BlackRock looks to make monthly paychecks part of 401(k) employee retirement plans

BlackRock is reportedly looking to shake up employer retirement plans by returning a portion of employees’ savings through fixed monthly payments.

Dubbed the LifePath Paycheck, the program capitalizes on a small-but-growing number of businesses that want their 401(k) plans to promise employees some degree of predictability, according to The Wall Street Journal.

Making use of target-date funds embedded with annuities, the giant money manager also seeks to solve a retirement crisis BlackRock chief Larry Fink addressed in his annual letter to investors in March.

“As a society, we focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years,” Fink wrote.

He added that building “a secure, well-earned” retirement is one of two of the mid-21st Century’s biggest economic challenges alongside infrastructure.

With LifePath Paycheck, funds initially look like the target-date retirement funds that have become standard in US 401(k) plans, per WSJ.

TDFs tend hold a riskier, stock-heavy portfolio when an employee is young, and automatically reallocate assets, adjusting towards lower-risk assets like bonds as the account owner gets closer to retirement.

The difference in LifePath Paycheck, however, is that the funds begin investing in annuity contracts at age 55. 

That allocation grows to roughly 30% of the portfolio by age 65, according to The Journal.

Thus, an employee has from age 59.5 until the year they turn 72 to buy an annuity — a contract that requires regular payments for more than one year — that with the allocation, locking in a paycheck for life, The Journal reported.

The remaining 70% of an employee’s portfolio can remain invested in stocks and bonds or be redeemed for cash.

In the case an employee opts not to buy an annuity, the 30% allocation behaves similarly to the fixed-income allocation in standard target-date funds, per The Journal.

Similarly to the choice provided to investors in most 401(k) plans, account owners can also choose to eschew target-date funds entirely to be as risky with their funds as they see fit.

Per Social Security standards, for reference, the full retirement age for Americans is 66 for people born between 1943 and 1954, and 67 for people born 1960 or later.

Connecticut-based energy provider Avangrid was the first company to implement BlackRock’s new LifeParth Paycheck funds to its rougly 7,000 employees last week, according to The Journal.

Thirteen other employers — including Adventist HealthCare Retirement Plans and Tennessee Valley Authority Retirement System — have reportedly committed to make BlackRock’s offering it their default retirement option, but have yet to fully roll out the program.

In all, the number of employees that will have access to the funds in the coming months will top 500,000.

“We believe LifePath Paycheck will one day be the default retirement investment strategy, providing access to a predictable, paycheck-like income stream that can help improve the quality of life for millions of Americans in retirement,” Fink said in a press release on the program.

Some 94% of reitrees surveyed by BlackRock — the world’s largest money manager with $10 trillion in assets — agreed that “employers should provide their employees with a retirement income solution through their workplace plan.”