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READER POLL: Has Interest in Retirement Income 'Piqued'?

Industry Trends and Research

A new survey finds a massive shift in sentiment toward retirement income solutions. But among NAPA-Net readers, has that trend piqued interest – or just peaked?

The survey – of the “largest and mid-sized 401(k) consultants and advisors” – was reported by fixed income money manager PIMCO. It claims that “nearly two-thirds of respondents believe plan sponsors want to continue serving participants after they retire, up 14% from the previous year.” Moreover, it notes that two-thirds of respondents recommend that plan sponsors offer a retirement income tier to serve retirees, packaged with a variety of retirement income solutions, as opposed to a single, all-in-one solution.

While the exact demographics of individual respondents to that survey wasn’t revealed (238 consulting and advisory firms, as well as individual plan advisors, that serve more than 109,000 clients with aggregate DC assets in excess of $4.9 trillion), the results weren’t far off that of respondents to this week’s NAPA-Net reader poll.

A plurality – 42% – did report that some of their plan sponsor clients/prospects are interested in retirement income solutions, and another 21% simply said yes. However, the rest split between “no” (16%) and “not really” (21%).

“I strongly encourage and recommend that they consider this and endorse it to their EEs,” commented one reader. However, “almost all have interest but few are ready to take action,” cautioned another.

Another reader noted, “I’d say a big motivator to this is either ‘What is everyone else doing?’ or ‘What do we tell the people who retire to do?’”

“Clients are starting to focus more on their growing pre-retiree demographic, and wanting to put more education and solutions in place to serve this population – retirement income is a part of that, but we as advisors and consultants need to help them navigate the required decision points,” observed one reader.

“For-profit employers are generally afraid to go there but non-profits are very comfortable with the concept,” was the perspective of one reader.

“I think we as consultants lead that interest, generally speaking,” a reader observed, and another noted that they “can't think of a single client who has proactively requested information on them, though our firm is sharing information proactively.”

Asked to compare that level of plan sponsor interest with that of a year ago, the results were definitely split. While one in five (21%) said they were more interested now, the remaining responses split equally among “no,” “not really” and “some are.”

“The concept of ‘reaching everyone’ has finally started to hit home,” observed one reader. Another commented, “I think employees are asking more about how their in-plan advice solution can help them create a plan for income in retirement.” And a third reader explained: “We’re leading the conversation on whether they want to consciously retain retirees in the plan or not.”

They may be leading, but just under half (47%) of this week’s respondents were recommending retirement income solutions “depending” on the client/prospect. “It depends on the structure of the retirement income offering being made available by the limited number of RK providers who have those solutions,” noted one reader. “More information-sharing rather than recommending at this point,” explained another reader. “Only as a CYA,” commented another. Another 22% were not doing so (“Not until there is a safe harbor,” noted one), while another 16% were in the “not really” category. However, about 10% said they were, and another 5% were doing so “every chance I get.”

And even compared to a year ago, that emphasis seemed to be pretty consistent. About half (47%) said they weren’t really recommending the solutions any more or differently than a year ago, and another 21% were doing so “only where it seems appropriate.” However, a similar number were doing so “definitely more,” and the remaining 10% said they were doing so – but “only because some seemed to want to know more.”

“We are talking more about the legislative landscape that is starting to ‘bend towards’ these solutions and giving plan sponsors safe harbor. Portability is still a sticky point,” noted one reader. Another said they were “talking about the ‘retirement tier’ of investments.”

Asked about the trends readers are seeing with regard to retirement income options:

  • 37% see more interest, but not more adoption;
  • 31% see no more interest than previously;
  • 26% see things pretty much status quo; and
  • 5% see less interest, if anything. 

Readers had a lot to say on the subject. Here are some additional comments:

  • “I think the actual adoption will be to uptick once we have official legislative guidance that broadly supports in-plan retirement income. Another concern is the continued vendor consolidation – where will the limited number of vendors who offer these in plan income solutions fall on that front? What will the impact be to plans/participants who hold in plan retirement income assets? Will the guarantees be supported by the new provider? Are they portable?”
  • “Retirement income solutions continue to be more of a forced discussion driven by product providers rather than a natural conversation that flows from legitimate client interest. I think retirement income solutions have a place in DC plans, but it is still too early to see mass adoption because target date funds are a poor delivery vehicle for these solutions. Because retirement income needs are highly individualized, my personal belief is that we will first need to see greater utilization of managed account services in a QDIA setting, which is now becoming possible as managed account fees fall and with the advent of dual-QDIA services (which allow plan sponsors to elect managed accounts as the default for older participants, while continuing to default younger participants into cheap target date funds) on more record keeping platforms. Managed accounts account for many more inputs than target date funds, getting a fuller picture of participants’ overall retirement income needs, and as a result are theoretically better positioned to make appropriate use of these products.”
  • “For some, the through target date solutions are sufficient, especially when coupled with an attractive cash alternative. By the way, I'd say 403(b) plans have pretty steadily had a focus on income in retirement, thanks to their history tied to annuities.”
  • “I believe that insurance providers have scared a great amount of the public from annuities because of a lack of transparency. As we help employees think about risk and reward, they need to be open to partial annuitization for their needs based expenses above their Social Security payments.”
  • “A 401(k) isn’t the place for income options. Do that in an IRA.”
  • “Though there is more and more of a need for comprehensive decumulation strategies as DC plans mature, until providers come up with less expensive and more fee transparent solutions, I do not see a rush to adopt here in a fee-conscious environment.”
  • “The sponsors we have discussed post-retirement attitudes with do not expect participants to keep the money in the retirement plan, and would prefer not to maintain the administrative tasks for post-retirees. As for converting a lump sum to retirement income, participants are interested until they need to make a decision. Most seem unwilling to give their lifelong nest egg to an insurance company and/or the income stream is less than they expect to receive from the lump sum amount.”
  • “Plan sponsors see the value and generally believe it is a good option but are scared off by the fiduciary concerns, portability and lack of adoption among peers. I also think plan sponsors have a hard time fully grasping the idea and mechanics, thereby creating an additional obstacle.”

Thanks to everyone who participated in our weekly NAPA-Net reader poll! Got something to add? Do so in the comments section below – join the debate!

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