It might seem like a splitting of hairs, but 401(k) advisors will understand the significance.
A large majority of plan sponsors (85 percent) think the core purpose of a 401(k) plan is to provide income sources during retirement, rather than savings.
It’s a major shift. According to the MetLife 2016 Lifetime Income Poll, just 9 percent plan sponsors in 2012 believed that the primary focus of their 401(k) plan was to provide retirement income.
“Plan sponsors are signaling that they are ready to reframe their DC plans to focus on lifetime income and provide their participants with solutions to help ensure successful retirement outcomes,” Roberta Rafaloff, vice president, Institutional Income Annuities with MetLife, said in a statement. “However, it’s also clear that further regulatory clarity from the DOL and Treasury would make it easier for plan sponsors to offer these solutions.”
The poll found nearly all plan sponsors agreed that it would be helpful if 401(k) account balances were required to be communicated as lifetime income–in addition to the total account balance–on benefit statements, similar to Social Security statements currently.
A nearly equal number of plan sponsors agree that it is important for the DOL to make it easier for plan sponsors to include income annuities in DC plans.
“Today, only six percent of plan sponsors say that their 401(k) plan includes a guaranteed lifetime income option,” Rafaloff added. “This number could rise exponentially once the DOL completes the work on an updated safe harbor rule. Two-thirds of plan sponsors whose plans do not currently include a guaranteed income option reported that they would be at least somewhat likely to make income annuities available for DC plan participants once the rule is announced.”
When looking at DC plan design, plan sponsors want simplicity. Nine in ten plan sponsors believe that it is in the best interests of plan participants to keep plan design changes simple, since complexity, such as too many choices and features, often leads to participant inertia. Connected to this goal of simplicity, 58 percent of plan sponsors do not believe that withdrawal solutions with minimum guarantees are easy to understand for the average DC plan participant.