Plan Design Decisions Still Focused on Saving

January 26, 2011 (PLANSPONSOR.com) – New MetLife research finds that retirement plan design, overall, focuses on encouraging savings, rather than creating lifetime income for participants.

A MetLife news release said that 47% of plan sponsors report that they include all employees in automatic enrollment features, and 52% have implemented a default allocation to a target date fund. Both stable value funds and target date funds are widely‐offered investment options, with 87% and 76% of plan sponsors, respectively, including these vehicles in their investment line up for all employees. 

The announcement said the research was designed to measure how many companies establish retirement income as a plan goal and the extent to which they follow that philosophy.

According to the news release, distribution options for DB plans also do not strongly encourage the creation of lifetime income. While 94% of plan sponsors who offer a DB plan say those plans provide standard annuity distributions, 54% of sponsors offer a full lump sum distribution from a DB plan and 35% allow a partial lump sum distribution. Among all plan sponsors, the most popular distribution options at retirement are installment payments (61%), systematic withdrawal plans (46%), and lifetime annuity payments (24%).

MetLife said many plans have eliminated or avoided adding an annuity distribution option in their DC plans for a number of reasons. Chief among them are fiduciary liability concerns and the administrative issues related to offering annuities. With 69% of plan sponsors saying that they are extremely or very knowledgeable about Employee Retirement Income Security Act‐based fiduciary standards, it stands to reason that many cite fiduciary concerns as a barrier to more widespread offering of income annuities, MetLife said. For those plan sponsors that do not offer lifetime annuity options from their DC plans, 54% cite fiduciary concerns as a reason.

Further, despite the cost of retirement plans, only 34% of plan sponsors have conducted an employee survey to help gauge how satisfied employees are with the education and support they receive about their retirement plan.