Concerns from employers over the effectiveness of what it calls traditional target-date funds (TDFs) in achieving successful retirement outcomes are on the rise, according to new research from TIAA.
The survey revealed that 66% of employers feel TDFs will help employees meet their retirement income needs, down from 78% in a previous survey in 2020.
TIAA, which offers lifetime income products like annuities, also mentioned that “three-quarters of employers now say they are highly interested in a new generation of TDFs that gear towards some allocation of lifetime income.”
Though 77% of employees continue to say that saving for retirement is their top priority, more than half say that the pandemic has increased their anxiety about their ability to retire when they want.
“As employers grow skeptical of traditional TDFs, more employees say they are very or extremely interested in Guaranteed Lifetime Income (GLI) within retirement plans than they were in 2020 (54% in 2022 v. 51% in 2020), and nearly half say their interest increased during the pandemic,” the company added.
Few employers currently offer GLI options and only 38% say they are familiar with provisions in the SECURE Act, legislation that would improve access to in-plan GLI. Most employers who are familiar with and already offer in-plan GLI options say they are valuable for employees. Among those not currently offering GLI, 43% say they are extremely or very interested in GLIs.
Primary barrier
While employees have signaled their interest in in-plan GLI options, perceived cost is still a primary barrier for nearly half of employees. TIAA said employers will need to emphasize the lower costs of these options in-plan versus outside of their plan to appeal to employees.
When participants are asked how their interest in investing in a GLI annuity would change if it was offered at a lower cost through their company’s retirement plan, 73% say they’d be more interested.
Overall, less than half of plans (41%) are offering auto-enrollment or auto-escalation. Sponsors should consider adding these provisions ahead of SECURE 2.0, which allows for increased participation rates and further simplifies plan administration, the company concluded. Another element sponsors can consider including is income projections, which it said are perceived as helpful by most employees (72%).
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
