There's optimism among providers of in-plan lifetime income products that 2022 could be the year their efforts gain traction in the defined contribution arena, thanks to favorable regulation and more choices that could overcome sponsors' historical worries about cost, complexity and liability.
Defined contribution consultants, however, inject notes of caution about the rate and speed of adoption for in-plan annuities and guaranteed minimum withdrawal benefits. They point to workplace demographics, participants' savings behavior, industry inertia and COVID-19 as factors that could slow or discourage the use of such options.
Surveys offer both encouragement and caution.
Last month, the Plan Sponsor Council of America noted that 10.1% of plans offered an in-plan annuity in 2020 based on a survey of 518 profit-sharing and 401(k) plans. However, the adoption rate appeared to be static. Less than 1% of respondents (0.6%) added an in-plan annuity in 2020. For 2021, the survey reported that 0.9% of respondents would add an in-plan annuity.
A survey by Willis Towers Watson PLC reported that 16% of respondents in 2020 — the latest data available — offered in-plan annuities and 15% were planning to offer them, compared with the firm's 2017 survey that said 7% offered or were planning to offer in-plan annuities.
"Clearly there is an increased focus on retirement spending, not just retirement savings," said a December 2020 report based on the survey covering 464 DC plans, some of which were clients.
The Willis Towers Watson and PSCA surveys took place before the launching of many in-plan products last year, some of which won't go live with sponsors until this year. Among the newcomers are products from Fidelity Investments; BlackRock Inc.; a consortium of companies called Income America LLC; a collaboration between J.P. Morgan Asset Management and the AIG Life & Retirement division of American International Group Inc.; and a collaboration among Allianz Life Insurance Co. of North America, LDI-MAP and IPX Retirement.
Both surveys also were conducted after the December 2019 enactment of the Setting Every Community Up for Retirement Enhancement Act, and industry members said it has taken time for sponsors to analyze the details.
The SECURE Act provides a fiduciary safe harbor for DC plans that offer in-plan annuities if an annuity provider were to fail. The law protects sponsors if they obtain "written representations" from an insurer or other provider affirming their financial health, and they aren't required to conduct their own evaluation.