Defined contribution executives keep finding reasons — or perhaps excuses — to eschew offering annuities and other lifetime income products in their retirement plans.
Twelve months ago, lifetime income product providers expressed hope that 2022 would be the year when "if-we-build-it-they-will-come" would take hold.
They were encouraged by regulatory relief reducing sponsors' liability risk and the development of new products to allay sponsors' concerns of an inadequate safe harbor and a paucity of guaranteed income choices.
Entering 2023, however, other issues took center stage as impediments to adoption — ranging from sponsors' worries about possible litigation to questions about participants' interest, to concerns about record keepers' willingness or ability to support such products on their platforms.
These issues were always on the minds of sponsors.
"Plan sponsors are a cautious group," said Nevin Adams, chief content officer for the American Retirement Association, Arlington, Va. "Participants are not really asking for this."
The pandemic thwarted momentum for adopting in-plan guaranteed income options as participants were most concerned about maintaining their health and keeping their jobs; meanwhile sponsors focused on more immediate benefits priorities, Mr. Adams said.
"We are still in the infancy of creating a solution," said John Doyle, the New York-based senior vice president and senior retirement strategist for Capital Group's American Funds.
Mr. Doyle cited portability problems as a major turnoff for sponsors and participants. If company X offers an in-plan product with record keeper Y, what happens when an employee moves to company A whose record keeper B doesn't accept guaranteed income products? And what happens if company X wants to change record keepers?
"It will take time to achieve open architecture portability" for guaranteed income products, Mr. Doyle said. Otherwise, sponsors feel locked into a specific record keeper.
"There's a lot of skepticism about the portability issue," Mr. Adams said. "Sponsors don't want to be limited" in their choice of record keepers.