Retirement income options evolve as workers job-hop

Workers in the U.S. remain in one job for an average of five years before moving on to another. As a result, workers will experience a significant number of job changes over the course of their careers.

What does this mean for workers’ retirement plans? And how does it impact workers’ participation in retirement plans as well as their options for withdrawing income after their working years are done?

A panel discussed these issues during the Employee Benefit Research Institute’s Virtual Policy Forum.

EBRI tracked workers who changed jobs in each two-year period since 1996 and found that nearly one-fourth of those workers switched employers in any two-year period. Those who did not have an employer-based retirement plan were most likely to change jobs, said Craig Copeland, EBRI director of wealth benefits research.

One takeaway of EBRI’s research is that the likelihood of employee turnover must be considered when looking at investment options, he said. Otherwise, participants will not receive the full benefits of some investment options.

In-plan retirement income options evolve rapidly

In-plan retirement income options are evolving rapidly, said Kevin Crain, executive director of the Institutional Retirement Income Council. He listed some of the most popular.

1. Systematic withdrawals: monthly, quarterly or annually.
2. Stable value or bond solutions paired with systematic withdrawals.
3. Hybrid target date funds: a target date fund that has a retirement income portion incorporated into it. The option can have either an annuity structure or a systematic withdrawal feature.
4. Hybrid managed accounts that can include either a retirement income option – an annuity option – or systematic withdrawal.
5. The option to distribute to an annuity.

Managed accounts offer customization and personalization

Customization and personalization are emerging as themes in managed accounts, said Katie Hockenmaier, partner with Mercer’s US Wealth Practice.

She said many plan sponsors that offer managed accounts are having discussions with those account providers about what features might be turned on to help workers with decumulation.

“Those managed account providers can not only help support investing of the assets to help support certain rates of decumulation but also provide recommendations and strategies for balancing decumulation needs in retirement,” she said.

But one hurdle in all this is participant engagement, she said. “A lot of times, participants don’t start thinking about this until they’re five, 10, 15 years out from retirement.”

Other features Hockenmaier said she sees gaining traction are capital preservation options that are intended to help provide some stability toward decumulation needs in retirement. She also cited target date funds with and without guaranteed income components.

“Many plan sponsors already have some tool for some kind of spend-down in retirement,” she said. “But we are seeing more target date funds with an embedded annuity component or an option to annuitize. We anticipate that these offerings will become more prevalent in the marketplace.”

Hockenmaier said she sees “a bias around annuitization” in retirement plans.

“We see a very low prevalence of stand-alone annuities in plans,” she said.

Hockenmaier said with all the different options for in-plan retirement income, “we encourage plan sponsors to look at their demographics and what makes the most sense for their population.

“Communication and education are key.”

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