The retirement crisis facing America, a phrase coincidentally coined by BlackRock CEO Larry Fink, is a growing concern for defined contribution plan sponsors looking to provide a continued source of income to current and future retirees. As a direct result, the New York-based asset management shop said Wednesday that its CoRI Indexes can help to alleviate participants fears of running out of money.
The BlackRock CoRI Retirement Indexes, which were first introduced in June, seek to address this global retirement savings process by linking the liquid vanilla bonds to future lifetime income options such as an annuity.
With a shift in retirement plans, from a defined benefit structure and the assistance of Social Security, the retirement system available to individuals changed to a strictly DC model that doesnt provide the same source of income that participants need.
We went from a system that had two-thirds of its system designed to provide lifetime income to one-third of the system that is designed to provide lifetime income, says Chip Castille, managing director and head of BlackRocks U.S. retirement group, while noting that this has sparked the fundamental shifts of the retirement crisis.
Recent Investment Company Institute data notes that employer-sponsored DC plans hold about $5.1 trillion in total assets while DB plans hold about $2.6 trillion in private sector plans and $3.2 trillion on the state and government level.
There are a lot of legislative issues, fiduciaries issues, and regulatory issues, but the overriding theme is things are changing rapidly, some of these changes can result in bad outcomes and thats what we would call a crisis, and the crisis is marked by a huge amount of complexity, says Castille.
Attempting to dumb down this complexity is BlackRocks newly minted CoRI Indexes targeted for 2015, 2017, 2019, 2021, and 2023 can provide pre-retirees to estimate their annual lifetime income from current savings levels to realistic allotments when they turn 65.
With the fixed-income market holding a large weighting in the 401(k) market, a traditional asset allocation among these plans, Castille notes that the CoRI funds can help plan sponsors educate plan participants by noting that these products can help take risk off the table in the volatile interest rate environment now and in the future.
We know that when we made this change from DB to DC, what we left behind was access to efficient lifetime income, which was provided because DB plans pooled mortality risk, just like insurance companies do and just like Social Security does, Castille explains. Its been difficult to replicate those structures in DC plans because of regulatory concerns.
Castille explains BlackRock has asked employers who sponsor institutional plans to add CoRI as a target date fund. He notes that sponsors can say I now have a target date fund that prepares the individual to get retirement income, which will allow the retiree to increase allocations to these funds overtime. Castille adds that employers can also request that record-keepers provide access to annuity marketplaces that offer options to participants when they see a need for a change.
Currently, there are 10 total CoRI indexes and could possibly spark 20 new funds in the next 10 years, Castille says.
Before CoRI, there was no benchmark for retirement, says Castille.
