United Technologies Corp. (UTC) knows a thing or two about building features into its products to make them last. So it’s not surprising that the company behind Pratt & Whitney jet engines and Otis elevators became one of the first major U.S. employers to incorporate a lifetime income feature into its 401(k) retirement plan.
The Lifetime Income Strategy, as it’s officially known at UTC, is the cornerstone of its retirement benefits offering and the default for all new hires.
The newly designed DC plan addresses the individual needs of employees. It has options that can offer the security and certainty of a DB plan, but also the freedom and flexibility of traditional DC plan.
“By understanding the unique character of individual retirement needs, we can incorporate features into DC pensions that facilitate an efficient accumulation and conversion of assets into consumable retirement income,” says Joe Fazzino, UTC’s senior manager, pension investments.
Fazzino says the strategy was designed to take into consideration four main risks: funding, investment, longevity and inflation. A key component of the Lifetime Income Strategy is the incorporation of insurance contracts into its target-date funds. This provides a stable and secure source of income for the life of the participant and/or joint beneficiary.
While the marketplace for retirement income solutions is still growing, UTC made the enhancement to its plan, in part, to address a business need. “Having a retirement-ready workforce can offer management more flexibility in managing its workforce,” Fazzino explains.
For example, an aging workforce that is unable to retire (due to lack of retirement savings or sources of retirement income) can limit promotional opportunities for younger employees. It can also pose additional challenges, especially in the labour-intensive manufacturing sector. Retirement income solutions such as this one may help to attract and retain employees.
Fazzino equates the redesign of effective retirement savings plans to a pop fly in baseball. “Addressing retirement income can be a simple catch. However, the problem can turn into a situation where the first baseman, second baseman and shortstop end up all looking at one another as the ball hits the ground.”
Understanding the UTC plan
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