Now that the SECURE Act has been signed into law, what does it mean for your organization? Find out why more than 950 investors joined our call to learn about the implications of the legislation, its impact on lifetime solutions for plan sponsors and participants, and other ramifications for the DC marketplace.
- What is the SECURE Act?
- How does SECURE legislation impact the DC marketplace?
- What are the emerging risks and fiduciary considerations around decumulation?
- What innovation needs to be considered with the passage of the SECURE Act?
- What barriers or behavioral factors come into play now and in the future?
- What are the emerging risks and fiduciary considerations around decumulation?
Read the transcript
>> Ladies and gentlemen, thank you for standing by. Welcome to the SECURE Act discussion with Prudential thought leaders. At this time, all participants are in a listen only mode. If you do need assistance during the call, please press star then zero. As a reminder, this conference is being recorded. To now turn the conference over to our host, Doug McIntosh. Please, go ahead.
>> All right, Stacia, thank you so much. And, special thank you to everyone who's joined our call this morning. This is the second in what will be a series of calls on the SECURE Act, and we're very grateful to everybody for joining. We'll go about 45 minutes, and part of what we'll do during this call is offer our thoughts on the implications of the SECURE Act, but we're also going to answer many of the common questions that we've been getting, really for a year, but since the beginning of the year that volume has increased. I'm really pleased to be able to be back in front of you with my colleagues who I'll introduce in a moment, now that the SECURE Act has passed. As a prominent player in the retirement space and certainly leader in the planned income space, we're back now to help explain what is in the SECURE Act, and we'll go beyond the income provisions for sure. What it means for plan sponsors, for advisors, and for plan participants. I'm really pleased to be joined by my colleagues Bob Doyle and Marc Pester from the call that we did on this topic last year. And, even more so to have our colleague Josh Cohen joining us as well. I'll give a little bit more of thorough introduction to each of those in a moment. We see three main outcomes from the SECURE Act. The first is it increases access to retirement benefits at work through a variety of mechanisms, and we'll talk about those. The second is it increases savings opportunities, and we'll talk about some of those mechanisms as well. And, the third is, this increases opportunities for individuals to turn a portion, or indeed all if they wish, of their savings into income, lifelong income, and it certainly eases that for participants. And, we'll get into some of those details as well. There are a lot of new opportunities brought to table by the SECURE Act, and with those opportunities, some new requirements as well. We're going to help you address both of those. Know that the SECURE Act is part of a longstanding push by both regulators and legislators to increase the availability and use of lifetime income options as well as expand opportunities for savings. And, we'll talk about the fact that some of this stuff goes back to 2007 in the original QDA reg, the original Safe Harbor of 2008. We want you to also know that as we look at the opportunities and the new requirements, we are aligning and updating our systems with capabilities needed to help you implement the many different changes that the act implies as soon as appropriate. In some instances, we know what needs to be done today, and in other instances, we're still going to, we're waiting for further clarification from the good folks in Washington, D.C. The SECURE Act was passed with a strong bipartisan support, and we'll be hearing a little bit more about that in a moment. So, for now, let me just give a quick outline of what we're going to talk about, and I'll introduce our speakers. Our outline is as follows. We'll hear first from my colleague and my trusted partner Bob Doyle on the main points of the legislation. Marc Pester will address the driving force at work in the landscape behind the legislation, and Josh Cohen will address plan design along with investment implications. So, work cited, let's dive right in, and Bob, we'll start with you. Folks, for those who have not had the benefit of hearing from Bob in the past, Bob Doyle leads our legislative and regulatory affairs activities in Washington, D.C. We are lucky to have him as part of the Prudential team. He brings with him a long and storied pedigree as an attorney and also as a vital member of the Department of Labor for many years. So, delighted to have him on our team. Bob, can we turn it over to you and ask you to speak to the SECURE Act and how we arrived here?
