Ongoing Economic Challenges Increase Interest in Lifetime Income Options in DC Plans
New Study Shows Most Plan Sponsors Open to Income Options Despite Significant Concerns
WASHINGTON, DC – January 26, 2023 – After a year of confusing and sometimes unpredictable economic twists and turns, a growing number of defined contribution retirement plan participants want guaranteed lifetime income options in their employer-sponsored plans, a new study by Greenwald Research shows.
And the great majority of plan sponsors agree that their plan participants need retirement income options for a secure retirement.
“The already strong desire for plan options that allow participants to ‘pensionize’ DC retirement savings has only grown because of recent economic confusion and uncertainty,” says Lisa Greenwald, Greenwald Research CEO and co-author of its just-released 2022 In-Plan Insights study. “Roughly nine out of 10 plan sponsors told us their employees ‘need’ those options, so they’re at least somewhat likely to consider adding them to their retirement plans.”
Data for the In-Plan Insights study, now in its second year, was collected last October and November and included 1,002 plan participants and 502 plan sponsors. This year’s study was underwritten by eight major financial institutions – Allianz, American Century Investments, Black Rock, Capital Group/American Funds, Fidelity, Lincoln Financial, Nationwide and Voya.
Fully 88% of plan participants said they want retirement income that can keep up with inflation; 86% said they want guaranteed lifetime income (GLI) to cover basic expenses or more, and 72% said they need in-plan income to have a financially secure retirement. Participant interest in in-plan income has grown since 2021, with four in five respondents citing GLI options as the most appealing. The largest segment of respondents (40%) prefers basic GLI – twice as many as any other option.
Three in four participants who responded said they would need retirement planning advice/education before making income option decisions. A similar number said they wished their employers offered more such education and advice.
Plan Sponsors’ Commitment and Concerns
The majority of plan sponsors – nearly nine in 10 – feel a high degree of responsibility for the overall retirement preparedness of employees as well as for the financial security of retired employees. Sponsors reported a number of obstacles to including income options, including:
- Concerns about selecting product providers
- Concerns about being able to change plan providers and recordkeepers and participant confusion over such changes
- The complexity of retirement income options and participants’ ability to understand them – although many sponsors said complexity is acceptable as long as the options are explained adequately, and some said complexity actually adds credibility to an option that might otherwise appear “too good to be true.”
- Fiduciary risks of adopting retirement income options
- Fees and costs to participants of retirement income options (although 79% of sponsors believe paying higher fees is “worth it” for guaranteed lifetime income)
- Providing an appropriate number of retirement income options (three in four sponsors say two or more options should be available)
Importantly, nearly all sponsors feel a comprehensive retirement education program would make them more comfortable offering income options, would increase participants’ comfort level when selecting from those options, and increase participation.
Other key findings in the 2022 In-Plan Insights study include:
- For the vast majority of responding plan participants – 88% – the potential impact of inflation on their retirement income is a top concern
- More than three in four plan participants (77%) find auto-enrollment into income options appealing, while nine in 10 find automatic reminders for enrollment appealing. However, half suggest this automatic enrollment should occur as retirement approaches, at age 50 or older.
- 70% of respondents said they are worried about running out of money in retirement.
- Confidence in having a financially secure retirement dropped to 63% of respondents in 2022, down from 72% the year before.
About the Research
Greenwald’s In-Plan Insights Program is designed to explore the changing landscape of retirement income options in defined contribution plans. The 2022 study included online surveys of 1,002 plan participants aged 30-70, with at least half aged 50 or over. Respondents were employed full-time at a company with at least 50 employees, had a personal income of $50,000 or more, and are currently contributing to their employers’ retirement savings plan. It also included surveys of 502 plan sponsors with at least 50 employees. More than 100 of the responding sponsors have 1,000 or more employees.
The 2022 In-Plan Insights study is available for purchase. Contact Greenwald Research at info@greenwaldresearch.com to learn more.
About Greenwald Research
Greenwald Research is a leading independent custom research and consulting partner to the health and wealth industries that applies creative quantitative and qualitative methods to produce knowledge that helps companies stay competitive and navigate industry change. Visit greenwaldresearch.com to learn more.
Contact:
Quinncee Payne
