A majority of defined contribution plan sponsors remain reluctant to offer lifetime-income options to participants, especially in-plan annuities and in-plan guaranteed withdrawal benefits, Willis Towers Watson reported Thursday in a survey.
Fifty-three percent of DC plan executives said lifetime-income solutions are “not being considered at present but may be in the future,” while 4% said they are not interested in these options, according to a report describing the survey results. Another 16% are considering such options for 2017, “but there are no firm plans for implementation,” the report said.
Twenty-three percent said they have adopted one or more lifetime-income solutions, and another 2% plan to offer some this year.
“We define lifetime-income solutions very broadly,” William Dewalt, an Atlanta-based senior investment consultant for Willis Towers Watson, said in an interview. In the survey, the solutions could range from income planning tools and lifetime education to in-plan annuities, the report said.
The survey found 73% of plans offer partial or systematic withdrawals during retirement, 64% offered lifetime-income planning tools and 60% offered lifetime-income education.
However, plan executives remain cautious about other options, including in-plan managed account services with a non-guaranteed payout service (offered by 33%); an in-plan asset allocation with a guaranteed minimum withdrawal benefit or annuity component (22%); in-plan managed payout funds (15%); or in-plan deferred annuity investment options (8%).
Mr. Dewalt said sponsors are hesitant to expand their offerings of lifetime-income solutions, adding that “fiduciary risk is at the top of the list” of reasons for their reluctance.
According to the report, fiduciary risk was cited as extremely important or very important by 81% of sponsors when asked about the barriers to lifetime-income solutions. Cost (67%) and concern about the quality or track record of lifetime income products (60%) were the next biggest barriers, the report said.
“There are a broad range of issues that are important” in addition to the top three barriers, such as administrative complexity and lack of participant demand, Mr. Dewalt added.
Mr. Dewalt said the survey suggested sponsors have made a “good start” in helping participants plan for spending money in retirement, adding that he expects greater interest by sponsors — and participants — as defined contribution plans continue to grow at the expense of defined benefit plans. “It will become an issue of plan sponsor demand and participant demand,” he said.
The survey interviewed 196 DC plan executives — Willis Towers Watson clients and prospective clients — online during March and April.