosshairs, if you will, or sort of Catch 22 is maybe a better term. The regulators would like to encourage them, but under ERISA, they want employers to play an important fiduciary role. Employers are sort of disinclined at this point to take on additional fiduciary risks. In our conversation with employers really around the country, they really seem leery of assuming additional fiduciary risks, particularly for these long-dated obligations. You make a decision today, but there might be a bad outcome ten years down the road. So that s where we sort of stand with guarantees in the plan, but nonguaranteed options, yes, we definitely see those emerging in the plan. Amy Cribbs: As it relates to guarantees, I would just add a couple of other items, which is there are a couple of other hurdles. One is portability, both for plan sponsors trying to move potentially their recordkeeping arrangement to a new provider, but also participants. Guarantees are not something you can kind of pick up and take with you. There is a lot of conversation going on in the industry but to be honest, demand, hasn t really materialized. There s a lot of conversation around the product innovation side, but we have yet to see that materialize both in terms of participant demand or plan sponsor demand. Scott Conking: So what about nonguaranteed options or strategies? Steve mentioned this as a possible plan option. What s available to plan sponsors now? Amy Cribbs: We ve spent a lot of time thinking about how we can help people in the nonguaranteed space, in the kind of systematic withdrawal arena. This is a really complex set of decisions and people need help, and we cannot underestimate how hard it is for them to sort through the complexity the fact that they have to manage both sides of the balance sheet. When people are accumulating assets, it s a pretty simple decision. I know it s taken a long time to get people to do those things, but these are pretty simple decisions: How much should I save? Where I should I invest it? When you get to drawdown, you have to keep investing. You have to think about this kind of income stream you need to create, the uncertainties, managing market risks, inflation, expecting the unexpected, longevity. So there s a lot going on for people, and we really think what they need more than anything first and foremost is help. And so we introduced many years ago, actually, the idea of giving people free financial planning at the point of pre-retirement so way before they have to make a clear decision on what to do with their money. And that service is known as Ask a CFP or Ask a Certified Financial Planning Professional. And this personalized service helps people assess the possibilities and address ways to approach drawdown, but also assess all those other factors.

4 Scott Conking: What else? Any other resources that would be available? Amy Cribbs: In terms of the advice space where we re giving people very specific help, we are partnered with Financial Engines to provide a managed account service. And come early 2014, we re adding a new service that they have called Income Plus, which enables preretirees and retirees to really plan for that drawdown issue. It will kind of situate their portfolio in a more conservative manner to allow for that drawdown, that kind of certainty for that drawdown. And it will actually send them the checks. The ability to receive that income almost creates a DB-like payment out of the DC arena. Scott Conking: So where can they find out more information about this? I know there s an income center that we have. Can you explain a little bit about that? Amy Cribbs: Sure, sure. We ve created a great resource center called The Retirement Income Center. You can find it at vanguard.com/retirementpaycheck, and it has a wealth of resources. It has some webcasts out there, modeling tools, the ability for people to dig in and really understand the differences and pros and cons of all of these different options that are available to them. Scott Conking: So speaking of systematic withdrawals, I believe we have a new program, something that your team, both your teams actually, have been spending a lot of time thinking about. Can you talk a little bit more about that, Amy? Amy Cribbs: Sure, we ve been building a new capability on our website to help people model their retirement income and that new modeling tool, we launched it in July. It is available to people who are age 55 and older, and it helps our pre-retirees and retirees calculate sustainable withdrawals based on the things we know about them their age, their portfolio size, and their investment allocation. Scott Conking: And so I heard you explain to a group of plan sponsors earlier today, how specifically does it work? Amy Cribbs: Yeah, so we use Monte Carlo simulation to look at the probabilities of someone being able to sustain a withdrawal rate until age 95. Now participants can go in and model other scenarios. They can play with the dials, and they can even incorporate other sources, if they d like, to get a really clear picture of how their plan assets relate to all of their sources. And in the early parts of 2014, we will connect that to an easy button capability so that they can set up their systematic withdrawal payments from Vanguard. It will require plans to have installments in the plan, but it s a great service for people. Scott Conking: It sounds like it meets some real needs that I hear plan sponsors talking about as it pertains to their participants. But let s go outside of the plan and retirement income. What about rollovers into IRAs, Steve?

