While the SECURE Act was supposed to help pave the way for adoption of retirement income solutions in defined contribution (DC) plans, new research finds that plan sponsors still have some concerns.
And this comes as concerns about the impact of inflation on retirement savings are raising fears among plan participants that they will run out of money in retirement, according to the new survey by Greenwald Research.
In fact, a large majority of plan participants (83%) say their employers should offer in-plan retirement income options, and most believe there should be more than one choice. What’s more, the latest consumer and plan sponsor surveys in Greenwald’s In-Plan Insights Program found that more than 4 in 5 retirement plan participants are interested in options that provide guaranteed lifetime income, or GLI.
Complexity, Costs and Choice
At the same time, however, the survey found that roughly 6 in 10 (59%) plan sponsors view in-plan retirement income options as too complex. Nearly 1 in 3 are concerned that associated fees will mean higher costs for their companies, while 30% are concerned about the additional administrative work that offering income options would require. Sponsors also remain concerned about ensuring that participants have enough choices of retirement income options on the menu, the survey found.
“This year’s survey finds participants prefer a retirement income option that can grow over time, even if the starting amounts are lower,” stated Lisa Greenwald, CEO of Greenwald Research. “Inflation concerns seem to be driving this preference for participants, while sponsors are more torn between lower initial payments that increase with time versus somewhat higher payments that remain steady.”
Meanwhile, most plan sponsors believe income options with GLI would be best for participants, Greenwald says, “but they have strong concerns about the complexity of those income options and the fees that come with them.”
Nevertheless, 1 in 3 plan sponsors claim they already offer income options, while another 37% say they’re considering offering retirement income options. Asked to explain what income options are available or being considered, sponsors’ responses are often not what the industry would consider a DC plan retirement income option. “While this underscores the need for continued, foundational education on the retirement income category, the interest and perceived need for this type of solution seems quite real,” stated study director Eric Sondergeld.
One possible motivator: half of sponsors say they prefer that participants keep their money in their workplace retirement plan at retirement. The survey found that retirement income options make participants twice as likely to keep their money in the plan after they retire—with responses coming in at 57%, compared to 28% who want to move their assets out of the plan when they stop working.
“Retirement Income Options” and “Guaranteed Income Options” tied as the top names for the DC income category among both participants and sponsors—emphasizing clarity and simplicity. The category name “In-Plan Annuity Options” ranked last among sponsors. Though 8 in 10 sponsors agree that annuities are an effective “paycheck replacement” in retirement, they speculate that participants will be hesitant due to their reputation. To be sure, half of participants are reluctant to consider annuities in their workplace retirement income plans.
According to Greenwald, there is some light at the end of the tunnel, however. In this case, 3 in 4 participants and 9 in 10 sponsors find it compelling to know that annuities are the only way to generate GLI and that they have evolved in positive ways.
Additional Findings
Other key findings of the latest In-Plan Insights Program consumer and plan sponsor surveys include that:
- 90% of plan participants are concerned about the impact of inflation on their retirement income.
- Participants’ concern about running out of money in retirement has grown significantly, with 76% of responding participants reporting that concern this year, up from 70% a year ago.
What’s more, fully half of plan participants say employers should take at least a moderate level of responsibility for employees’ retirement preparedness, financial security and creating retirement income. Another 47% think employers have some responsibility for the financial security of employees who have retired.
And plan sponsors seem to agree. According to the findings, 3 in 4 say their company is responsible for helping employees prepare for and generate income in retirement, while nearly 7 in 10 (68%) say they have responsibility for the long-term financial security of retired employees.
Greenwald further notes that almost all sponsors believe a comprehensive retirement income planning program would increase participants’ comfort level with income options, increase the amount participants are willing to contribute, and increase participant utilization of in-plan retirement income options. In fact, 3 in 4 sponsors believe retirement income planning programs with access to a human advisor would have greater value than a strictly online planning program.
About the Research
The 2023 study included online surveys conducted from Sept. 26 to Oct. 23, 2023, of 1,003 plan participants aged 30-70, with at least half aged 50 or over. Respondents were employed full-time at a company with at least 50 employees, had a personal income of $50,000 or more, and are currently contributing to their employers’ retirement savings plan.
The research also included surveys of 503 plan sponsors with at least 50 employees. More than 100 of the responding sponsors have 1,000 or more employees. Plan sponsors were surveyed between Oct. 4 and Nov. 18, 2023.
