“Retirement Income Practices Study: Perspectives of Plan Sponsors and Recordkeepers for Qualified Plans,” examines the dynamics of the plan sponsor-recordkeeper relationship, related to the provision of lifetime income options in qualified plans.
Both plan sponsors and recordkeepers agree that a focus on retirement income will be one of the biggest retirement practice trends to emerge in the near future. Ten of the 12 recordkeepers surveyed said an increasing focus on retirement income is among their top predictions for the next three to five years, and one-third of plan sponsors agree.
One way plan sponsors and recordkeepers can focus on retirement income is to provide participants with projections that show the monthly income they might receive during retirement. Currently, this information is not frequently shown online or on statements, according to the study. And plan participants are not finding out the information on their own—the majority of recordkeepers surveyed estimated that less than one-quarter (25%) of plan participants have projected their retirement income.
While plan participants are not making the effort to calculate their retirement income, they would like guaranteed income in retirement. Nearly half (44%) of plan sponsors said that the majority of their defined contribution (DC) plan participants would prefer to “receive at least part of their retirement savings as monthly income for as long as they live rather than receiving all of it in a lump sum that they would invest themselves.”
Many plan sponsors (68%) said they believe the majority of their DC plan participants favor “guarantees that offer stable but somewhat lower returns” over a “higher degree of risk because the returns could be greater.” However, income annuities, which combine stable returns and guaranteed lifetime income, are not yet widely offered by plan sponsors. In fact, only 16% of plan sponsors surveyed offer any form of in-plan retirement systematic income option. Of these plan sponsors, the most widely offered option is an in-plan deferred annuity (27%). Fifty-six percent of plan sponsors who offer an in-plan retirement income option do not know specifically what type of product is being offered.
Products are limited because the majority of recordkeepers do not make institutional income annuities and other retirement income products available at the point of retirement nor do they have the ability to administer in-plan accumulation annuity options on their platform. Only four of the recordkeepers surveyed currently offer in-plan retirement income options. However, of the eight recordkeepers who do not currently offer these, four said they are very likely to build the infrastructure required for in-plan retirement income options on their platforms in the next 18 months. Recordkeepers who have no plans to build this infrastructure cite low demand from plan sponsors and participants.
“Those who manage qualified retirement plans are at an important crossroads in the evolution of these workplace benefits,” said Jody Strakosch, national director of strategic alliances for retirement income products at MetLife. “What remains to be seen is who will act first. Will plan sponsors start to demand that recordkeepers include retirement income options as part of their platform? Or will recordkeepers step up to offer these solutions first? Ideally, plan sponsors and recordkeepers should be coordinating their retirement income discussions now to determine the primary objectives of their plans, and how these objectives will help meet participants’ needs.”
Eight in 10 plan sponsors (79%) said that fiduciary liability concerns are discouraging them from more widespread offerings of income annuities within their DC plan. More than half of plan sponsors (56%) also said they believe these concerns are dissuading their recordkeepers from more widely offering these products on their platforms. Most plan sponsors said they think that their company (62%) is more concerned about annuity-related fiduciary liability issues than their recordkeeper.
“There is little doubt that fiduciary concerns must be addressed by public policymakers before income annuities will take hold as a primary feature of DC plans. While clarifying the fiduciary selection regulation is not a ‘silver bullet’ it would go a long way in encouraging more widespread offering of income annuities in DC plans,” Strakosch added.
Visit www.metlife.com/retirementincomestudy for a full copy of the study.
« Assurant Employee Benefits Updates App