Employers are adding more lifetime income options to defined contribution plans, although the most popular components remain the easiest to adopt, according to a report published Wednesday by Willis Towers Watson, based on a survey of 164 DC plan executives.
According to the survey, 30% of sponsors said they had adopted one or more lifetime income options this year vs. 23% in 2016 when the firm published a similar survey.
"They are becoming more educated," Dana Hildebrandt, the firm's director of investments, said in an interview.
The options most often adopted are partial and/or systematic withdrawals from plans during retirement (88% of respondents), lifetime education and planning tools (70%) and in-plan managed account services with optional payout services (44%). Survey respondents were permitted more than one response.
After that, however, the choices drop off sharply covering such options as in-plan guaranteed minimum withdrawal or annuity components within asset allocation strategies like target-date funds; stand-alone in-plan deferred annuities; and out-of-plan annuities. None of these choices — plus three others — attracted more than 17% of responses.
Ms. Hildebrandt said sponsors' concerns about complexity and transparency among the various in-plan choices are lessening somewhat as more products reach the market and investment managers do a better job of describing their products.
"The environment needs to be more friendly," she said.
The report noted that 60% of respondents said they hadn't offered any lifetime income options but might do so in the future, while 10% said they weren't interested.
Among the larger group, the good news is that the bad news isn't as bad as it used to be. When asked why they were concerned about insurance-backed products, 75% cited administrative complexities, down from 80% in the previous survey.
Fifty-two percent said they were concerned because participant demand was too low to justify offering the products, down from 69%. And 51% said fiduciary risk caused them discomfort vs. 64% in the previous survey.
Fees were a concern of 61% of respondents vs. 63% in the previous survey, as were insufficient transparency (56% vs. 63%) and product complexity (60% vs. 63%). Multiple choices were allowed.
The Willis Towers Watson survey was conducted in May and June among 164 clients and prospective clients. Although the report didn't specify the asset size or number of participants in the plans that were surveyed, Ms. Hildebrandt said the median asset size of the firm's DC clients is $1.2 billion.