Wespath adds Social Security and annuity options to modeling tool

Wespath Benefits and Investments, a non-profit agency serving the United Methodist Church, knew its popular retirement income modeling tool had the potential to do a lot more for the roughly 1,000 clergy members retiring each year.

The tool had been successful in showing clergy how much they could withdraw from their retirement accounts without straying from their "safety zone" but needed more options for members wishing to delay their Social Security benefits and those looking for guaranteed income, said Kim Olson, Wespath's Glenview, Ill.-based director of retirement plans and winner of an Excellence & Innovation Award.

"As the United Methodist Church considers transitioning to a defined contribution model, we wanted to offer features that maximize the participant's income distribution while minimizing their risk," she said.

In pursuit of that goal, the non-profit in April rolled out an upgraded modeling tool that now factors in two new options that the 65,000 participants in Wespath's $7 billion 403(b) can elect when planning their drawdown strategies. Participants can choose what's called the Social Security bridge, which lets them use part of their account balances early in retirement so they can delay claiming — and therefore increase — their Social Security benefits. Participants can also buy a qualified longevity annuity contract, or QLAC, that provides guaranteed income beginning at age 80.

The modeling tool adjusts the withdrawal amount that participants can take out each year based on their circumstances and automatically gives them cost-of-living adjustments "should their funds be sufficient for them to have that increase," Ms. Olson said. The tool also helps them understand how the optional QLAC and Social Security bridge will impact their withdrawal amounts, she added.

Participants wishing to buy the QLAC must do so when they start drawing funds from their retirement accounts, which can be as early as age 55 or as late as age 74.

Wespath deliberately chose a deferred annuity as its annuity option because "it affords participants that which an annuity does best," said Martin Bauer, Wespath's senior managing director of benefit plans in Glenview, Ill. "It reduces the longevity risk without incurring the cost of having a lifetime annuity."

Mr. Bauer added that the QLAC is significantly cheaper because it only starts paying out at 80.

Both the QLAC and the Social Security bridge had strong participant uptake. Since going live in April, nearly 30% of the participants retiring this year enrolled in at least one of the two features with many enrolling in both, Ms. Olson said.

Judges praised the initiative for giving participants the ability to use their retirement plan balances in a way that would let them delay their Social Security benefits, something one judge said "isn't an explicit goal in a majority of plans."

Too many defined contribution plans hand participants "a big bag of money" at the end of their career without any guidance about what to do with it, Mr. Bauer said.

"Wespath's motto is we care for those who serve," he said. "Clergy by definition serve the church for a lifetime, and we therefore felt it is important to support them throughout a lifetime."