>> Well, thank you, Doug, and welcome everyone. Before turning to the substance of the SECURE Act, I think we should take a moment and take some comfort in knowing that important things can be done in Washington. That being said, getting the SECURE Act to the President's desk in 2019 was far from a certainty and required some heavy lifting on the part of employer groups, consumer organizations, and the financial industry as well as individual companies like Prudential. Up until the end, the process was fraught with uncertainty, but interestingly, I believe, the impeachment process actually highlighted the importance of both parties demonstrating, despite growing partisanship, a capability of being able to [inaudible] as basic as to build upon the government but insignificant going into an election year. In the end, we had a funding bill of importance to our clients, our partners, and ourselves, a victory for American workers in the form of a new retirement bill which I'm happy to say brings us back to today's program. As Doug noted in his introduction, the SECURE Act addresses three basic retirement goals, expanding coverage, increasing savings, and improving access to guaranteed lifetime income solutions. The SECURE Act provides a number of very important new tools, the use of which, for the most part, are wholly voluntary for employers. So, knowing what the tools are and how they can further enhance retirement security, it's critical to bring financial wellness to working Americans. So, let's turn to some of the specifics. In terms of expanding retirement coverage, there are four SECURE Act provisions that I would bring to your attention. First is the act's removal of impediments to both sponsorship of and participation in multiple employer plans or MEPS. MEPS are vehicles by which smaller employers can join together to offer their respective employees an opportunity to participate in 401k plan without the cost and liabilities generally attended to sponsoring their own standalone plan. The second provisions is the act's increase in the startup tax credits available to small employers who elect to establish a plan. These credits can be up to $5000 for a year for as many as three years. Third is the act's credit for small employers who utilize autoenrollment as part of their plan, plan provisions that actually have been demonstrated to work and getting more participants in the plans. The fourth coverage provision is an exception to my earlier characterization of the provisions being voluntary. Pursuant to the SECURE Act for plan years beginning after December 31, 2020, 401k plans other than collectively bargained plans, will be required to extend coverage to certain long term, part-time workers, namely those who work at least 500 hours a year for three consecutive years. It's important to note that with regard to such workers, the act does not require employers to contribute matching contributions or include them in their nondiscrimination testing. In the area of retirement savings, the fourth provision is that I would characterize as improving savings opportunities for workers. For plans utilizing the nondiscrimination safe harbor, the act raises the cap on the amount that can be contributed under an auto-escalation provision from 10% to 15%. Although, the 10% cap continues to apply for the first year of contributions. Second, the act repeals the maximum age for [inaudible] traditional IRA contributions. The age was 70-1/2. No longer do we have an age limit, therefore, a longer period within which to save. Third, both plans and IRAs, or both plans and IRAs, the act increases the age at which individuals must start the required minimum distributions from age 70-1/2 to age 72. Again, affording individuals a longer period within which to save before they're required to start taking distributions. This change applies to distributions after December 31, 2019. In other words, it's effective now. So, this presents certain system challenges and compliance issues presented by the immediate effective date. Guidance on these issues is being requested from Treasury and the IRS. So, this falls into the category of stay tuned for further developments on this topic. With regard to improving access to guaranteed lifetime income, there are, in my view, three provisions of significance. First, the act creates a new [inaudible] provider selection safe harbor which should mitigate some of the concerns employers have had about their fiduciary liability when selecting an annuity issuer. The new safe harbor brings both clarity and certainty to the annuity provider selection process. That, in turn, should result in a more efficient, lest costly process. So, moving on to other provisions. We, in addition to the annuity provider safe harbor, we also have the annuity portability provisions which, with respect to participants who invest in guaranteed lifetime income solutions as part of an in plan investment, the SECURE Act now provides a new distributable event that, in the case of a plan that either terminates or removes that investment option, the participant will be able to roll those interest over to an individual retirement account. And then, thirdly, in the lifetime income area, there's a new disclosure requirement which comes into play shortly after the Department of Labor actually issues regulations. So, that's a disclosure