Just follow the money. That’s all you need to do to understand the motivation behind BlackRock’s plan for your retirement: A 401(k) with a monthly check. In other words, they want to annuitize your savings, charge you a fee to do it, and maybe pay you a little less than what they’ll make on it. No thanks. Jack Pitcher reports in The Wall Street Journal:
A small-but-growing number of companies are offering 401(k) plans that promise employees a degree of predictability, with retirement paychecks they can count on for life.
The goal is to turn a portion of retirement savings into fixed lifetime payments through target-date funds embedded with annuities.
BlackRock Chief Executive Larry Fink believes the option “will one day be the default retirement investment strategy.” His money-management firm has launched its first such funds, which Fink thinks could help address the looming U.S. retirement crisis he warned of in his annual letter this year.
Energy provider Avangrid, based in Connecticut, was the first company to roll out BlackRock’s new LifePath Paycheck funds to employees last week. LifePath Paycheck is now the default investment option in Avangrid employees’ 401(k)s. Thirteen other employers have signed on to make it their default option, bringing the number of employees that will have access to the funds to 500,000.
The funds initially look like the target-date retirement funds that have become standard in U.S. 401(k) plans. They hold a riskier, stock-heavy portfolio when an employee is young, and automatically adjust toward lower-risk assets like bonds as retirement age approaches.
With LifePath Paycheck, the twist is that the funds begin investing in annuity contracts at age 55. That allocation grows to roughly 30% of the portfolio by age 65. An employee has from age 59.5 until the year they turn 72 to buy an annuity with that allocation, locking in a paycheck for life. The remaining 70% can remain invested in stocks and bonds or be redeemed for cash.
If the employee opts not to buy an annuity, the 30% allocation behaves similarly to the fixed-income allocation in standard target-date funds. Investors in most 401(k) plans can also eschew target-date funds entirely, and take more or less risk as they see fit.
Annuities are complex, and one concern about target-date funds using them is the expense.
“There are fees in the spread of the annuity that you can’t see. That opaqueness opens itself up to the chance of litigation risk,” said Jason Kephart, director for multiasset ratings at Morningstar.
It is why major employers are likely interested but in a wait-and-see mode, he said, given concerns about lawsuits in the litigious retirement-plan space.
Action Line: BlackRock is the 800 lb. gorilla that wants to get fatter off your savings. Take control and roll it over, but make sure it goes to a fiduciary. If you want to talk about rolling over your 401(k) to an IRA, I’m here.
Read more about BlackRock here:
- BlackRock Is Acting Like Joe Biden’s Bucket Brigade
- BlackRock and Vanguard: Controlling Interest
- Schwab Down 30%, Fidelity, Vanguard, BlackRock, and You
- Florida Dumps BlackRock in Fight Against ESG
- BlackRock Has Two Sets of Rules for China and America
- BLACKROCK’S BILLIONS: Guess Where Those ESG Fees Are Going?
- A WIN FOR BLACKROCK: Biden Throws Small Landlords Under the Bus
- THE GREAT RESET: You Could Be Forced to Rent a House from BlackRock
- BlackRock Wants Investors with a “Shared Vision”
- EGO: BlackRock CEO Goes Woke with Investor Money
