Data and Research

Complexity a Deterrent to Offering Income Solutions in DC Plans

Plan sponsors cited several challenges to implementing retirement income solutions including a lack of one-size-fits-all choices, and the complexities of explaining these vehicles to participants, a new survey finds.

By Javier Simon | October 14, 2016

Several studies have shown that a growing number of Americans fear running out of money in retirement and many have dismal views on the future of Social Security, making the prospect of retirement income solutions more appealing. However, plan sponsors are facing specific challenges when it comes to implementing these options.

Although 64% of plan sponsors consider it a priority to implement retirement income solutions into their plans, only 16% have done so, according to a recent survey conducted by Corporate Insight in conjunction with the Institutional Investor Institute for Defined Contribution.

Corporate Insight reported that one of the biggest revelations it made following the study was the lack of communication between plan sponsors and retirement plan participants. Only 4% of plan sponsors said they have surveyed their participants to gauge their interest in retirement income solutions. Out of those with retirement income options already in place, only about 8% said they would do so.

In addition, the survey found that a portion of respondents believe these investment vehicles are too complicated to explain to participants, further hindering these plan sponsors from adding retirement income solutions to the funds menu.

Among the concerns about implementing these options, plan sponsors cited a lack of one-size-fits-all choices (28%), a high cost on participants (19%), waiting on in-plan safe harbor before moving forward (16%), and the complexity of explaining retirement income solutions to participants (15%).

The survey also found that many plan sponsors have trouble deciding the best course of action to take when implementing income solutions. According to Corporate Insight, “Survey results indicate in-plan solutions (41%) and a combo of in-plan and out-of-plan solutions (35%) are the most desirable. Out-of-plan solutions alone (14%) are highly undesirable, but plans with an asset size of more than $10 billion strongly prefer them (31%). Those currently with a retirement income solution in place more frequently considered in-plan solutions (55%).”

Plan sponsors also have mixed reactions when it comes to investment options. The most popular option was managed accounts with a payout option cited by 55% of respondents. The remaining choices each were cited by 18% of respondents: in-plan annuity with no guarantee, out-of-plan solution, a combination in-plan and out-of-plan solution, and other.

The 2015 PLANSPONSOR Defined Contribution Survey found that “when it comes to annuities or income products that guarantee income, nearly one in six defined contribution plans (58.6%) offer no type of income product. A mere 6.9% of DC plans offer in-plan income products that guarantee monthly income. Further, only 3.5% of plans offer an out-of-plan annuity purchase/bidding service. However, out-of-plan annuity purchase/bidding services are offered by 15.5% of mega plans.”

For more information about Corporate Insight’s survey, visit the Corporate Insight blog.