Data Points | PLANADVISER July/August 2017

Retirement Income Options

Larger plans are beginning to embrace products that guarantee income.

By Lee Barney | July/August 2017

Some retirement plan sponsors may be waiting for the Department of Labor (DOL) to issue safe harbor provisions for retirement income products. Yet, comparing the 2016 PLANSPONSOR Defined Contribution (DC) Survey with the 2015 edition shows a slight uptick, at least among plans with $50 million of assets or more, in the use of in-plan products that guarantee monthly income.

Still, allowing retirees to make systematic withdrawals rather than offering them an annuity product is the more common approach retirement plan sponsors take to providing ongoing income. This practice also shows increases among plans with $50 million of assets or more. Among midsize plans—those with $50 million to less than $200 million in assets—64.3% now make this provision, up from 57.8% in 2015. Among large plans—$200 million to less than $1 billion—71.4% allow systematic withdrawals, up from 57.8%; 71.3% of mega plans—those with $1 billion or more—now allow them, up from 62.4%.

Among midsize plans, 10.4% now offer in-plan products guaranteeing monthly income, up from 8.1% in 2015. Among large plans, 9.1% offer the products, up from 7.8%, and, among mega plans, 9.5% offer them, up from 6.2%.

Mega plans are the only ones to supply other retirement income solutions at any meaningful rate: 12.0% offer in-plan income solutions without guarantees, and 12.9% conduct an out-of-plan annuity purchase/bidding service.

Retirement Income-Oriented Products/Services Offered in 401(k) Plans

 In-Plan Income
Products That
Monthly Income
In-Plan Income
Products That
a Base Benefit
In-Plan Income
Not Offering
Annuity Purchase/
Bidding Service
UnsureNo Income
$5mm - <$50mm7.2%6.9%3.1%3.5%7.3%4.7%2.8%1.9%24.7%31.5%58.2%56.5%
$5mm - <$50mm8.1%10.4%3.9%4.3%6.6%5.4%3.9%1.5%14.8%19.9%67.8%65.4%
$200mm - $1b7.8%9.1%4.3%5.1%11.0%7.9%5.2%3.4%9.4%16.4%69.4%66.6%

Does Your DC Plan Allow for Systematic Withdrawals* at Retirement?

Micro (<$5mm)41.4%34.8%23.9%27.3%34.8%37.9%
Small ($5mm - <$50mm)52.4%49.2%30.7%31.9%16.9%18.9%
Mid ($5mm - <$50mm)57.8%64.3%32.9%29.6%9.4%6.1%
Large ($200mm - $1b)57.8%71.4%35.2%23.0%7.0%5.6%
Mega (>$1b)62.4%71.3%30.6%24.3%7.0%4.4%
*Systematic withdrawals -versus lump-sum or partial distributions- allow participants to schedule a series of recurring payments, thus creating a predictable stream of retirement income.

Sources: 2015 and 2016 PLANSPONSOR Defined Contribution surveys