As the Defined Contribution Institutional Investment Association (DCIIA) writes in a new paper, “Retirement Income Solutions: A Guide for Plan Sponsors,” helping participants improve their financial security in retirement should be a primary goal of defined contribution (DC) plans.
“Retirement income strategies can be a key part of achieving this goal,” DCIIA says.
The reasons why sponsors are interested in offering income products include wanting to help employees transition to retirement at the appropriate age, rather than having them remain at the company longer than the employer would want. Sponsors also view pension-like income streams as a reward for employees and as a way to attract talent, according to DCIIA. Furthermore, some retirement income solutions retain retirees’ assets in the employer plan—an objective of some sponsors. Retirement income solutions are also very useful when an employer transitions from a defined benefit (DB) plan to a DC plan.
DCIAA suggests retirement income solutions mitigate the many risks that participants face when saving for retirement. These include longevity risk, market risks, inflation risks and consumption risks related to overspending and unanticipated expenditures.
NEXT: Retirement income solutions
Retirement income solutions can either be offered in-plan as investments or as a group annuity contract that guarantees returns, or out-of-plan, invested with an insurance company, mutual fund company or brokerage in either a guaranteed or non-guaranteed product.
DCIIA says that in-plan non-guaranteed solutions include annuities tracking asset classes, managed accounts, managed payout funds, systemic withdrawal programs and target-date funds. In-plan guaranteed solutions include deferred income annuities, guaranteed lifetime withdrawal benefits and immediate income annuities. Out-of-plan solutions include immediate income annuities, deferred income annuities and qualified longevity annuity contracts.
DCIIA advises sponsors to partner with the recordkeeper to provide participants with lifetime income disclosures, along with calculators and retirement income projection tools.
DCIIA concludes the report by saying: “Determining whether to offer a retirement income solutions, and, if so, which type of product to select, requires a clear understanding of your plan’s goals and demographics. With that foundation, you can determine how to develop a retirement income plan that works for your company and your unique participant base.”
The full report can be downloaded here.
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