Plan Participants Want Options that Generate Retirement Income in Their Workplace Retirement Plans
Many plan sponsors are open to these solutions; 8 in 10 say these options would improve participants’ retirement security
WASHINGTON – January 12, 2022 – A recent study conducted by Greenwald Research focused on in-plan retirement income solutions found that 85% of plan participants wish their employer’s retirement plan had an option designed to help generate a stream of income in retirement.
Greenwald’s first annual In-Plan Insights Program was conducted throughout 2021 to explore and evaluate the defined contribution (DC) plan retirement income landscape. The multi-phase program, including research with plan participants, plan sponsors, and plan advisors, covered a range of topics from SECURE Act impact to retirement income planning needs to reaction to in-plan income concepts. The 2021 Program was sponsored by American Century Investments, BlackRock, Fidelity Investments, Lincoln Financial Group, Nationwide, Pacific Life Insurance, Principal Financial Group, and Voya Financial.
“The comparison remains ridiculously taboo, but participants and sponsors are looking for options that ‘pension-ize’ DC retirement savings,” said Lisa Greenwald, CEO of Greenwald Research. “We expected to see high interest in in-plan income and GLI among participants but sponsors strongly believe this is right for participants too.”
Both sponsors (79%) and participants (63%) agree that participants would be highly interested in an option that “pension-izes” their savings. 8 in 10 sponsors agree that participants need in-plan income options to help them have a financially secure retirement. Moreover, 7 in 10 sponsors suggest that participants are actively looking for in-plan retirement income options, a stark contrast to the lack of participant demand several plan advisors lament.
Guaranteed lifetime income is preferred
In testing product concepts, the research reveals options that offer some guaranteed lifetime income (GLI) are preferred. In fact, a simple concept with 100% allocation to GLI was seen as appealing by the largest share of both plan sponsors and plan participants, with respondents citing the peace of mind that comes with guaranteed income and its simplicity as key advantages of the concept.
But participants are looking for a few bells and whistles too. Plan participants indicate that they strongly prefer GLI payments that start immediately upon retiring, with most unwilling to defer even for higher payments. Also very important is the presence of a death/survivor benefit, as 66% of participants surveyed plan to leave an inheritance to their heirs.
Participants report they also highly value guaranteed payments with inflation protection. Almost 9 in 10 participants say that they are at least somewhat worried about the impact inflation will have on their retirement savings, and two in three are worried about running out of money in retirement.
SECURE was overshadowed by COVID-19 and CARES
Despite high appeal, in-plan retirement income options, especially GLI, face some challenges. Familiarity with the SECURE Act appeared dishearteningly low in qualitative interviews with plan sponsors and plan advisors; both reported SECURE hit the backburner when the pandemic began. In the survey, more than half of plan sponsors agree that they were unable to focus on SECURE because of the pandemic, and 6 in 10 agree their company needs a lot more information on SECURE and its implications. When it comes to offering in-plan income, nearly 6 in 10 plan sponsors familiar with income options are still extremely/very concerned about their fiduciary liability.
The advantages of keeping retiree assets in-plan haven’t totally sunk in
Almost half of plan participants surveyed report that they would prefer to keep their assets in their employer’s plan upon retirement. However, only 20% report that they currently plan to keep their assets in-plan and 16% don’t know. A third plan to roll their assets into an IRA. In interviews, plan advisors suggest the advice industry is still quite influential in pulling assets out of plan, despite the benefits to participants of keeping assets in the DC plan.
Further, plan sponsors are divided, with a third preferring participants stay in-plan and a quarter preferring they roll-out. However, the largest share of sponsors prefer to remain neutral, which could hinder participant education.
Simplicity is key and annuity reputation remains a challenge
Both plan sponsors and participants are concerned that in-plan income options may be too complex. Nearly half of participants feel that retirement income options are too complex to understand and almost two-thirds of plan sponsors agree.
The reputation of annuities remains a roadblock. In interviews and focus groups, some describe annuities as complex and costly. About half of plan participants and nearly 2 in 3 plan sponsors surveyed report being reluctant to consider in-plan income options because of annuities’ reputation.
About the Research
Greenwald’s In-Plan Insights Program is designed to explore the changing landscape of retirement income options in defined contribution retirement plans. The 2021 Program included in-depth interviews with plan advisors, interviews and an online survey of plan sponsors, and focus groups and an online survey with plan participants. Online surveys of plan participants and plan sponsors were conducted September 20 to October 11, 2021. Plan sponsors were required to be employed full-time and responsible for DC plan decisions at companies with at least 50 employees; the survey included 507 plan sponsors. Plan participants in this research had to be ages 30-70 years old, employed full-time at a company with at least 50 employees, contributing to a DC plan, and have a personal annual income of $50,000; the survey included 1,007 plan participants.
The 2021 In-Plan Insights Program is available for purchase and seeking 2022 research sponsors. 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.
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