A growing number of 401(k) participants want guaranteed lifetime income options offered by their plans, and the vast majority of plan sponsors agree that their participants need them for a secure retirement, a new study by Greenwald Research shows.
“The already strong desire for plan options that allow participants to ‘pensionize’ DC retirement savings has only grown because of recent economic confusion and uncertainty,” says Lisa Greenwald, Greenwald Research CEO and co-author of its just-released 2022 In-Plan Insights study. “Roughly nine out of 10 plan sponsors told us their employees ‘need’ those options, so they’re at least somewhat likely to consider adding them to their retirement plans.”
“Roughly nine out of 10 plan sponsors told us their employees ‘need’ those options, so they’re at least somewhat likely to consider adding them to their retirement plans.”
Lisa Greenwald
The new research found 88% of plan participants want retirement income that can keep up with inflation. Eighty-six percent said they want guaranteed lifetime income (GLI) to cover basic expenses or more, and 72% said they need in-plan income to have a financially secure retirement.
Participant interest in in-plan income has grown since 2021, with four in five respondents citing GLI options as the most appealing. The largest segment of respondents (40%) prefers basic GLI—twice as many as any other option.
Three in four participants who responded said they would need retirement planning advice/education before making income option decisions. A similar number said they wished their employers offered more such education and advice.
Plan sponsors have GLI concerns
The vast majority of plan sponsors—nearly nine in 10—feel a high degree of responsibility for the overall retirement preparedness of employees as well as for the financial security of retired employees. While they are open to it, plan sponsors reported a number of obstacles to including GLI, including:
- Concerns about selecting product providers
- Concerns about being able to change plan providers and recordkeepers and participant confusion over such changes
- The complexity of retirement income options and participants’ ability to understand them—although many sponsors said complexity is acceptable as long as the options are explained adequately, and some said complexity actually adds credibility to an option that might otherwise appear “too good to be true.”
- Fiduciary risks of adopting retirement income options
- Fees and costs to participants of retirement income options (although 79% of sponsors believe paying higher fees is “worth it” for guaranteed lifetime income)
- Providing an appropriate number of retirement income options (three in four sponsors say two or more options should be available)
Importantly, nearly all plan sponsors report feeling a comprehensive retirement education program would make them more comfortable offering income options, would increase participants’ comfort level when selecting from those options, and increase participation.
4 in 5 participants want GLI offered
Other key findings in the 2022 In-Plan Insights study include:
- 80% of plan participants believe employers should offer in-plan investment options that provide income in retirement and that there should be multiple options.
- For the vast majority of responding plan participants—88%—the potential impact of inflation on their retirement income is a top concern.
- More than three in four plan participants (77%) find auto-enrollment into income options appealing, while nine in 10 find automatic reminders for enrollment appealing. However, half suggest this automatic enrollment should occur as retirement approaches, at age 50 or older.
- 70% of respondents said they are worried about running out of money in retirement.
- Confidence in having a financially secure retirement dropped to 63% of respondents in 2022, down from 72% the year before.
Data for the In-Plan Insights study, now in its second year, was collected last October and November and included 1,002 plan participants and 502 plan sponsors. This year’s study was underwritten by eight major financial institutions: Allianz, American Century Investments, BlackRock, Capital Group/American Funds, Fidelity, Lincoln Financial Group, Nationwide and Voya.
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• The Final Frontier in ‘Pensionizing’ 401k Plans Faces Similar Challenges from Industry’s Past