One in three (30 per cent) U.S. defined contribution plan sponsors have adopted a solution to deal with plan members’ need for a lifetime income, according to a survey by Willis Towers Watson.
That’s up from 23 per cent in 2016, the last time the organization surveyed plan sponsors on this issue.
The survey, which polled 164 large and mid-size U.S. plan sponsors, found they’re increasingly considering lifetime income solutions, a term Willis Towers Watson defined as ranging from plan member education to guaranteed products and systematic withdrawals.
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Among plan sponsors that have adopted a solution, 41 per cent said they’re looking to expand what they offer, up from 33 per cent in 2016. Across all respondents, 60 per cent said they hadn’t adopted lifetime income solutions yet but are considering them or would consider them in future.
Three-quarters (74 per cent) of respondents said the aging workforce and members’ increasing longevity influenced their views on offering, or potentially offering, a lifetime income solution. The same percentage also said an internal focus on retirement readiness greatly influenced their views, followed by a shift from defined benefit to DC as the company’s primary retirement plan (49 per cent) and workforce planning challenges (37 per cent).
More than a third (37 per cent) said participant demand for lifetime income solutions had some influence on their thinking, with 22 per cent saying it had a great influence.
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Plan sponsors that had already adopted lifetime income solutions primarily offered partial or systematic withdrawals (88 per cent), lifetime education and planning tools (70 per cent) and in-plan managed account services (44 per cent). In-plan asset allocation options, such as target-date funds or balanced funds with a built-in insurance feature, were far less common, at 17 per cent.
Fifteen per cent of plan sponsors with life income solutions said they make annuities available outside of the plan through third-party tools and services. A further 15 per cent said they provide in-plan deferred annuities.
Plan sponsors had several concerns when it came to adopting guaranteed products. Three-quarters (75 per cent) said insurance-backed solutions create administrative complexities for both plan sponsors and record keepers.
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Survey respondents also identified fees as an issue, with 61 per cent calling them too high and 58 per cent saying they weren’t transparent enough. Six in 10 felt the current insurance-backed solutions were too complex or unproven, while 58 per cent had concerns that plan members who chose to invest in one of those solutions could face portability restrictions.
However, 63 per cent of respondents said they’re actively monitoring future developments in guaranteed products.