Plan Design Decisions Still Focused on Saving

January 26, 2011 ( – New MetLife research finds that retirement plan design, overall, focuses on encouraging savings, rather than creating lifetime income for participants.

A MetLife news release said that 47% of plan sponsors report that they include all employees in automatic enrollment features, and 52% have implemented a default allocation to a target date fund. Both stable value funds and target date funds are widely‐offered investment options, with 87% and 76% of plan sponsors, respectively, including these vehicles in their investment line up for all employees. 

The announcement said the research was designed to measure how many companies establish retirement income as a plan goal and the extent to which they follow that philosophy.

According to the news release, distribution options for DB plans also do not strongly encourage the creation of lifetime income. While 94% of plan sponsors who offer a DB plan say those plans provide standard annuity distributions, 54% of sponsors offer a full lump sum distribution from a DB plan and 35% allow a partial lump sum distribution. Among all plan sponsors, the most popular distribution options at retirement are installment payments (61%), systematic withdrawal plans (46%), and lifetime annuity payments (24%).

MetLife said many plans have eliminated or avoided adding an annuity distribution option in their DC plans for a number of reasons. Chief among them are fiduciary liability concerns and the administrative issues related to offering annuities. With 69% of plan sponsors saying that they are extremely or very knowledgeable about Employee Retirement Income Security Act‐based fiduciary standards, it stands to reason that many cite fiduciary concerns as a barrier to more widespread offering of income annuities, MetLife said. For those plan sponsors that do not offer lifetime annuity options from their DC plans, 54% cite fiduciary concerns as a reason.

Further, despite the cost of retirement plans, only 34% of plan sponsors have conducted an employee survey to help gauge how satisfied employees are with the education and support they receive about their retirement plan.

Retirement IncomeCommunications 

While 77% of plan sponsors report that their employees are aware of company provided materials available to them pertaining to the importance of saving for retirement, just 58% think that the materials, tools and/or other support their company provides participants gives them a clear idea of how to generate retirement income from their plans.

Metlife said even companies offering a DB plan report that they do not communicate about retirement income; just 20% of these companies agree that they provide extensive materials on the pros and cons of taking a lump sum vs. a periodic income distribution from a DB plan.

“While the majority of plan sponsors provide education about the need to save for retirement and the risks of investing, very few concentrate on retirement income‐related issues such as longer life spans/longevity risk, how to create retirement income, the pros and cons of taking a lump sum versus periodic payments, and when to begin taking Social Security benefits. Given their current focus, plan sponsors – even those who fund traditional DB plans – appear to be under‐communicating with employees about the importance of retirement income,” commented Cynthia Mallett, vice president, Product & Market Strategies for MetLife’s Corporate Benefit Funding group, in the news release.

MetLife says 46% of plan sponsors report that all their employees receive participant statements that show both their balance and what it would convert to as an income stream in retirement, and for those with a DB plan, just 44% receive information on income earned to date in the DB plan.


Strong Belief in Income Goal Helps Employee Understanding  

One silver lining is that companies for which retirement income is a strong objective in their retirement program place greater emphasis on both savings and income in their communications. These companies are more likely than other plan sponsors to agree that their employees are aware of company‐provided materials pertaining to the importance of saving (87% vs. 60%). They are also more likely to agree that their company provides materials and support that give their employees a clear roadmap on how to generate retirement income from their plan (62% vs. 47%).

“This suggests that positioning the DC plan in this way pays dividends to the degree in which employees understand, engage with and appreciate the plan, in addition to an increased likelihood of using it in an effective manner for retirement security,” MetLife commented in the news release.

While 84% of plan sponsors say that their company’s overall participation rate is extremely or very important in gauging the success of their retirement plans, 52% say the same about the ability to generate retirement income. One notable exception is that plan sponsors that have retirement income as a key focus of their retirement plans are more apt than other plan sponsors to recognize the ability to generate retirement income as a very important measure of plan success (68% vs.23%).

Mathew Greenwald & Associates and Asset International conducted the online survey of Fortune 1000 companies on behalf of MetLife. To be eligible for the study, participants needed to work for a Fortune 1000 company that offers at least one DC or DB plan (including cash balance/hybrid plans). Participants also had to have at least a moderate amount of influence over decisions regarding their company’s retirement benefits policy and plan design. Of those surveyed, 81% reported they are very knowledgeable about the retirement plan(s) their company offers. A total of 127 surveys were completed between September 29 and November 8, 2010.

The MetLife research report is here.