MetLife Poll Shows Increased Demand for QLACs to be Offered In-Plan

The demographic milestone known as “Peak 65” has arrived, as 2024 is a year when more Americans are reaching the traditional retirement age of 65 than at any other time in history. This could mean more than four million potential new retirees in 2024 alone. 

As a result, the issue of having sufficient retirement income is becoming increasingly more critical, and according to MetLife’s 2024 Qualifying Longevity Annuity Contract Poll, many plan sponsors are considering offering longevity annuities, such as QLACs, to protect against longevity risk. 

The survey found that 92% of plans sponsors are concerned their current retirees will deplete their retirement savings, and on top of that, 91% are concerned their future retirees will deplete their retirement savings.  

MetLife surveyed 250 U.S. defined contribution plan sponsors in late 2023 to understand their knowledge about longevity and other risks DC plan participants will face in retirement.  

While plan sponsors are worried about their participants running out of funds in retirement, they also underestimate the longevity of their employees.  

According to MetLife, an individual who reaches age 65 has an average life expectancy of 86. However, when asked about the chances that individuals will live beyond 86, more than half of plan sponsors underestimated that 50% of individuals will live beyond average life expectancy. In addition, many plan sponsors were unaware of how many centenarians—Americans who have reached the age of 100—there are in the U.S. today. Only 18% of plan sponsors correctly answered that there are currently about 89,000 centenarians alive in the U.S., which is the fastest growing age cohort in the country. 

Although more than half of plan sponsors identified inflation risk as the greatest threat to retirement savings, Roberta Rafaloff, vice president and head of institutional income annuities at MetLife, argues that longevity is a much greater risk. 

“The fact that you [may] live many years longer than you expected [is] going to erode your dollars even quicker than inflation,” Rafaloff says.  

Opportunity with QLACs 

When offering an immediate income annuity or a QLAC, Rafaloff says a plan would be well-served by offering participants both options.  

“There are some people who really do not want to be responsible for managing their assets until later in life when things like cognitive decline could creep in,” Rafaloff says. “So I think either an immediate income annuity [or] a QLAC are critically important for people so that they do have guaranteed income in retirement.” 

Rafaloff pointed out that the SECURE 2.0 Act of 2022 made it easier to purchase a QLAC by eliminating the 25% limit on retirement account balances, or $125,000, and raising it to a maximum dollar amount of $200,000.  

In the survey, plan sponsors were shown a hypothetical example of how much yearly income an immediate income annuity, which provides guaranteed income for life with payments starting within one year of purchase, and a longevity annuity, which provides guaranteed income for life, but payments are deferred until later in life, would generate. An immediate annuity would result in lower yearly payments, as opposed to a deferred annuity, which would be higher payments due to waiting longer to receive them. 

After seeing this example, 81% of plan sponsors said they would consider offering an immediate income annuity and 65% would consider offering a QLAC. However, among plan sponsors who identified longevity as the greatest retirement risk, the percentage who would consider offering a QLAC climbed to 72%.  

MetLife also found that three in four plan sponsors said they are familiar with how a QLAC works. More than half of sponsors also agreed that the most attractive feature of a QLAC is that it “solves for longevity risk by providing the participant with guaranteed income that cannot be outlived.”  

In addition, when asked if they would consider purchasing a QLAC for their own retirement, 70% of plan sponsors said they would.  

Rafaloff says she sees more recordkeepers starting to offer solutions like QLACs on their platforms. According to the survey, 66% of plan sponsors would be more likely to offer a QLAC if it were offered on their recordkeeper’s platform.  

While 94% of plan sponsors said their DC plan consultants or advisers discuss retirement income options with them, only 36% said they often discuss longevity annuities with their consultants and advisers. Rafaloff notes that there is an opportunity for consultants and advisers to have more of these discussions with plan sponsors.  

“Some [advisers and consultants] are setting up dedicated retirement income practices within their organizations … so that they can provide the consultative approach that the plan sponsors are looking for,” Rafaloff says. “We definitely see a shift there, and we expect to see that grow even more in the future.”