When defined contribution sponsors contemplate lifetime income solutions, their actions — or more likely, inactions — resemble the ERISA version of the film "Groundhog Day."
Year after year, most sponsors lament the lack of a federal legislative and/or regulatory safe harbor to protect them against fiduciary risk in offering in-plan solutions such as annuities. They fret that such in-plan retirement income products are too expensive, too complicated and too lacking in portability.
And year after year, many sponsors say such in-plan solutions aren't a top priority and that participants aren't clamoring for them.
Interviews with DC plan consultants and researchers as well as examination of recent surveys indicates that there will be a replay of "Groundhog Day" this year unless Congress and/or the Department of Labor enable in-plan solutions to be more amenable to sponsors and more attractive to participants.
"We're still in a walk-before-we-run environment," said Ross Bremen, a partner in the Boston-based investment consulting firm NEPC LLC. Sponsors remain more comfortable offering target-date funds and managed accounts or expanding fixed-income menus than offering in-plan annuities or guaranteed minimum withdrawal benefit options, he said.
"There is still a keen interest, but the practicalities get in the way," said Greg Ungerman, senior vice president and defined contribution practice leader for the consulting firm Callan LLC, San Francisco.
Callan's annual surveys of DC sponsors shows little change in activity. Last year, 4.1% of sponsors offered in-plan guaranteed income products vs. 8.9% in 2017 and 3.8% in 2016.
Only 9.5% offered annuity placement services last year vs. 8% in 2017 and 3.8% in 2016. Such services enable participants to select and choose annuities for retirement while relieving the sponsors of the fiduciary liability of offering an in-plan annuity.
Other products have gained little traction.
Only 1.4% of plans offered longevity insurance or qualifying longevity annuity contracts, for which the Treasury Department relaxed rules five years ago. No plans offered these options in 2017; only 1.9% offered them in 2016.
The number and types of respondents for the Callan surveys vary annually, Jamie McAllister, senior vice president and defined contribution consultant in Callan's fund sponsor consulting group in Chicago, wrote in an email. Each year, the majority of respondents are executives from 401(k) plans. In the latest survey, government plans were excluded.
When sponsors were asked why they don't offer an annuity-type option, the biggest reason was that they were "uncomfortable" or "unclear" about fiduciary obligations, said the latest survey, conducted in October 2018 with 106 client and non-client DC plans. Among 12 choices, the second-largest reason cited by respondents was that these products were "unnecessary or not a priority." The third reason: "No participant need or demand."
Mr. Ungerman speculated that an evolving workplace — people change jobs more often and have shorter tenures — could have influenced the responses for the latter two reasons. "That's a big challenge for these types of products," he said.
Retirement income doesn't rank very high when Callan asked sponsors how they measure plans' success. Given 10 choices in annual surveys, retirement income adequacy placed as low as eighth and as high as fifth in each of the last four years.
The latest survey also found that retirement income doesn't rank high in plan communications. Among seven choices, retirement income adequacy placed fourth and managing income in retirement was last when sponsors were asked about communications initiatives for 2019.
Callan's recommendations for lifetime income solutions are tied to clients' specific circumstances. "It depends upon a number of factors," Ms. McAllister wrote.