requirement that will require plans to disclose on an annual basis account balances in the form of a lifetime income stream which hopefully will assist participants in visualizing their current account balances in terms of whether it's going to provide a meaningful retirement savings going forward or whether they're, in fact, they [inaudible] in reviewing that to look back and assess whether they need to be making additional contributions to the plan. So, as with other changes, there may be some other areas that you may have an interest in, and I would note that among those would be provisions that expand section 29 plans to permit payments of up to $10,000 for student loan debt, and I would note changes to rules that apply to inherited IRAs generally referred to as stretch IRA provisions, and then these stretch IRA provisions now require certain beneficiaries to recognize inherited amounts over a ten year period rather than their lifetime. Excluded in terms of the beneficiaries are the spouses and those beneficiaries who are minors or disables or chronically ill or more than ten years younger than the deceased. Finally, with respect to some of the act's requirements, there is a remedial amendment period affording plan sponsors additional time to amend their plans, but operational compliance is nonetheless required. And, as I noted earlier, there are provisions that, due to the immediacy of the effective date, present system challenges and compliance issues, and on these challenges and issues, we will be working closely with our partners and trade associations to find the answers. So, again, more to come on these provisions. With that, I'm going to close and turn the program back to Doug.
>> All right, Bob, thank you. Thank you so much. You know, there are three things that I took away from this discussion. One is the importance of the fact that this is a bipartisan win at a time when, as a nation, you know, we can really use it and really happy to see that, you know, be part of that. The second is there's an awful lot going on in the SECURE Act, 29 provisions if my count is correct. And, the third is that we're all over it. Now, there are, as Bob indicated, a number of areas that remain open where we await clarification from the regulators, and we're working diligently with them to get that. But, we will keep you posted as we go along and as, you know, as clarification is received. So, rely on us for that, and we'll also, as I say, keep you posted in both written and maybe similar calls to this. Okay, so Bob, that's wonderful. We're going to turn now to Marc Pester. His name and his voice will be familiar to those who dialed into our last call. Marc is a longtime colleague of mine. We've worked together in both business development and product development in the income space and beyond. Marc is a thought leader. He is also one of the voices that faces the outside world for Prudential testifying, for example, a year or so ago at the Department of Labor and has also been present at many, many industry conferences. So, delight, of course, Marc, to have you back as well. Can we ask you to walk us through the societal and the industry activity shift that is driving the momentous legislation that we have seen coming out of the SECURE Act? Over to you, Marc.
>> Oh, thanks, Doug, and I really thought you and Bob just nailed the objectives, but when you take a step back and you think about the two driving forces behind the SECURE Act, you know, the first driving force is clearly the government is reacting to the changing landscape that's really jeopardized older American's secure retirement, and there are four key factors behind this retirement crisis. If you think about DB plans shifting for a number of years now with fewer employees covered. You also have the working population aging, and you have employees living longer, and lastly, you have a social security that's really less dependable. And so, as a result of these trends, you have DC plans that are becoming the primary source for retirement income, and this sort of shifts and changes the lens and the purpose of how plan sponsors should evaluate their DC plan. I thought Nobel Laurate William Sharpe said it really well in last month's Baron's article. He frames this most significant participant challenge of our time as follows. He said, "How do you balance the withdrawal strategy, thinking about taking, participants taking out money for their needs and wants but at the same time making your account making it last a lifetime. How do you make it sustainable?" And, really that delicate balance is really the challenge that certainly participants face, but plan sponsors have a role in helping with that challenge for participants. You know, if you think about the second driving force, and this goes to the coverage, it's really this compelling need to address the lack of coverage challenge for small businesses. And, you can look at, you know, nine and ten employers with 500 plus employees provide retirement plans for their employees, only one in three smaller employers offer retirement plan, and the MEP provision that Bob referenced is really designed to address the need for smaller employers to band together to make the retirement plan really more viable. But, hope that gives a good perspective of the two driving forces, Doug, and let me just turn it back to you.
