In the past four years, plan sponsors have definitely gotten the message on the importance of showing retirement account balances as income, rather than just as savings, as 85% say the core purpose of a defined contribution (DC) plan is to provide income, up from 9% in 2012, according to the MetLife 2016 Lifetime Income Poll.
Additionally, 96% think it would be helpful if balances were shown as income, and 92% would like the Department of Labor (DOL) to provide a safe harbor so that they can include annuities in their plans. When analyzing the solvency of annuity providers, 76% of sponsors would prefer to rely on the assessments of state insurance commissioners, as opposed to conducting the due diligence themselves.
Ninety percent of sponsors think plan design should be simple, as offering too many choices often leads to inertia. Additionally, 58% of sponsors do not think that withdrawal solutions with minimum guarantees are easy for the average plan participant to understand.
When asked about their approach to retirement income, 79% of sponsors think that allowing participants to take a partial lump sum and a partial annuity is preferable to requiring them to take either a lump sum or an annuity, and 72% think that offering the latter two options may not be in the best interest of participants.
“No longer can DC plans exist solely as retirement savings plans,” says Tim Brown, senior vice president and head of life and income funding solutions at MetLife. “The core purpose of today’s DC plans must be recast to move beyond retirement savings to retirement income, by enabling plan sponsors to provide the education, tools and solutions to help participants make their savings last a lifetime.”
Roberta Rafaloff, vice president, institutional income annuities at MetLife, adds: “Today, only 6% of plan sponsors say their 401(k) plan includes a guaranteed lifetime income option. This number could rise exponentially once the DOL completes the work on an updated safe harbor rule. Two-thirds of plan sponsors whose plans do not currently include a guaranteed income options reported that they would be at least somewhat likely to make income annuities available for DC plan participants once the rule is announced.”
MMR Research Associates conducted the online survey of 212 sponsors for MetLife in mid-May.