5 Steve Utkus: Well, as I mentioned today, Scott, a large number of participants obviously do make most decisions in the IRA space, retirement income decisions. Interestingly, what you see from the national data is people typically in their 60s don t use IRAs today as a major source of income. They use them in an ad hoc way. Of the people who take withdrawals, they periodically take distributions and they really don t start drawing down until age 70 ½ when they re required to by law under the RMD [required minimum distribution] rules. But in any event, one of the great benefits, obviously, the IRA space is just like on the investment side greater flexibility and choice. Actually, greater complexity because there s a lot more retirement income options out there. A good way to sort of look at the Vanguard perspective on this is just to go to our homepage of our retail website. We have about what we offer in retirement income in a simple framing. And as you can imagine, step number one is systematic withdrawals from an account, how to drawdown your account. We talk a bit about payout funds, and we also talk about guarantees. Because even though we don t think most people come to Vanguard to buy a guarantee, they come to manage a portfolio, we still think that s an important solution that investors need to consider. Scott Conking: But annuities in particular, whether they re inside or outside the plan, the guarantees, aren t they rather complex and confusing for participants and for rollover investors, which is one reason why we said we aren t going to delve deep into it in this session, because we could be here for two hours? Generally, aren t they finding it to be pretty complex? Steve Utkus: That s right, I just need a blackboard, and we can go through the various types of annuities. This is sort of an interesting question: How do you make sort of annuity purchase simpler? And obviously in the in-plan space sponsors have been reluctant to sponsor it. So one of the things that we decided to do, partnering with a woman named Kelli Hueler, well known consultant in Minneapolis, a company named Income Solutions, is to create an institutionally priced annuity mart, an online annuity mart for IRA investors. We call it Vanguard Annuity Access. There participants can go online. They can get bids for different types of annuity contracts, but importantly, they can also speak to somebody. They can speak to annuity specialists who are noncommissioned, but licensed to talk about all those complexities you talked about to sort of make sense of it. Scott Conking: So what about other retirement income options? For example, I know my neighbor always asks me whether or not he should buy longevity insurance. There are other things outside the annuities Amy Cribbs: And you don t give him advice.

6 Scott Conking: And I don t give him advice, for sure, not a neighbor. But in any case Steve Utkus: In terms of the landscape, obviously if you look at the landscape today in the IRA space where people roll over assets from plans again, the most common strategy is sort of a managed withdrawal service that Amy was talking about that we re trying to create inside plans, whether you do it yourself or with help. But the other novel sort of category here is payout funds, where Vanguard s been sort of a leader in this domain. That is where you allow the portfolio manager to structure a payout to you. That s another option, as well. As you mentioned, there are a series of more complex annuity contracts, some of which we re actually looking to offer like longevity insurance. There s also a new type of annuity that you sort of purchase early in your 50s called deferred income annuity, which is sort of little bits of purchases of annuities while you re in your 50s. So if you will, there are all these different variations that exist outside both obviously nonguaranteed and guaranteed. Scott Conking: Amy, I want to turn to you. People s needs, resources are all different. What do plan sponsors and participants need to consider and think about when it comes to this? Amy Cribbs: I really think it comes down to four basic things. It s not complex on the surface, but complex underneath the kind of top-line principles: One is we need to help people figure out how to make their portfolio last in terms of income as long as they re going to last. We need to help them maintain pools of savings so they can deal with the unexpected. So we can t convert it all to a sustainable withdrawal amount without considering the flexibility they may need to draw on it differently. We need to help them with the eroding effects of inflation. This idea that they can go totally conservative at the point of retirement is not really the best way of thinking about portfolio construction for our retirees because they ve got to hedge that long-term inflation effect. And last but not least, for some participants, the tax implications of drawdown are really, really hard to figure out. And Vanguard s advice methodology, which I m intimately familiar with, takes into account a lot of modeling around the taxation of withdrawals and which source is the best source. If people are looking for help on that, they really should go to an expert if they have complex sets of sources and issues to sort through. Scott Conking: All great points, Amy. We ve covered a lot of different topics here in the last 15 or so minutes. I want to get to questions from the plan sponsors in the audience. But I want to close with one question. This is the question: How do plan sponsors make sure their employees know how to use their retirement savings wisely in retirement? It s a broad question. Amy, why don t you start?

