Roughly six in 10 (60 per cent) U.S.-based defined contribution pension plan sponsors say they want to retain assets in the plan, often by limiting rollover solicitations from record keepers and offering targeted education to members, according to a new survey by the Defined Contribution Institutional Investment Association.
The survey, which polled more than 150 DC plan sponsors, found they’re focused on flexibility and participant choice as they consider how to integrate lifetime income features their plan.
Read: 60% of global DC plan sponsors cite concerns over members’ retirement income: report
When asked what an ideal retirement income solution looks like, most plan sponsors described one that protects value and maintains stability while keeping participants in control. The features they valued most were legacy value and inflation protection.
Interest in annuities remains limited. Just seven per cent of plan sponsors currently offer an in-plan annuity, while 11 per cent provide an out-of-plan option at retirement and another 11 per cent plan to add one within the next four years. Most prefer voluntary, out-of-plan products that can provide income stability without increasing fiduciary or administrative risk.
While more than 80 per cent of plan sponsors said they’re familiar with in-plan lifetime income solutions, many want clearer information on costs, liability and communication before moving forward. Fiduciary risk, product complexity and cost were cited as the biggest barriers to adoption, outweighing participant demand and regulatory guidance. Many said existing defined benefit plans already cover employees’ income needs, reducing the urgency to introduce new guaranteed products.
Participant demand and regulatory guidance were noted as meaningful factors, but fiduciary standards and operational feasibility had greater influence on adoption decisions. A majority (56 per cent) of plan sponsors said they’re very comfortable requiring participants to actively elect lifetime income, while 24 per cent are somewhat comfortable. Only three per cent prefer automatic defaults and 61 per cent said they’re uncomfortable with them, showing a clear preference for choice over default.
Among plan sponsors that have already adopted guaranteed lifetime income features, the motivation was largely paternal, driven by the belief it was the right thing to do and a way to reduce financial stress among employees. Overall, the results show employers are taking a measured approach, prioritizing education, transparency and flexibility as they explore how to strengthen retirement income security.