Adding a retirement income solution to defined contribution plans is at the top of the wish lists of both plan executives and other industry members, and they also agree that the biggest impediment to achieving that goal is the lack of more definitive regulatory guidelines, a new survey shows.
These findings and others are part of a wide-ranging discussion of DC plan problems and solutions in a survey conducted by Rocaton Investment Advisors LLC, Norwalk, Conn., and Pensions & Investments.
Sponsors, investment consultants, record keepers and asset managers also weighed in on the role of fees, the construction of investment menus and the use of custom target-date portfolios.
Seeking ways to improve retirement income opportunities, respondents wrestled with matching desire with reality.
When asked if they could change one thing about their plans, 24% of DC plan executives cited including a retirement income solution. Adding or improving auto features was the second choice (21%) and reducing fees (17%) placed third.
When asked the same question about DC plans in general, 28% of DC industry members cited adding a retirement income solution, with 21% recommending the addition or enhancement of auto features and 12% advocating re-enrollment.
“We were surprised that across different constituencies, they were aligned in regard to retirement income solutions,” said Jeri Savage, a Rocaton partner in charge of defined contribution research.
“They're interested in having it, but they highlighted the need for more regulations,” added Christopher Lyon, a Rocaton partner.
In addition to 64% of plan executives waiting for clearer fiduciary protection from the Department of Labor, 36% said they were waiting for more retirement-income products “to mature and gain broader adoption.” These were the two biggest barriers to taking action cited by sponsors.
Among other DC industry members, 57% cited more regulatory protection as the biggest barrier, while 40% referenced the need for products to mature and gain greater acceptance and 32% cited the lack of portability — the uncertainty that participants who leave one plan with a retirement income solution can have it transferred to another plan.
“We've had product innovation but not an appetite for adoption,” Mr. Lyon said. “It's been a more difficult road than many people expected.”
DC plan consultants and providers often have remarked that sponsors remain uncomfortable about the ability of existing regulations to insulate them from lawsuits if they added an in-plan retirement income option. Although some large DC plans have adopted such products, the request for more DOL rules has been a constant theme.
“Sponsors are reluctant to act,” Mr. Lyon said. “They have heard from their consultants, their counsels and record keepers that there isn't enough” fiduciary protection.
“People want something akin to the QDIA (qualified default investment alternative) for target-date funds,” said Ms. Savage, referring to comments from industry members over the years.
And when given a choice for what single piece of regulation was needed for plan management, the retirement income safe harbor was cited first among DC plan executives (21%) and first among other DC industry members (23%).
Fees produced a complex set of answers by sponsors.
When asked what three things keep them up at night, the reasonableness of fees ranked 7th among DC plan executives. Yet when asked about their three most important priorities over the next 12 months, “addressing fees” placed second.
Mr. Lyon suggested that the difference in responses was due to sponsors having initiated efforts to reduce fees, but also due to their continuing fee vigilance.
Fees represented a greater concern for non-sponsors. When asked what kept them up at night, “continued pressure on fees” tied for second with “impact of new regulations.” (Overall retirement adequacy placed first). The survey didn't seek details, but Mr. Lyon speculated that the non-sponsors' comments about fees related to their profit margins.