As More Retirees Remain in Plans, Retirement Income Solutions Follow

Sponsors also say the fiduciary oversight and lower fees that come with staying in the plan help participants.

More retirement plan sponsors want their workers to remain in their plan once they retire for the economies of scale that brings to all participants in the plan. Sponsors also see it as beneficial for retirees, as it affords them fiduciary oversight of their assets and lower fees.

That said, recent research argues that as more retirees remain in retirement plans, plan sponsors will need to offer more retirement income solutions, including annuities.

In a Voya study, “Hope for the Future: The Opportunity for Transformative Enhancement of Retirement Plans,” one retirement plan executive told the firm: “I believe that the new lifetime income projection requirements under the SECURE [Setting Every Community Up for Retirement Enhancement] Act will have a significant, positive, long-term impact on the way plan participants plan for and save for retirement, as well as how they transition into retirement.”

Sixty percent of plan sponsors surveyed by Voya say it is very likely that they will focus more on helping participants convert their plan account balances into income, and another 57% feel that employers will become more proactive in helping their participants achieve successful retirement outcomes.

These findings are in line with a report from T. Rowe Price, “What DC Plan Sponsors Prefer Retiring Participants Do and Why it Matters,” which found that just 17.8% of defined contribution (DC) plan sponsors prefer participants to leave their plans at retirement.

“Greater interest in retaining retired participants in plan seems to be a rapidly developing trend among plan sponsors,” T. Rowe Price says in its report. “After all, assessment of in-plan retirement income solutions—and, presumably, keeping participants who would use them—has been extensively discussed within the DC industry.”

The T. Rowe Price survey found that 39.3% of sponsors prefer that participants retain their DC plan balances in plan. Among plans with more than $500 million of plan assets, this jumps to 50%.

“Sponsors of larger plans are much more likely to favor retaining retiring participants in plan,” T. Rowe Price says in its report.

The reasons they give include the fiduciary oversight the plan offers (with 62% of sponsors either strongly agreeing or agreeing with that statement) and lower investment management costs (with 72% of sponsors either strongly agreeing or agreeing).

In a similar report from PIMCO, “Large 401(k) Plans Seek to Retain Retiree Assets,” Rene Martel, head of retirement at PIMCO, says, “Demand for income will only increase as more Americans enter retirement, and it is clear from the survey that plan sponsors are changing how they view 401(k)s from what historically had been a vehicle for savings to one that will generate income for participants.”

The survey of 47 consultants and advisory firm also shows that plan sponsors are pivoting to finding retirement income solutions, adds Julie Meggers, global head of consultant relations at PIMCO. “The survey’s findings reflect the ongoing changes in defined contribution [plans],” she says.

Consultants who participated in the survey said approximately three-fourths of 401(k) sponsors prefer to keep participant assets in-plan after they enter retirement, up from less than half in 2015. Allowing flexibility in income distribution, adding retirement education/tools and communicating the value of staying in plan were among the most popular consultant recommendations for plans seeking to hold onto retiree assets.