>> Okay. Great, and Marc, standby because we're going to double click on some of those points, go a little bit deeper on those in a minute. We'll turn now to our colleague Josh Cohen. He is familiar to many of you, even though he was not on our earlier call last year. He is one of our colleagues from our Asset Management organization, and he serves as the Head of Thought Leadership in D.C. plants through his work with our largest clients and is also a fixture across the retirement landscape in both public and private conferences. You know, I heard a couple of things, Josh, from Marc. One is that, and this is no surprise, probably to anyone on the call. D.C. plans really are taking over, and I think this legislation really is a recognition of that. I heard the quote of Bill Sharpe, the thorniest problem any of us is ever going to face. But, as you walk us through your view of the evolution and investment plan design and where that may, you know, where that may be taking us or where we may be taking it, can I also ask you, Josh, to reflect a little bit on Marc's comment which I suppose ties back to our opener. Sponsors have a role, and I would think of that as an opportunity. It's an opportunity for financial wellness. It's an opportunity to help their own organizational productivity increase. I know these are some of the issues that you've been thinking long and hard about. So, why don't you walk us through that, Josh?
>> Yeah, thanks, Doug. Happy to do that, and thanks for everyone who joined. It's a real pleasure to be on here with my colleagues and talking to all of you. Just wanted to preview. We actually, you know, we wanted to get this call out because of the passage of the SECURE late in the year and get information out, but I just wanted to preview that we're going to be having a lot more on certainly elements of SECURE, but really what does this mean for the evolution of D.C. and next generation type solutions. And, we're going to preview some of that today, but more to come. We have a paper coming out in a week or two. Then, we'll have more webinars and such where we dive into this. But, as I reflect, you know, sometimes there's a lot of details. Those of us on the front lines who have to implement some of these very specific provisions today, and this very real work that needs to be done. But, sometimes, also, it's, I think it's important to take a step back and think about how D.C. plans have evolved, where they're going, and what is important legislation like this mean. I totally agree that the changing landscape and purpose of D.C.s is leading to an evolution in plan design, how we communicate to participants, and the investments that we offer. You know, if you think about I'm about to, I'm close to entering my 25th year working with D.C. plans which was really amazing to think about, and as I reflect where D.C. plans started, for example, at the start of my career, they were really supplemental. They really relied on employees to voluntarily enroll, determine how much to save. Usually, it was a lot of investment choices and options for people to choose from. But, really, over the last, I call that version 1.0. I think we're right now in what I would call version 2.0, and a lot of that was a result of, as D.C. plans became more important, we learned a lot from the behavioral economists like Dick Sailor and [inaudible] and others who really did groundbreaking research on things like [inaudible] investing, autoenrollment, and such. Potential protection [inaudible] certainly reflected that. And, that led to version 2.0. Again, autoenrollment, auto-escalation, the fault investments, professionally managed solutions like target date funds or other technology driven accounts, giving advice, streamlined investments, more institutional investments, etc. But, I would say, still, this version 2.0 which we've been in the midst of, is still really a focus on accumulation, and I think where we're going is what I call version 3.0 which is really more of a focus on outcomes, and the outcomes we're all seeking is retirement readiness for the individual. And, that really means thinking not just about accumulation, but the entire lifecycle from accumulation to decumulation, and I think really the SECURE Act is a key part in that because it recognizes just the importance of lifetime income in general, and then particularly as it relates to some of these guaranteed income provisions, the role that that really needs to play in order to help manage some of the key risks that individuals have. So, I know we're going to get into more details about that, but I think that's just taking the big picture view of sort of where I'm seeing things, and then we'll get more into specifics.
