Guaranteed income options in 401(k)s—many participants want ‘em, few have ‘em, at least according to new research from Prudential Retirement.
Granted, they have a dog in the hunt, but Prudential finds “More than three-quarters of Americans familiar with guaranteed lifetime income options …say they would likely choose guaranteed lifetime income options if their plans offered them.”
However, it also finds that many of those 401(k) plan participants will have to wait. About 35,500 401(k) plans offer guaranteed lifetime income solutions (or more commonly known as annuities), representing only 4 percent of plans. The reason, at least according to Prudential, is that many plan sponsors have assumed there would be very little interest from employees.
“Plan sponsors clearly want their employees to be able to secure lifetime financial stability,” Sri Reddy, Head of Full Service Investments at Prudential Retirement, said in a statement. “But our findings show there is an obvious confidence gap between solutions many plan sponsors actually offer and available options that could increase employees’ belief that they can truly save enough to fund their hopes and dreams for the future.”
The research found 78 percent of plan participants who said they were familiar with guaranteed lifetime income options believe it’s “very important” to include them in workplace savings plans. And 77 percent said they would choose such an option.
Among other findings:
- Fifty-four percent of participants say they believe guaranteed lifetime options offered as a default investment option would provide better-than-average retirement outcomes.
- Eighty percent of plan participants plan to rely on their workplace plans as a source of lifetime income more than any other source—including Social Security.
- Seventy-one percent say auto-enrollment is an importance feature of DC plans.
- Forty-five percent worry they won’t meet their retirement goals through their current plans.
- Millennials are more enthusiastic about automatic plan features and guaranteed income solutions than any other age group.
“American workers need retirement solutions that have the potential to offer pension-like outcomes,” Reddy adds. “So it’s critical to offer guaranteed lifetime income solutions, particularly as a default investment option and used in tandem with automatic features. As we’ve found, these features can help plan sponsors address many of participants’ greatest unmet needs and provide help with choosing the right investments to meet their retirement goals, maximizing the growth potential of their account balances and securing an adequate source of retirement income.”
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.
