Plan sponsors and their recordkeepers have done a great deal to help retirement plan participants save for retirement, but the next big hurdle is getting participants to take action, according to a new MetLife study.
“Retirement Income Practices Study: Perspectives of Plan Sponsors and Recordkeepers for Qualified Plans” examines the dynamics of the plan sponsor-recordkeeper relationship with regard to the provision of lifetime income options in qualified plans. It assessed whether plan sponsors and recordkeepers of defined benefit and defined contribution plans were communicating and working closely on retirement income education, strategies and solutions for their participants.
The survey found that retirement income is the biggest trend in retirement practice trends now and into the future, according to both one-third of plan sponsors and ten out of 12 recordkeepers surveyed.
“While recent actions by the U.S. Treasury Department are expected to pave the way for millions of Americans to have better and more accessible retirement income options, plan sponsors and recordkeepers need to work together to facilitate participants’ ability to understand their retirement income needs and use their plan(s) to generate a paycheck for life,” said Cynthia Mallett, vice president of product & market strategies, corporate benefit funding for MetLife.
Forty-four percent of plan sponsors said that the majority of their DC plan participants would prefer to have guaranteed income from at least some of their retirement assets and 68 percent of plan sponsors 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 would be greater.
According to MetLife, income annuities are not widely offered by plan sponsors. Only 16 percent of plan sponsors surveyed said they had an in-plan retirement systematic income option. Of these plan sponsors, in-plan deferred annuities were the most popular at 27 percent. More than half of plan sponsors surveyed who said they offered an in-plan retirement income option weren’t sure what that option was.
Only four of the 12 recordkeepers said they offer in-plan retirement income options as part of their platform and four others said they were planning to include a retirement income option soon.
Eight in 10 plan sponsors, 79 percent, said that fiduciary liability concerns are discouraging them from more widespread offering of income annuities within their DC plan. Fifty-six percent of plan sponsors also believe these concerns are dissuading their recordkeepers from more widely offering these products on their platforms.
“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,” Jody Strakosch, national director, Strategic Alliances for Retirement Income Products, MetLife.
MetLife commissioned RG Wuelfing & Associates Inc. to interview 12 defined contribution plan recordkeepers that service Fortune 500 companies in October and November last year. Research firm MMR conducted an online survey with 215 plan sponsors in December 2011 and January 2012.