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Is There a Participant/Plan Sponsor Disconnect on Retirement Income?

One might think that retirement income solutions would be more prevalent among larger plans — but you’d be wrong, according to a new survey.

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 a survey of more than 150 large plan sponsors by Corporate Insight and the Institutional Investor Institute for Defined Contribution.

According to the survey — and this of plan sponsors with defined contribution plans with assets worth between $500 million and more than $10 billion — this is a result of a lack of availability of sufficient one-size-fits-all solutions (28%), solutions being too costly for participants (19%), sponsors waiting on in-plan safe harbor before feeling comfortable to proceed (16%) and the solution being too complicated to explain to participants (15%).

The survey’s authors go on to suggest that the lack of retirement income solutions may actually result from sponsors not believing there is sufficient participant interest in a solution, since that among plans without a retirement income solution, only 26% believe participants would have interest in one.

Lack of Communication?

Indeed, in a blog post regarding the survey, the authors say that the biggest revelation from the survey may be the lack of communication between plan sponsors and their constituents. Why? Well, they note that when sponsors were asked if they have surveyed their participants about their interest in a retirement income solution, only 4% responded affirmatively. Not surprisingly, 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.”

Perhaps not, but there still seems to be plenty of evidence that participant take-up rates on the option, even when available, are “tepid.” There is even evidence that defined benefit plan participants, given the choice between taking a lump sum or an annuity, often go for the former.
Plan design surely matters, and the Corporate Insight survey notes that 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, according to the survey, 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 guaranteed minimum withdrawal benefit) all received similar interest (18%).

Still, it seems as though retirement income solutions — even among the largest plans — still have a long way to go.