Defined contribution plans may be moving toward offering more options for retirement income, as they transition to decumulation vehicles, but they have a way to go in reaching targets that their younger participants may be expecting.

According to new Cerulli research, recordkeepers are becoming somewhat more focused on emphasizing to their defined contribution plan clients outcome-related metrics, such as retirement income replacement ratio and projected participant shortfall or surplus, that help to see how successful participants are in the decumulation phase.

But plan sponsors are slow to adopt in-plan retirement income solutions, particularly those with a guaranteed component, and there’s also a scarcity of flexible distribution options for retired plan participants.

The research found that nearly all (92 percent) recordkeepers said they offer participants a one-time lump-sum distribution, paid in cash, upon retirement or separation, as the most frequently offered method of distribution.

Part of the lag in adding in-plan retirement income solutions is likely because of a lack of a safe harbor, as well as concerns about litigation. But that doesn’t mean that participants aren’t looking for such options, and younger participants are increasingly expecting to see plan statements offering breakdowns of how their balances translate to retirement income.

As recordkeepers look to better analyze participant preparedness, they’re adding additional metrics to evaluate how participants will manage once they start decumulating. Those new metrics include retirement income replacement ratio (58 percent), other retirement readiness metrics (54 percent) and average projected participant shortfall or surplus (46 percent). But not many sponsors are not requesting that recordkeepers provide defined contribution plan participants with projected retirement income information.

Then there’s the age factor. Participants under age 30 (23 percent) and age 30–39 (21 percent), the study found, are more likely than the average (17 percent) to view projected monthly income as the most important information on their statement than are those who are much nearer to retirement.

Older participants are more likely to view current balance and investment performance as the most important information.

Instant Insights /

Younger workers focused on retirement income projections

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