The Next Generation of Target Date Investing

Our Income Educator considers the big picture.
For the best viewing experience, please switch
to a desktop or tablet.

State Street global advisors Logo

How It Works Considerations
Annuity Type
Source

Source: State Street Global Advisors.

1. The Employee Benefit Research Institute’s Spending in Retirement Survey © 2020

2. Horneff, Vanya, Raimond Maurer and Olivia S. Mitchell. (2020). “Putting the Pension Back in 401(k) Plans: Optimal Retirement Plan Design with Longevity Income Annuities.” Journal of Banking and Finance. May, 114.

3. Blueprint Income Annuity Intelligence Report, September 2021.

Source

Source: State Street Global Advisors.

Fit for Purpose
Why QLAC?

Fit for Purpose
QLAC Regulations

1

Heterogeneity

Participants’ spending behavior in early retirement varies widely, a finding supported by academic research1 and suggesting the need for liquidity and flexibility early on to meet the range of spending needs.

2

Tax Advantages

QLAC defers a portion of investors’ tax burden as QLAC assets are exempt from required minimum distribution (RMD) calculations until payouts begin (age 80 within IncomeWiseSM)

3

Public Policy Progress

The SECURE Act 2.0 proposes two meaningful advances for QLACs: 1) an increase to the assets available for annuitization and 2) a “free look” period during which participants could consider and reverse the QLAC purchase during the initial 90-day period.

4

Better Outcomes

Research shows that allocating a small portion of DC assets into the QLAC can enhance retiree welfare;2 in addition, the longer the annuity commencement is deferred, the larger the payouts (relative to immediate annuities)3

5

Turnkey Solution

Within IncomeWiseSM, the QLAC offers certain preselected features to address key participant concerns (e.g., 2% Cost of Living Adjustment, Return of Premium Benefit) and mitigates decision risk.

In order for a deferred income annuity (DIA) to satisfy QLAC regulations, the DIA must meet the following requirements: Icon

In order for a deferred income annuity (DIA) to satisfy QLAC regulations, the DIA must meet the following requirements:

Limit premiums to the lesser of 25% of the participant’s balance or $145,000*

Specify an income payment start date that must begin before age 85

Provide no cash value, commutation benefit or other similar features

Provide annuity income payments that meet the applicable RMD rules

In July of 2014, the US Treasury issued final regulations on the QLAC, a form of a deferred income annuity that allows participants to:

In July of 2014, the US Treasury issued final regulations on the QLAC, a form of a deferred income annuity that allows participants to:

Defer a portion of their guaranteed income payments to a later age

Reduce their defined contribution (DC) plan balance subject to required minimum distribution (RMD) rules

*The original regulation limited premiums to the lesser of 25% or $125,000. The dollar limit was increased to $145,000 in the 2022 tax release provided by the IRS. Payment of the lifetime income is subject to the claims-paying ability of the issuing insurance company; it is possible that the issuing company may not be able to honor the income payouts at any time. Neither IncomeWiseSM nor the annuity provider are insured by the FDIC or by another governmental agency; they are not obligations of the FDIC or deposits or obligations guaranteed by SSGA. The QLAC is not provided by or guaranteed by SSGA or any affiliate of SSGA. QLAC purchases are subject to regulatory limitations. Source: U.S. Treasury July 2014 notice.

Glossary

Annuity A financial product offered by an insurance company and designed to accept assets from an individual and then, upon annuitization, pay out a stream of payments to the individual over a specified period of time. Annuities are often used to secure steady cash flow during retirement years.

Annuity Prefunding Portfolio A portfolio of fixed income instruments, such as long-dated government and corporate bonds, that aims to track the price of a deferred income annuity by matching the key rate durations and credit spreads of the prefunding portfolio to those of the annuity. By building up the exposure to the annuity purchase over time, it is possible to reduce the point-in-time risk of the annuity purchase.

COLA The cost of living adjustment means that the value of the annuity payout increases by a predetermined amount each year. This helps preserve the purchasing power of the annuity against inflation.

Deferred Annuity An annuity that does not start payments immediately, but at some specified future date.

Defined Benefit Plan An employer-sponsored retirement plan where employee benefits are derived from a specified formula using factors such as, but not limited to, salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company.

Defined Contribution Plan An employer-sponsored retirement plan whereby employees make contributions to accumulate wealth during their working years to provide income in retirement. Often times, an employer will match an employee’s contribution, up to a certain amount.

IRA Individual Retirement Account, an investment account used by individuals to save for retirement.

