As the retirement plan environment continues to shift from a defined benefit to a defined contribution system, there is great concern about whether participants will outlive their retirement savings and be unable to maintain a certain standard of living during retirement. A 2012 report by the DOL's ERISA Advisory Council examined income replacement issues in DC plans.
The Council took testimony on various challenges participants face in making their retirement savings last and what options would be helpful in allowing them to do so, as well as the challenges plan sponsors face when offering income replacement options. In their testimony, the report notes, some witnesses addressed the fiduciary responsibility concerns that plan sponsors face when providing education to participants that goes beyond the “accumulation of assets” phase.
The Council’s conclusion: The effort to sustain sufficient lifetime income for the participant falls on both the plan sponsor and the participant, but fiduciary responsibility issues associated with providing educational guidance appears to be obstructing this progress. The report concluded that many plan sponsors are opting not to offer lifetime income options to their employees due to the lack of guidance on whether they’re exempt from fiduciary liability.
