Even though annuities for DC were introduced in the mid-2000s, they gained little traction from plan sponsors since that time because of fiduciary protection issues, portability and comparability, according to a report titled “Asset Management Industry Market Sizing 2012-2017,” from Financial Research Corp. (FRC), a division of Strategic Insight.
PLANSPONSOR’s annual DC survey found that roughly 5% of plan sponsors in 2011 reported offering an “in-plan” guaranteed income option (i.e., a product that offers a certain amount of monthly income in retirement). Of the sponsors that did offer this option, nearly two-thirds (63%) represented plans with 500 participants or fewer. Less than 1% of plan sponsors (primarily smaller plans) offer an “out-of-plan” guaranteed income option.
The development of in-plan retirement income products and target-date fund (TDF) glide paths that go through retirement will help assets stay in plans longer, decreasing the potential for lower retention rates of asset managers within these plans when participants retire and roll over their savings, the FRC report said.
“The increased longevity risk has the potential to become a national crisis, so the potential manifestation of this crisis presents both opportunities and challenges for the asset management industry,” Amy LaFrance, senior research analyst at FRC and author of the report, told PLANSPONSOR. “Providers of different channels should better target solutions for specific markets.”