Although participants report being satisfied with
their TDF default investment option, a large number assume the TDF will provide lifetime
income, which is “overwhelmingly not the case,” Seth Masters, chief information
officer at AllianceBernstein, told PLANSPONSOR.
income is, by a wide margin, the top thing participants want in a retirement
plan, Masters said during a recent AllianceBernstein retirement forum. The irony is that
whenever participants are given the chance to add an annuity, however, research
shows that virtually none of them do.
Participants shy away from “traditional annuities”
because they spur feelings of a loss of control, as well as the fear of
insurance companies benefiting from a participant’s unpredictable lifespan.
“The idea of losing that control is psychologically, unbelievably difficult for
most people to agree to,” Masters said.
As a result, the lifetime income adoption rate is minimal
if not made the default, Masters said, so the best solution is to marry the
lifetime income solution with the TDF default.
Plan Sponsors Not
Fully Utilizing TDFs
Plan sponsors are also satisfied with TDFs, but AllianceBernstein’s third
biannual survey of plan sponsors found only about half of plans have made TDFs
their default option. “That was a real shocker to us,” Masters said.
the 50% of sponsors offering a TDF but not using it as the default, 83% have no
default or are still using a stable value fund, an equity fund or a bond
fund—none of which are qualified default investment alternatives (QDIAs)—as the
default (see “Plan Sponsors Not Making Best Use of TDFs”).