Legislation before Congress could alleviate some plan sponsors' concerns about lifetime income options, such as in-plan annuities and guaranteed withdrawal benefit products, by reducing fiduciary-risk hurdles that have thwarted widespread adoption, retirement industry members say.
The Retirement Enhancement and Savings Act, known as RESA, would create a stronger safe harbor for sponsors seeking to evaluate the health of insurers providing these in-plan products. It has attracted support from groups as diverse as AARP and the American Council of Life Insurers. RESA also would let participants more easily transfer their in-plan assets to an individual retirement account, and it would set guidelines for sponsors' educating participants on how their balances translate into a post-retirement income stream.
Even if RESA is approved, however, DC experts said they doubted there would be a quick and emphatic embrace of in-plan retirement-income solutions by sponsors and participants.
"The safe harbor will help but it won't lead to widespread growth" for adopting in-plan products, said Douglas Fisher, director of retirement policy for the American Retirement Association, Arlington, Va., which is preparing a letter in support of the legislation.
Sponsors remain concerned about the expense and complexity of these products, Mr. Fisher said.
"A lot of sponsors believe defined contribution plans are accumulation vehicles," so they are less inclined to offer options that emphasize decumulation, he added.
Other industry officials say the uncertainty of participants' interest in using these options and sponsors' competing financial wellness choices — from health care to loans — could act as brakes on significant adoption.
"This will give sponsors a little more certainty," said Will Hansen, senior vice president for retirement policy for the ERISA Industry Committee, referring to the safe harbor proposal. "I don't know if this will move the needle on (in-plan) annuities."
Even with the safe harbor, sponsors will remain concerned about "frivolous lawsuits," he said, referring to the broad legal challenges by the tort bar on DC plans' fees, administration and investment decisions.
"Most of my clients don't even ask me anymore," said Robyn Credico, the Arlington, Va.-based defined contribution consulting leader for Willis Towers Watson PLC. In-plan options "are incredibly convoluted, and they're all hard to understand."
In a survey published in February, her firm asked plan executives about 25 investment menu items. Only 3% offered in-plan lifetime income options, tied for last place with out-of-plan lifetime income options. For the former, 93% said they were neither planning nor considering offering them; for the latter, it was 96%.