In-Plan Retirement Income Products Benefit Participants, Plan Sponsors

A paper from Prudential Retirement discusses the benefits of offering lifetime income products in DC plans and how plan sponsors can overcome the fear of using them.

By Rebecca Moore | May 25, 2017
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Guaranteed income solutions provider Prudential Financial says adding guaranteed income solutions in defined contribution (DC) plans can help bring financial security within reach of employees, helping to reduce the amount they would need to save by as much as 36%.

A Prudential Retirement paper, “On the Road to Financial Wellness, Lifetime Income Is Key,” says offering income that is guaranteed for life is a key component to participant financial wellness.

While a variety of options have been available for some time, in-plan guaranteed lifetime income solutions are not being used as much as they could. Fewer than half of plan sponsors offer a retirement income solution as part of their defined contribution plan—typically a 401(k)—and only one-fifth of those offer a guaranteed income product, Prudential says.

“The fear of outliving one’s retirement assets is a top concern for many employees as they contemplate retirement. A guaranteed income solution can help assuage their fears about longevity risk and help them weather market volatility,” says Douglas McIntosh, vice president, Full Service Solutions at Prudential Retirement.

Employers who add a guaranteed income option to their 401(k)s have the potential to experience positive outcomes, too, Prudential contends. When employees feel more secure about retirement, they are more likely to retire on time. A 2017 Prudential study found that a one-year increase in average retirement age results in an incremental workforce cost of over $50,000. Also, retirees with lifetime income are much more likely to keep their assets in-plan—helping plan sponsors retain the cost benefits that come with scale.

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