>> Yeah, for sure, and Josh, thank you for that. The notion of the D.C. plan is becoming really the core for most American workers. It can't be underscored heavily enough. It is so important to get it right, and I love the way you positioned it as version 3.0. It's interesting, you know, we've been at this for over a decade in the decumulation space, if you will. So, if I may somewhat immodestly suggest we're well positioned to assist sponsors and advisors as they dive in and dig deep on decumulation. Your point about the shift to outcomes is something I'll circle back to Bob in a second about but before I go there, Marc, can I turn to you? We'll start our Q and A now, and this, again, reflects many of the questions that we've been getting over the last few years. The most common question that we get now, and in fact, I was just entertaining on a call before this one, is the around the safe harbor and portability parts of the SECURE Act. Can we jump in there? Can I ask you, Marc, give us a quick view of how the SECURE Act assists with fiduciary review and portability concerns.
>> Sure, sure Doug, and I couldn't agree more that this is a fundamental part of income on the SECURE Act, and if you think about the annuity selection safe harbor Bob cited really extends what used to be the distribution annuity safe harbor to in plan income solutions. And, the safe harbor really affords three clear steps and a path forward to, for a fiduciary review for guaranteed income solutions. And so, the process almost becomes similar to that of other typical investment options in the plan. So, let me go through the three steps, and the first is about benchmarking, and you think about benchmarking. It's really an evaluation of several insurance companies who provide competitive products and making sure, obviously, as part of the benchmarking that the solution that you've selected as a plan sponsor and the intermediaries help in that is a prudent one in comparison to those competitive products. The second part is around fee reasonableness. So, making sure the fee is reasonable for the benefit of the guarantee. Again, a similar approach taken with fees with other investment solutions. And, the third, and this is probably the most critical and where the SECURE Act has the most bearing is the financial assessment of the insurer's financial capacity. And, think about under existing law before the SECURE Act. Existing law and regulations really said planned fiduciaries had to consider the long-term viability of an insurer before including their products as in the investment menu. And, the new safe harbor would shift that onus to the insurers and rely on the assurances of state insurance regulators the carriers are adequately capitalized. So, getting that representation from the insurer sort of shifts that burden, and even with respect to sponsors monitoring requirements, that could be met by annual attestations from the insurers that they're in compliance with the state regs. So, for years, there's been a lot of talk around the safe harbor, and I would argue that it's almost caused a chilling effect and really delayed market acceptance. Sponsors thinking, hey, why don't I just wait a little bit. We may get the fiduciary relief. So, there's almost been a wait and see approach by plan sponsors before advancing their income solutions, and now, the legislation with SECURE Act offers an easy prescribed safe harbor and probably eliminates the primary barrier to adoption. I would say similar to the way Pension Protection Act knocked out the barriers for, to automatic enrollment. So, let me turn to portability because I think this has been as much a barrier as well on the adoption of annuities and 401ks, and it's pointed out to plan sponsors all the time. We always hear the issue of portability, and under the existing regulations before safe harbor, before the SECURE Act, a plan participant who holds an annuity through a 401k is compromised if the plan drops the annuity offering. If, for example, there's a new recordkeeper that won't accommodate the annuity offering, and SECURE Act basically says if your plan sponsor no longer offers a guaranteed income product you're in, then you now have a qualified distributable event, and if you want, you can keep that annuity and roll it over to an IRA regardless of your age. So, I do think the SECURE Act really diffuses that portability issue and as well the whole fiduciary review dramatically shifts as a result of the SECURE Act. So, I hope that helps, Doug.
>> Yeah, right on, and folks, that's, you know, that's the voice of experience you're hearing there. Marc and I, shoulder to shoulder, have been out this for quite some time and know these things inside and out. Your takeaway, I think, should be when you've got questions around that sort of thing, come grab us, and we'll help you walk through it and indeed to the point he made about sourcing information. Happy to do that. Bob, I had mentioned that I wanted to double click on outcomes here with you, and I'll also ask Josh after this question to dive into it a little bit as well. When we think about the different provisions in the SECURE Act, and we talked about expanding access to retirement benefits through MEPS and other coverage mechanisms, increasing savings opportunities. Bob, you walked us nicely through that, and of course, the lifelong income. So, is it fair, you think, Bob, from your experience, to say that the move towards an outcome orientation in the defined contributions space is recognized and the sentiment is shared amongst regulators and legislators in D.C.?
