Plan sponsors have long felt pressure to implement solutions that will keep investors on the road to a financially secure retirement. Under the threat of litigation, budgetary restraints and product expenses, plan sponsors are increasingly pressed to find solutions best suited to their participants’ financial goals. Amplifying the need for solutions, retirees regularly rely on defined contribution plans as their main source of income in retirement; however, if plan sponsors are unable to identify retirement income solutions into which their participants may transition savings, they run the risk of participants mismanaging money they have withdrawn from retirement plan balances.
In a new survey, Corporate Insight and Institutional Investor Institute for Defined Contribution interviewed more than 150 plan sponsors about retirement income solutions. The study analyzed topics including the cost and interest of these type of solutions as well as the factors preventing companies from having them. All surveyed plan sponsors managed defined contribution plans with assets worth between $500 million and more than $10 billion. Results and key findings were presented at the Defined Contribution Symposium in San Francisco on September 8 and 9, 2016 by Drew Maresca, Director of Retirement Research at Corporate Insight.
Limited Number of Plans Offering Retirement Income Solutions
While 64% of plan sponsors state that it is a high priority to implement a retirement income solution, only 16% currently have one in place. According to the survey, this stems from a lack of availability of sufficient one-size-fits-all solutions, solutions being too costly for participants, sponsors waiting on in-plan safe harbor before feeling comfortable to proceed and the solution being too complicated to explain to participants. However, this lack of retirement income solutions may actually result from sponsors not believing there is sufficient participant interest in a solution: of plans without a retirement income solution, only 26% believe participants would have interest in one.
Construction of a Retirement Income Solution
Sponsors are generally unsure of the best way to implement income solutions. Survey results indicate in-plan solutions (41%) and a combo of in-plan and out-of-plan solutions (35%) are the most desirable. Out-of-plan solutions alone (14%) are highly undesirable, but plans with an asset size of more than $10 billion strongly prefer them (31%). Those currently with a retirement income solution in place more frequently considered in-plan solutions (55%). Specific investment options are even more of a mixed bag: while 25% have considered a managed account with a payout option, the remaining options participants expressed interest in (in-plan annuities, out-of-plan solutions, combo in-plan/out-of-plan and annuities with a GMWB) all received similar interest (18%).
More Participant Feedback Needed
The biggest revelation from the survey may be the lack of communication between plan sponsors and their constituents. When sponsors were asked if they have surveyed their participants about their interest in a retirement income solution, only 4% responded affirmatively. Companies with retirement income solution already in place were twice as likely to ask these types of questions to their participants. With this overall absence of communication, though, one must wonder whether plan sponsors are able to identify participant interest in an income solution accurately.
For more information about this study and survey results, please contact Drew Maresca, Director of Retirement Research at Corporate Insight, at firstname.lastname@example.org. Corporate Insight recently launched a new service called Workplace Exchange which surveys plan sponsors regularly to analyze the retirement plan industry. You can find the most recent press release about this service here.