The growing acceptance of the idea that defined contribution plans need to provide participant access to a “DB-Like” retirement income benefit is only really possible now because of the foundational work over the past two decades by key policy thought leaders like Mark Iwry, David John, and a handful of others.

Further success of this critical policy initiative will be dependent, methinks, on a number of pieces next falling in place. Chief among these is the achieving a coherent understanding by a wide swath of fiduciaries, advisers and participants of what the notion that DC Lifetime Income programs as a part of a plan participant’s investment palate entails.

Just this idea that DC plan participants are now being more broadly offered the opportunity to choose to devote a portion of their account balances toward guaranteeing lifetime income is a sea change in employer sponsored retirement programs. This opportunity was rarely available even under some of the most “flexible” retirement programs offered in the past.

Having this valuable new and unfamiliar element available as part of a DC plan means developing support mechanisms of all sorts to actually deliver their value. Really grasping this requires understanding a new “language” (and concepts) with which we all must now become accustomed if these programs are to work. The ideas are not really complicated, but very unfamiliar to the most of us.

A classic example can be found in the investment arena. These lifetime income programs are typically part of an investment menu which utilize annuity contracts somewhere in the “offering.” Annuities are needed because many of these programs are often “risk” based, where the insurer-not the plan or the government-assume the financial risk that are inherent in providing these guarantees. Most of the well-known metrics usually used in selecting between competing equity fund investments have limited usefulness when making decision with regard to selecting these new annuity based programs (even though some of those programs have important equity elements).

One of the concepts which best demonstrates this demand arises under something called the “guaranteed lifetime withdrawal benefit,” or GLWB. A GLWB is one of a small handful of annuity features which we call “living benefits,” which is simply a class of payouts which give participants a measure of flexibility in managing their lifetime income streams. The GLWB is a core feature of many of the new programs currently available in the market.

Basic to the GLWB is something called the “benefit base,” under which the insurance company enhances the participant’s eventual retirement payout the longer the participant actually participates in the GLWB. The idea of “time” increasing an annuity benefit is a basic insurance practice, but has never played a role in the traditional DC investment vocabulary-and can almost sound a bit nefarious. It isn’t. It reflects the idea that the longer a participant holds (and doesn’t surrender) the accumulated benefit under a GLWB program, the lesser the risk the insurer bears in its actuarial calculation of the eventual lifetime guarantees it will provide. This, then, enables the insurer to guarantee the payment of an enhanced benefit over time.

With DC lifetime income programs now garnering wider acceptance, at least conceptually, their increased use and ultimate success will demand quite a shift in the “conventional wisdom” surrounding plan investments.