>> I think that's an excellent observation, Doug. You know, as you know, for many years, we've focused on accumulation, helping participants increase their savings to ensure they would have an adequate savings for retirement. Clearly, over the past couple of years, the thinking in Washington and elsewhere is starting to shift about not that we're downplaying or there's any downplaying of the importance of saving and the adequacy of savings but realizing that there are challenges during retirement. So, I think the SECURE Act is an excellent example of that shift taking place. Not to say there's not more to be done, but it's certainly a starting point for providing participants, employees, with the tools to help manage their assets during the retirement years. Whether it's education or whether it's access to products and services that are going to better ensure that they will be able to have retirement savings throughout their many years of retirement. So, hopefully, that's a recognition that has not only taken place with regard to and recognized in the SECURE Act, but something that we're going to be able to build on going forward.
>> Yeah, that's great, and for those who are insiders or who like to sort of pay attention to the nitty gritty details, you may have heard the term "secure 2.0" tossed around. I can tell you from personal experience that there is work afoot to expand on, just as Bob said, some of the provisions that we've seen already, and there are other players in Congress, in both House and especially in the Senate, hard at work. And, as those things come to the forward, we'll bring them to you as well. Josh, I'm going to turn to you, now, and I want to talk about the, or I'm going to ask you to talk, Sir, about the investment implications of the shift towards outcome orientation. Two thoughts there, if you would, Josh. One, how do sponsors, how do we think sponsors are going to benefit from addressing risks and helping to improve retirement readiness, and also, maybe we can expand on this down the line. But, I just want to double click. You talked about the fact that we are working on sort of next generation solutions, and if you want to give us a teaser on what that might look like, if it's not too much to ask. And, we can certainly return to that one as well. Over to you, Sir.
>> Yeah, we'll keep digging on that, and as I said, we'll be having more out on this in the coming weeks. But, I just, you know, I think one of the most interesting provisions in the SECURE Act [inaudible] lifetime income which Bob highlighted was that third one on communicating to participants in terms of how their balance translates into lifetime income or an income stream. And, any plans do this already today, but this really puts a little bit more rigor and mandate around it, and you know, and that means, you know, I think that's interesting because as the old phrase goes, what gets measured gets managed. And, if you start looking at lifetime income or as the goal and set up an account balance. Then, it really shifts a lot of the ways you're thinking about designing a plan and the investment solutions and other tools that you're utilizing, how you're managing different risks now, and it's not just a certain this product or that. I mean, there's no, everyone likes to say there's no magic bullet. There's a lot of products and solutions that are going to be needed, as you said. Many are out there today. Prudential certainly has been one of the leaders in guaranteed income in planned solutions. But, it goes from how you design plans, what kind of withdraw provisions you allow plans to have, how you communicate to participants, the tool you use, the reporting that you do, and then what types of investments and other types of product solutions do you use to help participants manage this new, you know, the risks of this outcome that we're trying to achieve. So, you have to start thinking about additional risks like interest rate risk, duration risk. Certainly longevity risk and such. And so, it takes a lot of things from asset allocation to investments to guaranteed income to nonguaranteed income, etc. And, what we'll keep digging into that more, and to your question about the plan sponsor. Certainly, this benefits the participants and make all of us who work with plans want to help our participants. But, it really is not just good for the participant. It's good for companies, too. This is where financial wellness comes into the extent. Financial wellness is all about having a workforce that's less financial stressed and more retirement ready because that not just benefits the individual, but also the company itself. You know, this is all about helping people become more retirement ready and managing the key risks and making sure they are ready to retire. So, those are some of my thoughts on that area.
