Retirement Income, Simplicity Top Of Mind For Plan Sponsors

By Cyril Tuohy InsuranceNewsNet

By Cyril Tuohy

Two values particularly mark this year’s 2014 MetLife Qualified Retirement Plan Barometer (QRPB) survey of Fortune 1000 retirement plan sponsors: income and simplicity.

The survey found that 57 percent of defined contribution (DC) plan sponsors that don’t include an income annuity are taking a “serious look” at lifetime income options, 34 percent have explored offering such options and 11 percent have conducted due diligence regarding companies that offer lifetime income options.

“DC-only plans sponsors are taking a serious look at lifetime income,” said David DeGeorge, vice president of life and income funding solutions for MetLife.

The QRPB is an indicator of behavior among the largest, most progressive companies in the country.

Calls for lifetime retirement income options grew louder in the wake of the financial crisis when millions of Americans nearing retirement suddenly realized how vulnerable their 401(k)s were, even after putting aside a percentage of income for 20 years or more.

Some retirement plan advocates and lawmakers have called for plan sponsors to offer more income options to give workers and pre-retirees more choices in the distribution phase of their assets.

The survey also found that 56 percent of companies that offer only DC plans inform their workers about the effects of longevity.

It also found that 56 percent of companies talked to employees about the importance of establishing target retirement income levels in relation to current pay, and that 52 percent of companies talked to workers about having retirement income through the participant’s tenure in the plan.

The other major theme to emerge from this year’s QRPB survey is that plan sponsors want simplicity from their plan providers.

The survey found that 89 percent of companies that offer access to defined benefit (DB) and DC plans, and 77 percent of DC-only plan sponsors want to keep their plan designs simple.

Cynthia Mallett, vice president of industry strategies and public policy for MetLife's Corporate Benefit Funding group, said that since the advent of DC plans, sponsors have focused on choice and flexibility in investment selection.

“The shift toward simplicity is a potentially significant change in how plan sponsors view their role," she said in a news release.

Studies have shown that the more choices plan sponsors offer, the more confused employees become and too much choice even acts as a deterrent because of “investment paralysis.”

At the end of last year DC plans held $5.9 trillion in retirement plan assets, according to the Investment Company Institute.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].