Plan sponsors are “slowly embracing” lifetime income solutions in defined contribution plans, but they’re turning more toward plan withdrawals, education and planning tools than they are to products such as annuities.

That’s according to a new study from Willis Towers Watson, which defined lifetime income solutions as “includ[ing] education and the tools necessary to help plan participants determine how to spend down accumulated savings in retirement, as well as in-plan and out-of-plan options that create streams of income from employer-sponsored retirement plans.”

The most popular option among the 10 listed in the study was partial and/or systematic withdrawals during retirement, which was offered by 73 percent of respondents; 3 percent were considering adding it in 2016. Another 15 percent of respondents said they were considering adding it for 2017.

Lifetime income planning tools are offered by 64 percent of respondents, with another 10 percent considering adding them in 2016 and 18 percent considering doing so in 2017. Lifetime income education was the choice of 60 percent, with 8 percent considering adding it this year and 22 percent considering it for 2017.

Only 33 percent offered an in-plan managed account service with a nonguaranteed payout service, but when it came to sponsors offering annuities and similar products, the numbers are much lower—and employers are reluctant to consider moving in that direction.

Just 16 percent say they offer out-of-plan annuities available at the time of retirement, where the participant selects the provider(s) using a third-party service or tools. Eight percent offer an in-plan deferred annuity investment option, and 6 percent offer out-of-plan annuities available at the time of retirement, where the plan sponsor has selected the provider(s).

The study asked why sponsors are so hesitant to adopt annuities and similar products, and sponsors offered several reasons. Chief among them were duciary risk (81 percent), cost (67 percent) and “market offerings that are not satisfactory or are too new” (60 percent).

In addition, sponsors said that participant usage of lifetime income solutions is low overall. Sixty-one percent said that a quarter or less of their participants used in-plan managed account services with a nonguaranteed payout service, while just over half reported a similar usage of lifetime income education. Less than a quarter of employees capitalized on lifetime income planning tools, or used partial or systematic withdrawals during retirement at roughly half of the companies.

Instant Insights /

How do plan sponsors view lifetime income solutions?

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