Most DC Plan Sponsors Still Leery of Lifetime Income Products

Of those offering lifetime income solutions to participants, the majority prefer systematic withdrawals and education rather than guaranteed insurance-backed products.

Employers are gradually warming up to lifetime income solutions in their retirement plans, Willis Towers Watson found in its Lifetime Income Solutions survey.  However, they are more interested in educating participants about drawdown strategies or partial withdrawals than using guaranteed insurance-backed products.

Twenty-three percent of retirement plan sponsors have adopted at least one lifetime income solution, and another 18% are considering it. Among those who are not considering lifetime income solutions, 81% say it is because they are worried about fiduciary risk, 66% cited cost and 60% said the solutions available on the market are too new.

Among this minority offering lifetime income solutions, 71% say the reason is to help their workers convert their defined contribution (DC) balances into lifetime income. The most prevalent approach is systematic withdrawals, cited by 73% of those offering a lifetime income solution, followed by income planning tools (64%), education (60%), managed account services with a non-guaranteed payout (33%), out-of-plan annuities (19%) and in-plan annuities (10%). However, 21% are considering offering out-of-plan annuities.

The survey also found that participants themselves are slow to use lifetime income solutions; 61% of sponsors said that 25% or fewer of their participants use in-plan managed account services with a non-guaranteed payout service, 50% said 25% or fewer of their participants take advantage of lifetime income education, and 50% said 25% or fewer of their participants use partial or systematic withdrawals.

“Employees and retirees face major obstacles as they try to save for retirement so that they have a regular, adequate income that secures their future,” says Bill Dewalt, senior investment consultant at Willis Towers Watson. “This is particularly true at a time when employers are increasingly concerned about financial well-being and retirement readiness, life spans have lengthened, and competing financial responsibilities make it hard to save for retirement. Lifetime income solutions allow plan sponsors to continue their mission of preparing employees for life in retirement.”