Longevity Risk The risk that an individual will live longer than expected with the potential result of exhausting all income sources before death.

QDIA Qualified Default Investment Alternative is an investment, such as target date or balanced fund investment, into which plan sponsors are allowed to place participants who do not specifically choose other investments.

QLAC Qualified Longevity Annuity Contract is a form of a deferred income annuity that allows participants to defer a portion of their guaranteed income payments to a later age, and reduce their DC plan balance subject to required minimum distribution (RMD) rules. Investment balances may fluctuate based on market factors. The annuity described in this brochure incorporates a return of premium benefit (i.e., if the participant — and spouse in the case of a joint & survivor annuitant — dies before they have recouped their initial premium, the difference between the initial premium and the payments received will be returned to the estate).

Return of Premium Death Benefit Death Benefit A death benefit is a payout to the beneficiary of a life insurance policy, annuity, or pension when the insured or annuitant dies. For life insurance policies, death benefits are not subject to income tax and named beneficiaries ordinarily receive the death benefit as a lump-sum payment.

Target Date Fund An investment fund designed to adjust an asset allocation mix over time typically by becoming more conservative as the target date (usually retirement) approaches.

Disclosures

For institutional / professional investors use only.
Important Information

Investing involves risk including the risk of loss of principal.

Diversification does not ensure a profit or guarantee against loss.

State Street Global Advisors’ Target Date Fund are designed for investors expecting to retire around the year indicated in each fund’s name. When choosing a Fund, investors should consider whether they anticipate retiring significantly earlier or later than age 65 even if such investors retire on or near a fund’s approximate target date. There may be other considerations relevant to fund selection and investors should select the fund that best meets their individual circumstances and investment goals. The funds’ asset allocation strategy becomes increasingly conservative as it approaches the target date and beyond. The investment risks of each Fund change over time as its asset allocation changes.

Please note that SSGA’s role as a fiduciary does not begin until SSGA has been retained to act in a fiduciary capacity pursuant to a written agreement in exchange for a fee. Prior to such time, SSGA is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity in connection with the sale or distribution of SSGA products or services. SSGA has a financial interest in the sale of our investment products and services. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation protected debt securities can be unpredictable. Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

The information contained herein is not designed to be a recommendation of any specific investment product or strategy or for any other purpose. Any examples used or expressed herein are completely hypothetical. Neither State Street Global Advisors nor its affiliates or representatives (“SSGA”) engages or has engaged in the delivery of investment advice to plans or plan participants. The information contained herein does not suggest taking or refraining from any course of action and should not be viewed as an investment recommendation because they are provided as part of the general marketing and advertising activities of State Street Global Advisors. This communication material is educational in nature and solely for the purpose of facilitating independent decision‐making by plan participants. This communication material should be reviewed by your own legal and compliance advisors to ensure you are meeting any fiduciary obligations prior to further distribution. All plan participants should carefully consider all of the investment alternatives available under the Plan before deciding to invest, consult with their own financial advisor and contact their Plan Administrator for more information on the plan’s available alternatives.

The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

Ages and expected dates of retirement are approximate and may not accurately reflect the age or retirement date of each participant at each stage of the product. Participants are responsible for selecting their own target retirement date.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

Payment of the lifetime income is subject to the claims-paying ability of the issuing insurance company; it is possible that the issuing company may not be able to honor the income payouts at any time. Neither IncomeWise nor the [Annuity/ QLAC] are insured by the FDIC or by another governmental agency; they are not obligations of the FDIC or deposits or obligations guaranteed by SSGA. The [Annuity/QLAC] is not provided by or guaranteed by SSGA or any affiliate of SSGA. [Annuity/QLAC] purchases are subject to regulatory limitations.

The guaranteed lifetime income benefit is a type of deferred income annuity, called a qualified longevity annuity contract (QLAC), which is an insurance product that guarantees money at a future date, typically for the rest of an individual’s life. Participants who redeem from the fund prior to the QLAC purchase will not be eligible for the QLAC benefits. The QLAC is subject to regulatory limitations. The QLAC purchase is subject to market availability and cannot be guaranteed in any given year. The QLAC is not provided by or guaranteed by SSGA or any affiliate of SSGA. Neither IncomeWise nor the QLAC are insured by the FDIC or by another governmental agency; they are not obligations of the FDIC or deposits or obligations guaranteed by SSGA. You cannot reverse the purchase of the QLAC.

© 2022 State Street Corporation. All Rights Reserved 4660895.1.1.AM.INST 0422 Exp. Date: 05/31/2023