7 Amy Cribbs: I think that we ve touched on a lot of things about the kind of in-plan opportunity. But the plan has to be set up to enable that. So the first thing we would ask is, Do you have the ability for people to do things in plan and out of plan? and that means allowing them to stay in plan. It also means for them to systematically withdraw, they re going to have to have an installment option of some sort available to them. We would also say that education and education starting early in the pre-retiree s phase is going to be critically important. Making advice available to people is very important. This is complex. To the extent that you can offer and can get comfortable offering people advice options, we think it s really important for your pre-retirees and retirees. Make sure you re providing them equal education and information on how to do this inside the plan as well as the options they may have outside of the plan. I don t know if you d add anything beyond that. Steve Utkus: You know what I might add is we ve become so accustomed in the past several years just talking about defaults as optimal ways to improve behavior so automatic enrollment, autoescalation, defaulting into target-date funds, or other defaults, qualified defaults. I think everyone asks, What s the default strategy? Amy Cribbs: Wouldn t that be nice? Steve Utkus: I think the one thing I would leave plan sponsors with is that as we ve thought about this, there s no obviously one default strategy. Yes, we could default everyone the month after you retire into a 4% payout structure starting the next day. And people who wouldn t need it or people who were worried about their tax consequences would, of course, be unhappy. There has to be some active choice, but one of the things we can do and what we re seeking to do is help frame out simple decisions. So we re not defaulting people, we re helping to simplify and streamline the choices, particularly in the plan and particularly in this guided advice way. Scott Conking: Great. Thank you Amy and Steve. That was great. Now let s turn to questions from the audience. We had several questions submitted ahead of time. There are live questions that ll be coming in. We re going to get to as many as we can. Ones that we don t address and we can t get to, your relationship manager will be sure to reach out to you to get an answer. Let s go to some of the pre-submitted questions here. Here s the first one, and it s from a plan sponsor in Ohio: What can plan sponsors do to get the basics started; a ground-floor approach to retirement income for the participant who is just beginning to look in this direction? Kind of another foundational question so one of you want to take that?

8 Amy Cribbs: I would say make sure your plan s ready for it, that you ve provided people with all of the options that can give them the maximum flexibility. Hopefully what people take away is you really do need a variety of tools here. And look at the opportunity to add advice, add installment payments if you don t have them, ensure that you re educating early and educating often your pre-retiree and retiree audience. And definitely consider some of these new in-plan options that we ve been developing because we really think that there s a great opportunity for plan sponsors to look very helpful and supportive of their participants. Scott Conking: Definitely, which is I know on the top of everyone s mind in the plan sponsor world. From Washington, DC: Steve, why don t you take this one: Plan sponsors remain sensitive to the fiduciary risks of retirement income products. Doesn t there need to be more clarity regarding safe harbors for these strategies to gain traction? Steve Utkus: I ve been involved in this discussion for so many years I don t know where to start sometimes. Broadly speaking, there s a bit of what I would call a regulatory standoff. Let s put on our hat if we re in Treasury or Labor and promoting lifetime income. What would be their sort of ideal scenario? They d like most DC plans particularly to have some sort of lifetime income option, perhaps enhanced with a systematic withdrawal program, and they would like to have some education around that, that s probably what they d like to achieve. They feel that under ERISA, it s their duty, particularly in Labor, to say, Look it s the employer s fundamental responsibility under the law to make an important fiduciary judgment with respect to, particularly, guaranteed options. Now in the employer community as I said, employers are saying, Yes, in principle that would be a great idea, but we re worried about the complexity of the decision-making. We re worried about this residual risk, that ten years down the road, someone s going to sue the company; the committee will have moved on. There ll be new people in charge; maybe the records will be a little dated on the selection and monitoring process from ten years ago. So they re worried about that sort of residual risk. Now, the employer community has said they would love a straightforward safe harbor that says a well-regarded insurance company with say high claims-paying ratings from the leading agencies would be sort of acceptable and give you, sort of, not a pass, but sort of protection on the fiduciary side. But the regulators say, Look financial crisis, credit-rating agencies no, we re not going to do that, you re in the driver s seat. So I think that s where we are, sort of at a bit of standoff and I don t know whether Congress will resolve that. Maybe over time, sponsors will become more accustomed to the risks. That remains to be seen, but right now it s a bit of a sort of Catch 22 as I said. Scott Conking: Amy, a topic that actually I heard a little bit about this morning from a plan sponsor in Texas:

