United Technologies Corp. is known for products that serve the masses. Elevators, heating-cooling systems, jet engines and fuel cells are among its menu of global offerings.
The Hartford conglomerate recently unveiled one more: A simplified retirement savings plan. Currently open to about a third of UTC's nearly 200,000-person workforce, it is a concept that experts say could eventually spread to millions of working Americans and their employers.
In June, UTC rolled out to its workers an innovative retirement savings option — one with insurance at its core — that UTC and others say may yet satisfy one of the most vexing aspects of preparing financially for life after work: Enough savings to comfortably last the rest of a life in retirement.
Its existence illustrates, human resources, insurance, legal and retirement-planning experts say, the balancing act confronting many large employers who are increasingly eager to transfer more of the cost — and risk — of planning for their workers' golden years onto their employees.
Known internally as the "Lifetime Income Strategy,'' UTC says the option fits its goal of offering its workers the best assortment of retirement-savings programs. In addition, UTC sees LIS, despite its potential risks to the company as fiduciary, as a worker recruiting and retention tool.
"It's a differentiator for UTC,'' said Natalie Morris, the corporation's employee benefits director, who collaborated with minds inside and outside UTC in setting up LIS.
Experts outside UTC see the option, and others like it now on corporate drawing boards, as having potential to minimize the inherent investment and longevity risks associated with most employer-sponsored retirement plans.
Eventually, they say, streamlined savings plans like UTC's could be embraced by other large- and mid-size companies, perhaps even reaching small businesses.
"It may not be too long before some more progressive public institutions get on the bandwagon,'' said University of Connecticut finance professor Shantaram Hegde, who has studied company pensions.
The Investment Company Institute last summer calculated Americans had $18 trillion saved, in one form or another, for their retirement at the end of 2011. Included in that is $4.5 trillion stashed in defined contribution plans, such as 401Ks, where they work.
It's not enough. According to the Center for Retirement Research at Boston College, Americans are $6.6 trillion short of what experts say they actually should have saved to live comfortably through retirement. Most experts peg 80 percent of a worker's pre-pension income as necessary to maintain her standard of living well into retirement.
Against that backdrop, Morris and UTC Chief Investment Officer Robin Diamonte said their employer began five years earlier with "a wish list'' of items to upgrade its defined-contribution offering.
However, things didn't truly get into gear, both say, until 2009, with a particular deadline looming: UTC had set Jan. 1, 2010, as the date after which all salaried new hires would no longer be enrolled into a defined benefit plan but would participate — whether they want to or not — in a company directed defined contribution plan.
Because LIS is so innovative, officials said, there was no true model for UTC to copy. Instead, modeling of UTC's LIS involved members from human resources, finance and legal departments, they said.
Finance crunched the numbers and examined all the actuarial data, while legal parsed the potential for landmines in such a novel program. Human resources had the final task of communicating the LIS option and its potential benefits to workers. Indeed, Morris and Diamonte insist, LIS wouldn't have been possible without feedback and cooperation from all three departments.
UTC also did its pre-launch homework, talking to insurers, investment managers and industry and government experts, including the Connecticut Department of Labor, and, perhaps most important, the Internal Revenue Service.
Being first to the plate with its LIS option enabled UTC to choose its design parameters and develop the legal contracts that best suited the needs of its enrollees, company officials said.
UTC says it tried to make LIS palatable to skeptical workers. UTC solicited bids from seasoned retirement-plan advisers and from insurers willing to underwrite the guaranteed portion of the LIS option. Ultimately, UTC chose AllianceBernstein LLC as its direct contribution-plan advisor, and three insurers — one of them Lincoln Financial Group.
"We tried to drive toward simplicity,'' Morris said. "We knew that complexity in a savings plan leads toward inactivity by participants … Too many options leads to paralysis.''
UTC officials said the company moved aggressively to spread word about LIS to employees through internal communication, mailings, even promoting UTC Pension Director Kevin Hanney's online interview about it with Pension & Investments magazine, which covers the industry.
According to the LIS information kit UTC is circulating to educate employees about the program, enrollees' early contributions are invested in a portfolio of stocks and bonds. At age 48, a portion of each participant's retirement savings is set aside to secure their income benefit at retirement and its initial value is calculated.
After that, the set-aside gradually increases over time so that by age 60, it includes participants' entire LIS balance. This means the income benefit grows as they age and add contributions or rollovers.
But UTC's program has a safety net. The insurance portion of the LIS feature distinguishes it from most other types of defined contribution plans, said Eric Levy, Lincoln's point man on the LIS option.
If an LIS participant's contributions fail to deliver the expected income stream, insurance steps in to keep his income flowing in retirement, Levy said. He and UTC note the insurance does not guarantee the value of participants' accounts, which can vary depending on investment performance, contributions and withdrawals.
But it will take time for UTC to sell its workers on the LIS feature, experts say. UTC says about a quarter, or 53,000, of its employees worldwide are currently eligible for both its defined benefit and defined contribution plans. An additional 11,000 are eligible only for the defined contribution plan and the LIS feature.
As of Sept. 30, more than 5,800 UTC workers were enrolled in the strategy, comprising $89 million in total assets and with monthly contributions running about $2.8 million, the company said. That's a tiny sum compared to the $16 billion in total assets UTC says are in its sponsored retirement plans.
Dan Tarbell is a chartered retirement planning counselor for Ameriprise in East Hartford. Tarbell, at the urging of several clients who work at UTC, did a side-by-side comparison of the LIS feature against other widely available annuity plans that offer set payouts in retirement, typically at a higher cost to investors.
Tarbell said he found some things to like — and not like — in UTC's LIS feature. On the plus side, the availability of this type of retirement benefit at a major employer is rare, he said.
"This is an excellent benefit for employees who don't have outside resources or don't work with an outside advisor,'' Tarbell said.
On the down side, investors in the LIS plan lack flexibility in choosing from among a wider assortment of funds and investments available on the mass market, he said. Also, once a retiree collects payments under the plan, they are locked into a particular income stream, much like a bond or other fixed-income account, Tarbell said.
One client, a UTC engineer in his early 60s, chose not to participate just now in the LIS plan, but appreciated that this type of retirement option was available where he works, Tarbell said.
"A workforce that understands how and when they can retire is not just good for the employee but also for the employer,'' said Mark Fortier, who heads products and partner strategy for DC plans at AllianceBernstein.
Fortier acknowledges that employers struggle with the risks of adopting lifetime income solutions in their DC plans. On one hand, he said, UTC has assumed extra fiduciary responsibility by helping current and retired workers achieve greater retirement security. Paradoxically, he said, doing nothing to improve its workers' lot in retirement may have posed a far greater liability to UTC.
With the LIS option, Fortier said, the billions saved for workers in various retirement funds at UTC most likely will stay in the plan, rather than being rolled out as typically occurs when employees leave or retire.
UTC officials say it will be years before its choice of the LIS option is validated. That will occur, they say, when the first batch of retirees enrolled in the plan collect payments over a time span to see whether or not they reached that ideal 80-percent lifetime income stream.
"What we did was find the best of all solutions,'' Diamonte said.