>> Great. Thank you so much. Let's just take a second to reflect on two things that we heard from both Josh and Bob. Number one, we're turning as we go to 3.0 to a real focus on outcomes. We can't forget about adequacy of savings. If I haven't saved anything, none of what's in the SECURE Act is going to really make a big difference. And secondly, Josh's point about it's income that's the goal. It's not a stack of cash. It's how do we make sure we solve in an adequate fashion Sharpe's nastiest problem? Marc, I'm going to turn to you now, and let's take it up one notch. Can you talk to us about the landscape? Can you talk to us about the SECURE Act and how it helps to reframe the risks that face plan sponsors and their participants?
>> Sure, and I think Josh, I think you hit it really, really well. I mean, and I think I would highlight the provision that Josh enumerated which is the statutory required lifetime income disclosure provision. And, somewhat reinforces what's going on with today's market's best practice but think about how that provision reframes risk away from just benchmark risk. So, when we used to evaluate from an investment perspective on, from a fiduciary perspective, the focus was always on well, how's that investment doing relative to their benchmark and looking at their standard deviation, they're on that specific investment. Now, when you start to say, but the risk should be the risk of running out of money. It shouldn't be about the input. It should be about these outcomes, and so when you start to look at reframing the risk in that way, you start to surface risks that, again, that Josh eluded to. And, I'll highlight three emerging risks that are really, really important as we move away from just the accumulation phase to the decumulation phase and we think about the plan, the D.C. plan design being the primary source for retirement income. You have to solve the issue of market risk or we'll refer to as sequence return risk. Thinking about the market falling out of bed at the wrong time. You're in a distribution mode. Even if those, even if the market recovers, you no longer have the dollars working for you on the way back up. It's almost the opposite of dollar cost averaging. And so, sequencing a return risk is an important risk that needs to be solved as participants are migrating towards retirement or in retirement. The second risk is the conversion risk, getting participants to think about their account value not merely as an account value, but what does it translate into in terms of an income stream. And, the third risk is longevity risk, and I think we all understand what that is. So, when we start to look at the different types of income solutions in the marketplace, what we find is that more and more plan sponsors will use these three emerging risks as a way to benchmark their different income solutions against those risks.
>> That's great, Marc, thanks. That's really, really helpful. And, as I mentioned earlier, much of what we're talking about now is a reflection of the questions that we have received and continue to receive over the last weeks. Unfortunately, for technical reasons, we've got close to 1000 folks on this call. We're not in a position to do live Q and A. I know that there are questions out there, and we're capturing them as fast and furiously as we can. And, we'll respond to them in subsequent communications. We'll go back directly to people who've asked questions, but we'll probably recycle them in similar calls like this. I'm going to come back to Bob in a second here, but before I do, let me just double click on what Marc talked about a second ago. The ways that we might be able to address the risks that he outlined. There are three primary ways that we see in the marketplace today, and we're very happy to go into great detail on any one of these. But, let me just sketch them out briefly if I may. Number one. You've got the nonguaranteed or so-called best efforts methods where thoughtful, professional asset managers work hard to deliver as sustainable a stream of income as possible. Number two, the fixed route, the fixed annuity route, if you will, where I exchange a certain sum of assets in return for a promise of a lifelong income stream for myself and maybe for my spouse as well. And, number three, the hybrid format which blends elements of the two, the individual preserves access to market value at all times, but also can derive a lifelong income stream for his or herself and a spouse if they choose. Again, we can go into much greater detail there if we would like. I'm trying to be mindful of our time, and Bob, I might skip you and go to Josh, if I can and come back to you after if time permits. Josh, we had eluded a moment ago to the fact that we're working on solutions that will take us, if you will, into the next generation. Dare we say 3.5 or maybe even 4.0. Do you want to give us a quick double click there? What are you and colleagues working on? What do you think the characteristics of a successful next generation plan design looks like?