9 The DOL has proposed rules to require participant statements to display projected income based upon an account balance and level of savings. If this were to go into effect, would you expect a push by participants and sponsors to add in-plan income options? It s almost like DB-izing the DC plan in a way. What do you say for that? Amy Cribbs: Steve and I have both been pretty actively involved in the conversation around the DOL s, I don t know, proposal for a proposal. It s pretty early yet, so in fairness, this isn t even a full proposed solution, a regulatory solution by the Department of Labor. We are generally supportive of it. We think that helping people convert this big lump sum in their minds into income will promote savings rates, will promote engagement, but we don t really see it necessarily framing in-plan guarantees as the answer to that income projection as much as helping people really engage on the DC-to-drawdown picture, so that they re doing the right things as they re in their accumulation stage, that they get engaged in the pre-retiree stage to start sorting through their own situation. Then hopefully that they re prepared through retirement to handle whatever comes their way. Do I think it could promote in the minds of some participants purchasing annuities? I think that s possible, but I don t think it will reframe the way people do this across the retirement system. I would love to hear what you say. Steve Utkus: I do think it s a framing issue. It s sort of, Gosh I m retired. I ve got this statement. It says this is what income I can get. Where can do I get it? So you call up Vanguard and you re like, Okay well, they re actually it s not where do you get it, but there s a series of choices you have to make. I think it elicits the question, it raises the question, How do I get that or do I get something else. Oh, there are tradeoffs involved, tell me about them. Amy Cribbs: I think the difficulty, the high hurdle rate to understand annuities and then the lack of control that they have over the pot of money, especially for this kind of risk aversion they may have around in case something happens. Those are two tough hurdles. Any framing isn t going to completely absolve those issues. Scott Conking: Okay, good. Good conversation. So speaking of annuities, from Virginia, Steve why don t you answer this one since you re our product development guy: Is Vanguard developing an in-plan annuity product of its own? Steve Utkus: We have been deliberating on this question for a while from a product design perspective. There are a lot of thorny issues. Forget there s the marketplace acceptance question, that s just, will people buy in-plan guarantees, will sponsors in particular? Put that aside. There s some thorny sort of product development issues. If you talk to Treasury staff, uniformly it seems everybody would like a DC account with embedded longevity insurance. You retire at 60, 65. You re buying a little longevity insurance. You don t even notice it.

10 One day you get to age 85, and this annuity check starts showing up. That s longevity insurance to protect you throughout the rest of your life. There are sort of tax and product issues that have really kept that from taking off. Then when you try to embed sort of other types of annuity contracts within sort of mutual funds or commingled trusts, there are also issues. It s not that we re daunted by this, we re continuing to work on it, but it s not as simple as sort of putting two things smashing two products together and hoping to come up with a solution. We continue to work on it. We continue to investigate the alternatives. Scott Conking: Amy, this one s for you. It s from Connecticut: So far, plan sponsors seem to have generally avoided guaranteed in-plan options, but do you think they are ultimately inevitable for DC plans? Amy Cribbs: I could definitely see that over time sponsors could get more comfortable with some of the fiduciary issues. There already are some plan sponsors who have added guarantees inside their plan. But it s not like autoenrollment. It s just not something that we believe most companies will completely get over the fiduciary hurdles, the portability issues, the complexity of the options. They won t see it as something that s going to be in demand by participants. So, if people are looking for a solution that s going to be as popular and as mainstream as something like automatic 401(k)s, I personally don t see that coming quickly. Steve Utkus: Each of these products is a custom installation, and they re sort of costly. Everything we ve read, all our conversations with the software intermediaries, it s really sort of complicated to bring up the system so that s why I think one of the dilemmas we re facing. This isn t a target-date fund or the growth of mobility throughout the economy, mobile devices. This is sort of like a very slow-burning issue. Scott Conking: Let me take a live question that just came in from Nebraska. Either one of you can volunteer to answer, but Steve, I think this is you: Does a SWP leave participants vulnerable to sequence-of-returns risk? from a sponsor in Nebraska. Steve Utkus: For the individuals who are not familiar with the issue that if you take a systematic withdrawal and you withdraw too much, and you retire during a poor market environment, then you most certainly will increase the probability of running out of money, say, after 30 years. I think one of the issues is first of all you have to set a withdrawal rate that accounts for scenarios where there s poor market returns. One of the reasons why in our systematic withdrawal program, we set the withdrawal rate at 4% is because it s modeled under a whole bunch of different scenarios. And then the other thing you have to think about is the behavioral

