Lifetime income not on the agenda for DC plan executives — Aon Hewitt survey

Defined contribution executives continue struggling with how to incorporate lifetime income options in their plans, citing fiduciary concerns, a desire to see more products in the marketplace and a wariness of administrative and operational problems as major hurdles, according to a survey by Aon Hewitt.

As a result, most plans that do not offer in-plan options say they are not likely to offer them in the near future, said the survey of 238 DC plan executives.

“There isn't a lot of appetite to add them in 2017,” said Robert Austin, director of retirement research, in an interview. The reasons could be twofold — sponsors' concerns about implementing and administering in-plan options focus on other retirement plan issues, Mr. Austin said.

For the latter, when sponsors were asked what is the most important aspect of participant behavior they should address, encouraging lifetime income ranked seventh of eight choices, according to a report on the survey published Monday. Only 2% of respondents cited lifetime income as the most important. Encouraging greater contribution rates (28%) and addressing “broad financial well-being” (25%) received the most responses.

The major reasons for sponsors deciding against adding lifetime income options are fiduciary concerns (46%); waiting for more options in the marketplace (41%); operations or administrative concerns (40%); and concerns about participants using the options (33%). Respondents could choose more than one reason.

Among employers who have not implemented certain in-plan features:

  • 88% said they were not likely to offer qualified longevity annuity contracts that permit an in-plan deferred annuity purchase. (The survey said 3% of respondents offer QLACs);
  • 86% said they were not likely to offer annuity or insurance products as part of the investment fund lineup offering; for example, guaranteed minimum withdrawal benefits, minimum annuity payouts or fixed annuities (8% offered such options);
  • 81% said they doubted they would enable participants to buy annuities outside the plan as options for plan distributions (12% allowed such options);
  • 75% said they were unlikely to offer managed payout funds, defined by Aon Hewitt as “those with a specific annual target payout percentage with no insurance guarantees;” (14% offer this feature); and
  • 66% doubted they would allow managed accounts that have a “drawdown feature, (in which) the provider allocates participant assets for income and manages the annual amount paid from the plan” (29% offered this option).

The survey, which included responses from Aon Hewitt clients as well as other sponsors, covered plans with 9 million participants. Most of the respondents were executives of 401(k) plans.