>> Yeah, now happy to do that. And, I think, you know, I think I will talk about the characteristics, but I think it's important, sort of what I was saying before was there's no one size fits all answer. We think modularity and customization are going to be very important, and we think this is going to be evolutionary. Again, as I said, there's not the silver bullet. Here is the product and design that's going to solve everything. It's how we evolve our plans and the types of ways we communicate the types of ways we add plan design features and different products and solutions. And, different plan sponsors and participants are going to need a different, a variety of different products and solutions and some, there's different preferences for different needs, and some are going to be more ready for certain things than others. Some may be in plan. Some may be out of plan, etc. So, I think the important thing is not to have sort of just a product-centric view on this, but just have a total solutions view on this and an evolutionary view on this. And, there's a lot of things you can do to support lifetime income, but as we think about next generation and where it's going, I think there are two really important characteristics when you think about sort of the primary way that individuals are invested. They target [inaudible] funds are very dominant in the marketplace today, and they've done a great job as well as other types of tools and asset allocation solutions. But, I think the two ways where really next generation's going to come about is greater customization through the use of technology. So, we can be more tailored to the individual as much as possible about their specific wants and needs and objectives and how on track they are to meet their goals. So, I think that's one and then two is purposely solving for retirement readiness for retirement income as the goal. Now, again, it's not just accumulation. So, whether it's the asset allocation that you put people in, or you help give advice for, what should their asset allocation be. The types of investment solutions that you're using to help manage the t risk. So, for example, we think liability-driven investing concepts are going to be more important. Many of you who worked in, with defined benefit plans are familiar with that. But, even with individuals, we're trying to meet their liability in retirement. So, their spending needs, whether guaranteed or not, has interest rate risk, has duration risk to meet those cashflows. And, that needs to be managed more. You know, again, technology for customization is going to be increasingly important, and then certainly guaranteed income, particularly to manage some of the key risks, whether it's market risk, but certainly longevity risks with individuals to not diversify way on their own. They need the benefits of pooling, mortality pooling, to hedge that risk that the very favorable risk that they live longer than what the actuarial tables will tell them. So, we think next generation has all these types of components, and I think using them in different ways depending on the situation and the plan sponsor's need is going to be really where things are going.
>> All right. That's a great place for us to wrap, and I'll just summarize couple things I heard there, Josh, that are exciting to me. Not only because I'm helping to work on some of this stuff, but as I think about myself as a participant, and we all are participants. We're not just insiders, if you will. Josh talked about tailoring to the individual. He talked about making use of strong technology, powerful technology. I heard the word "advice." I heard a focus on both guaranteed and nonguaranteed, so a broad spectrum of different investment options. And, maybe at the end of the day, a lot of what Josh talked about is moving defined benefit precepts into the defined contribution in order to help improve outcomes. And, those of you who are familiar with our DCO defined contribution optimization work will not be surprised in the least to hear that sort of thing coming from Prudential, and we'd love to talk a lot more about all these things. Recall that we've got a paper coming out in a couple of weeks, and we'll make sure folks have access to that. Remember that we said at the outset that this call is recorded. Please tell your friends and colleagues to dial in. We're talking questions as we go along. We'd like to continue to do that. Thank you. Please circle them back if you've got a relationship with Prudential. Make full use of that. Please also contact us directly. Expect use to be back out in your inbox in a variety of different ways in writing and when the time is right further phone calls of this sort. And, I just want to say as we end just about on time, which is a good thing for everybody's calendar, thank you again so much for spending your time with Prudential. We're thrilled to be working alongside sponsors, advisors, and most importantly doing good work that's going to help participants have a strong outcome. I'll just say one other data point. Many folks are asking for slides. We decided to do this as a presentation that was really oral. We don't particularly have slides, if you will. But, in the next weeks, there will be an awful lot of output that you can access in written form through your retirement, Prudential retirement contacts. So, with that, I wish everybody a good rest of the day. Stay tuned for more stuff. Thank you. Please keep the questions coming, and a very special thanks to my colleagues and co-presenters Bob Doyle, Marc Pester, and Josh Cohen. Have a great rest of the day, everybody. Take care.
>> That does conclude our conference for today. Thank you for your participation. You may now disconnect.