11 aspect. Although all these scenarios about running out of money from systematic withdrawal plans over 30 or 35 years, they re all based on some very particular assumptions that a participant in bad markets will just keep spending more and more, won t pay any attention that the account balance is going down, won t make any adjustments, and one day will wake up and there will be no money. Well, we know behaviorally people aren t going to monitor their accounts that way. We re less concerned about those sorts of residual risks. Amy Cribbs: The other thing that I would just add from a just pure kind of what we re doing today with our modeling tool and also our plans to add the systematic withdrawal plan feature is we are surrounding that with the ability for participants to really see what s happening in terms of the sustainable withdrawal rate that they have available to them. So it s going to have a robust communication program that s going to be pretty clear to them, kind of how they re doing against that plan. Scott Conking: I m going to take another question, a live question that came in, and it s from Massachusetts. Amy, I think this is for you: What are the fiduciary pitfalls with giving advice around this topic of retirement income? Amy Cribbs: So we would actually say if you think about the spirit of being fiduciary, that advice is really critically important. Most people aren t spending their lifetime building expertise in withdrawal strategies and tax implications of withdrawal and so the fiduciary issues are the same as during the accumulation stage. This is, you re required to look at the advice methodology. You re required as a committee to ensure that it s prudent and that it s in the best interest of your plan participants. You re allowed to ask that advisor to provide some level of transparency into how they think about the advice they re offering, and it s your job to monitor them. But there are some people who are definitely knocking on the DOLs door and asking for some very specific guidance around what is education and what is advice in the drawdown stage. There are some that believe that those lines are they d like more clarity. I think we feel like the lines that exist today give us the ability to both educate and provide advice to participants in the same manner we do during the accumulation phases. Scott Conking: Great, good. Now Steve, I think this is a good one for you. It s from Chicago. It s pretty straightforward, but we have many, many 403(b) plan sponsors. I get the question: Is there anything different for them around the retirement income topic that they need to consider versus, say, in the 401(k) market? Steve Utkus: Oh, that s interesting. You know, 403(b) clients fall into sort of two camps. Some have both annuity and mutual fund providers already, so they have both within their suite of services. So a lot of the product issues we talked about that really affect 401(k) plans don t exist for that group. So they have an option of educating about, well, if you want an annuity

12 option, it s in-plan, and it s just switching to another provider. Or you have this fund option within the plan which you can draw down from. I think actually some 403(b) clients are in that situation. If you only have that sort of mutual fund setting then you re back to the scenario we talked about today. Generally speaking, you have to debate whether you want to guarantee in the plan or not to supplement what s already there for the payout phase or whether you want to encourage guarantees to go outside the plan. Then, of course, within the plan what do you want to do to help people drawdown systematically with an advice solution or just on their own? Scott Conking: Steve, I m going to stick with you on another one: Can you discuss the SPARK initiatives toward solving portability and the recordkeeping issues, and where that initiative currently stands? This is from a plan sponsor in Chicago. Steve Utkus: For those not familiar, SPARK [The Society of Professional Asset-Managers and Record Keepers] is a sort of industry group of recordkeepers, which is designed to tackle sort of common issues. They set up a working group to improve portability of annuity contracts and the general recordkeeping of annuity contracts in-plan. And I think where we are, without getting into too much detail, is we have a series of, sort of, middleware providers who can recordkeep these contracts and then the question becomes for recordkeepers like us, how to think about, sort of, integrating those into systems and the costs of that, and the demand for that. So that s sort of a business question. But there s a real struggle today with the desire for standardization with the lack of demand. So as I said earlier, each product that you do is sort of customer installation as it stands today, and it s still very hard to move that sort of custom installation from one recordkeeper to another if both are recordkeeping that particular product. So I think that s the really thorny issue that hasn t yet been solved practically. People are talking about it. People are exchanging ideas, but it hasn t actually been solved. Scott Conking: Still a lot of hurdles. We have time for two more questions. Amy, this is a very simple one, but it s from Chicago, as well: Discuss rolling over 401(k) dollars to annuities for retirees. Amy Cribbs: I think Steve had mentioned earlier we partnered with Kelli Heuler to provide this annuity access platform, and we really think that that s the best way for our retirees to think about what option might make the most sense for them. The reason is that it s kind of a shopping center. It s an online shopping center with help over the phone to sort through those options and ensure that they have transparency on pricing, that they can compare all the options and features in these annuities because they are complex, and that they can make the right choice for what they re trying to do for their drawdown strategy, right? How does that portion of their portfolio in an annuity fit into kind of a broader context for what they want to do overall trying to draw down and keep some semblance of control?

