While both employers and their employees generally see the value of guaranteed lifetime income options, differences emerge among 401(k) and 403(b) providers when it comes to retirement plan design.
Retirement savings is by far the most common area that companies are working on in order to help employees, according to the TIAA Retirement Insights Survey of plan sponsors and participants. Three-quarters (74%) of sponsors name this as a focus, followed by HSAs (54%), life insurance/income protection (53%), and saving for other long-term goals (42%).
The survey also found that 401(k) sponsors are more likely (at 78%) than 403(b) sponsors (at 60%) to be working currently to help employees address retirement savings. Sponsors of 403(b) plans, however, see income replacement as the biggest influence on their plan decisions (46% vs. 30%) and consider the retirement income replacement ratio (41% vs. 21%) and retirement readiness (37% vs. 19%) as key metrics of their plan’s success.
And while employers most often cite attracting and retaining talent as the top reason they offer retirement plans, more 401(k) providers (51%) than 403(b) providers (32%) see this as one of their top two reasons.
Mixed Views on Lifetime Income
In addition, 403(b) providers are also more inclined than 401(k) providers to believe their participants would be interested in a guaranteed lifetime income annuity (82% vs. 67%).
Overall, 71% of employers say they believe their employees would be “highly interested” in guaranteed lifetime income options, but only half (51%) of participants appear to be this interested (or they already have one). Of the participants who do not currently own a guaranteed lifetime income option, only 35% said they would be extremely or very interested.
Among sponsors that do not offer lifetime income, interest in doing so is more muted, as only a third are highly interested. The survey also found, however, that 9 in 10 are at least “somewhat interested” and 77% would be “highly interested” in adding new target date funds with lifetime income allocations to their plans.
Looking at this from a different perspective, 80% of employees who have guaranteed lifetime income in retirement—such as an in-plan annuity option—say they feel confident in their progress toward their long-term savings goals, compared with only 45% of those who do not have a source of guaranteed lifetime income. Similarly, nearly 9 in 10 employers that offer in-plan guaranteed lifetime income options consider them to be extremely or very valuable for employees.
Tools and Resources
Beyond guaranteed lifetime income, the survey results suggest that employees are eager for tools and resources from their plan sponsors that can help them achieve their retirement savings goals. Nearly three-quarters of employees say they would like more information about either their plan or retirement savings in general, and participants in their 30s are especially interested.
Among employees who increased their plan contributions in 2020, nearly half (48%) said they were motivated to do so by a retirement income calculator or projection. And among those who saw a retirement income projection, 61% considered it extremely or very helpful in their decision to increase their contribution rate. In fact, despite the economic uncertainty of the past year, the results show that more than 30% of employees say they increased their retirement savings contributions in 2020.
There also is a desire for more personalization in education, information and advice. Just 3 in 10 participant respondents say they receive highly personalized retirement-related information from their employer or plan provider, while half would prefer it be more personalized.
The findings in the report are based on an online survey conducted from late October to early November 2020 by Greenwald Research consisting of:
- 1,005 plan participants between the ages of 25 to 70 who are employed full-time at a company that has at least 50 employees and currently contribute to a 401(k) (801 participants) or 403(b) plan (204 participants); and
- 502 plan administrators who are employed full-time at a company that has at least 50 employees and offers a 401(k) or 403(b) plan (the results are weighted by company size and 401(k)/403(b) plan type).
