Economic challenges spur need for employer-sponsored lifetime income options

Concerns about the impact of inflation on their retirement savings are raising fears among employer-sponsored retirement plan participants that they will run out of money when they retire, according to a recent survey by Greenwald Research, raising the need for employer-sponsored lifetime income options.

“Eight in 10 participants say their employers should offer in-plan retirement income options, and most believe there should be more than one choice,” said Greenwald Research CEO Lisa Greenwald, in sharing some of the highlights of the survey.

In addition, sponsors don’t seem to understand the category or class of “retirement income options.” One in three sponsors claim they already offer income options, while another 37% say they’re considering offering retirement income options, Greenwald said. “Asked to explain what income options are available or being considered, sponsors’ responses are often not what the industry would consider a D.C. (defined contribution) plan retirement-income option,” she said.

Employees seek lifetime income options

The latest consumer and plan surveys in Greenwald’s In-Plan Insights Program also found that more than four in five retirement-plan participants are interested in options that provide a guaranteed lifetime income (GLI). And what is causing this need for options that provide a GLI? Participants don’t really know what to do with the savings they accumulated once they retire, and they are highly concerned about running out of money, explained Greenwald. “Thirty-eight percent of participants have only “basic ideas but do not have a formal written plan (i.e., have specific goals or an outline of a plan” and only 14% have a formal written plan in place,” she said.

Also, Greenwald added, many may be looking to create pension- or paycheck-like income for themselves once they retire, as 6 in 10 agreed that they “are highly interested in an option that “pensionizes” your retirement plan savings.”

But although employees seek more retirement-income options, more employers are not offering them, and Greenwald offered the following reasons why. First and foremost, she said, is lack of familiarity. “Sponsors’ responses would suggest they need and want a lot more education on this category of plan option. Top responses to what would help their understanding include comparisons of available options, fact sheets explaining options in layman’s terms, and more information on how in-plan annuities and other solutions work,” she said.

In addition, Greenwald said that perceptions of complexity and cost seem to cause the most concern about these solutions and whether they heighten fiduciary/litigation risk. Six in 10 plan sponsors view in-plan retirement income options as too complex, she pointed out. “But most participants suggest that complexity can be OK as long as it’s explained well, and that higher costs for guaranteed lifetime income are “worth it,” she said.

What financial professionals can do

Greenwald said that financial professionals working with plan sponsors can and should start providing foundational education on the retirement-income category, including a basic taxonomy of the types of solutions that are out there. “Even if professionals do not feel ready to recommend one solution over another, they can help their sponsors prepare for educated decisions in the future as these solutions evolve and become more common," she said.

Greenwald’s In-Plan Insights Program is designed to explore the changing landscape of retirement income options in defined contribution plans. The 2023 study included online surveys conducted from September 26 to October 23, 2023, of 1,003 plan participants aged 30-70, with at least half aged 50 or over. Respondents were employed full-time at a company with at least 50 employees, had a personal income of $50,000 or more, and are currently contributing to their employers’ retirement savings plan. It also included surveys of 503 plan sponsors with at least 50 employees. More than 100 of the responding sponsors have 1,000 or more employees. Plan sponsors were surveyed between October 4 and November 18, 2023.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].