13 Scott Conking: Good. And last question, Steve, is yours from Baton Rouge, Louisiana: Please discuss the use of annuities within the plan or upon retirement. What are the new products available in today s market? We ve touched on it before, but you can answer this specific question. Steve Utkus: Well, today for in-plan and guaranteed options, you can just do a standard traditional group annuity contract, whereby a person can take a portion of their balance, transfer it to the contract, and in exchange for that, receive an income for life. This has been as I said, most employers have not been willing to add it because of the fiduciary risk, but that s sort of one option. The second option that s become somewhat popular is this idea of not a traditional annuity where you lose control, but what s called a living benefits annuity called a GLWB [guaranteed lifetime withdrawal benefit] or GMWB [guaranteed minimum withdrawal benefit], a little nomenclature. But that s where sort of a balanced portfolio and you get a guaranteed income from it with some insurance features. Those are called living benefits annuities, and there are several insurers promoting them. Some of them wrap Vanguard funds. Those offer another source of guarantee, but they re quite different from your traditional annuity. And I would encourage anyone interested in them to spend a bit of time with the work on this papers written by the insurance industry, we ve done some work on retirement income options to read about them because they re quite different from your traditional annuity. I often call them hybrid guarantees for that reason. Those are the two main choices. Scott Conking: Well, thank you both very, very much for being here today and talking us through this complex topic. It is also very exciting about where things are going, so we really appreciate your time. I can tell and I m sure the audience can tell you re very passionate about this topic, both of you. Anyway, thank you for attending today s webcast. Thank you for contributing questions and for attending. One thing is for more on retirement income, please go to Vanguard s institutional website, and don t miss our retirement income webcast for participants on October 15th. Be sure to register at the address you see on the screen right now: moneywhystalk. We ll also include links in an that will let you watch a replay of today s webcast. Thank you very much and have a great day.

14 For more information about any fund or Vanguard variable annuity product, including investment objectives, risks, charges, and expenses, and other important information, call Vanguard at for Vanguard funds or for Vanguard variable annuity products to obtain a prospectus. Read and consider the prospectus information carefully if you are making your own decisions about investing. You can also download Vanguard fund prospectuses at vanguard.com. All investments are subject to risk, including the possible loss of the money you invest. Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date. The Vanguard Variable Annuity is a flexible-premium variable annuity issued by Monumental Life Insurance Company, Cedar Rapids, Iowa (NAIC No ), and in New York State only, by Transamerica Financial Life Insurance Company, Harrison, New York (NAIC No ). Form No. VVAP U 1101 (in Florida, Form No. VVAP U 1101 (FL), in Oregon, Form No. VVAP U 1101 (OR) (R), and in New York VVA NY 0208(REV)). GLWB Rider Form No. RGMB (in Florida, RGMB (SI)(FL), RGMB (JT)(FL), in Oregon RGMB (SI) (OR), RGMB (JT)(OR), and in New York RGMB (SI)(NY)(REV), RGMB (JT)(NY)(REV)), without agent representation. Policy and rider form numbers may vary by state and may not be available in all states. The Vanguard Group administers the Vanguard Variable Annuity for the issuer. 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