It has been a decade in the making, but In-Plan Guaranteed Retirement Income solutions are now readily available to plan sponsors and participants. As a result, for many plans, optimal participant outcomes—now the accepted metric for best-in-class defined contribution (DC) solutions—are at hand. PLANADVISER founder Charlie Ruffel talked to two Prudential Retirement executives about these new constructs: Sri Reddy, senior vice president and head of institutional income and capital markets; and Kurt Mansfield, vice president of marketing strategy for institutional investment solutions.
PA: Before we dive into retirement income solutions themselves, let’s talk about some of the research that Prudential commissioned to analyze the interest that participants themselves have in guaranteed income solutions.
Mansfield: Right. We have access to both plan sponsors and participants to give us critical mass for such research. Currently, Prudential Retirement’s innovative solution is available in more than 7000 plans. In the participant study, we asked participants who had adopted the income solution and those who hadn’t, a series of questions to determine their overall confidence around retirement. In the second study, we analyzed outcomes, with the specific intent to discover the differences between those who adopted the income solution and those that didn’t.
PA: And Prudential is in the singular position of having had in-plan income solutions in place for some time now.
Mansfield: That’s right. The first thing that became clear—and I think more and more plan sponsors are coming to terms with this—is the vast majority of participants are neither confident nor well-prepared for retirement. Two findings jumped out at us: Some three out of five Americans claimed that they were behind schedule or didn’t know where they were with respect to their retirement savings; and only one out of five were confident in their ability to endure market volatility and retire as planned. Exactly the same number—that is, one in five—were confident that they’d have enough retirement income to last a lifetime. In conjunction with that, nearly three out of four were concerned about their retirement income. Those findings are echoed elsewhere: As an example, a recent Aon Hewitt study found that more than 80% of employers did not believe that their employees would be able to manage their income in retirement.
PA: And the reflexive conclusion to that has been, somewhat simplistically, that we’ll have to work longer.
Mansfield: Exactly. But, as we are increasingly beginning to understand, that’s a flawed strategy. For a start, as illustrated by research from the Employee Benefits Research Institute [EBRI], one out of every two employees leaves the work force earlier than they planned to. In other words, they are not determining their retirement date. So working longer is all too often not an option.
Reddy: And that’s just one of many challenges that the present defined contribution construct doesn’t adequately resolve. Market volatility, retirement date uncertainty, healthcare: These are all issues that are not properly addressed if, as we have for the past 25 years, we focus only on getting participants to retirement. What our research indicates is that retirement income solutions do more than just resolve the post-retirement date challenges—they positively impact the accumulation phase as well.