The market meltdown over the past year has created an urgent need for a “new generation” of workplace savings plans that are more resistant to economic downturns and offer more dependable sources of lifetime income, said Robert Reynolds, president and chief executive officer of Putnam Investments, in a speech Thursday.

Speaking at the National Investment Company Service Association’s (NICSA) East Coast Regional Meeting in Boston yesterday, Reynolds called on retirement plan sponsors, plan administrators, financial advisors and workers to consider a “lifetime financial product allocation.” Such an allocation would include lifetime income options to protect against longevity risk; relative return strategies to protect against inflation risk and absolute return strategies to protect against both inflation and volatility risk.

“We need to do more to protect working Americans from inflation, volatility and longevity risks that can make lifelong security in retirement so hard to reach,” Reynolds said.  

The Putnam chief warned against the excessive reliance on index funds and other passive investments as a core element of a mature retirement portfolio, noting that they lose value when the markets decline. Americans lost more than $2 trillion in their 401(k) accounts in 2008, according to the Congressional Budget Office.

“The Pension Protection Act of 2006 has gone a long way toward solving the challenge of savings accumulation,” Reynolds said. “Auto-enrollment, savings escalation and asset allocation guidance all work—but we need to finish the job. The next challenge in workplace savings will be to offer guidelines, even guardrails, to ensure that workers’ savings are protected as they reach retirement age.”

According to recent research by Vanguard, among the 3 million participants in 401(k) plans that the company oversees, 16% were 100% invested in stocks at the end of 2008, compared to 17% a year earlier. In other words, despite a precipitous drop in the market, 401(k) participants basically held steady in their investments.

“Index funds and other passive investments that track benchmarks are guaranteed to lose value when the markets they track sink, as we saw happen to the investments of many workers last year,” Reynolds said. “People in or near retirement are not well served by too-great a concentration of passive investments, thinking they are a protection against a downturn.”