Why Plan Sponsors Should Consider Adding an ‘In-Retirement’ Tier in 2019

Toni Brown, with Capital Group, discusses how retirement plan sponsors can help participants in retirement stay properly invested while decumulating their assets.

Defined contribution (DC) plans have historically been considered supplemental savings plans. Today, those plans need to be designed and presented as retirement plans, as they are the main retirement savings tool for many Americans. The objective is, of course, for employees to save money throughout their career and to then thoughtfully use that savings to finance their retirement. But today many plans have no in-retirement tier that lets participants stay invested through the distribution phase.


To offer a retirement plan that includes in-retirement options, plan sponsors should consider plan design, investment menu, communication/education and recordkeeping.  


Benefits of the in-retirement tier


To address shifting population needs, companies increasingly consider adding an in-retirement tier to their DC plans, and we expect quite a few to do so this year.


Encouraging participants to stay invested through retirement may not be a solution for every plan, but there are some potential benefits of doing so, for both plan sponsors and retirees:


  • Retirees who stay in-plan benefit from having a familiar and consistent platform to maintain their retirement assets without the hassle of having to roll over into an individual retirement account (IRA).
  • Plan participants can feel confident in their investments, knowing they have fiduciaries overseeing the investment options, and they are also likely to experience lower fees at an institutional rate.
  • An employer who allows retirees to stay in-plan is offering a competitive and valuable benefit. Having greater assets in the plan can drive down overall costs for investments and administration.
  • Adding a retirement tier is another opportunity to re-educate employees about the robust investment options their employer offers.


We are confident that companies supplying an in-retirement tier will be lauded as examples of companies doing the right thing for employees and may be regarded as trendsetters in the retirement space.


Building a robust retirement plan


Employers try to help participants in two ways: 1) to save money and accumulate retirement assets, and 2) as they move into retirement, to withdraw assets systematically to pay for their retirement living.


To create a robust retirement plan, you, as a sponsor, can do the following:


  • Evaluate your core menu and target-date options, to address investment and spending needs;
  • Work with the recordkeeper to allow for flexible distribution strategies and efficient systematic withdrawals;
  • Add an in-retirement tier to meet the goals and objectives of retiring participants; and
  • Update employee communications and educational materials, clearly laying out the specifics of a retirement plan.


By adding an in-retirement tier, a DC plan might consist of a three-tiered investment menu:


Tier 1 – Qualified default investment alternative (QDIA). This would likely be a target-date fund (TDF) series.

Tier 2 – Core options. These would balance capital preservation, fixed income and equities.

Tier 3 In-retirement. This group can include capital-market-based strategies that are managed for retirees—i.e., investments that are easy to understand and liquid.


Looking forward


Ten thousand Baby Boomers retire every day in the U.S., according to Pew Research Center and the Social Security Administration (SSA). Over the last decade, the industry has placed considerable stress on encouraging people to contribute to their DC plan. It’s now time to focus more attention on the distribution phase of retirement savings.


Adding an in-retirement tier may take time but can benefit employees greatly in the long run. Plan sponsors must improve plan design, investment structure and recordkeeping services to ensure what they have to offer is an effective retirement plan for all employees.




Toni Brown is a senior retirement strategist at Capital Group, home of American Funds. She has 29 years of investment industry experience and has been with Capital Group for five years.


American Funds Distributors, Inc.


Investments are not FDIC-insured, nor are they deposits of, or guaranteed by, a bank or any other entity, so they may lose value.


This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Service (ISS) or its affiliates.