A range of solutions exist to help participants manage income in retirement, from annuities (either in-plan or outside the plan), to withdrawal strategies.
According to the 2013 PLANSPONSOR Defined Contribution Survey, 5.3% of plans offer in-plan annuities that don’t offer guarantees, and 5.9% offer non-annuity income products (such as managed payout funds). More than half of defined contribution (DC) plans surveyed (60%) do not offer any income-oriented products or services. Of plans surveyed, more than half (62%) have a plan design that allows for systematic withdrawals at retirement (either lump sum or partial).
Our survey found that there is little consensus on how advisers and consultants advise their retirement plan sponsors.
Who answered: advisers (41%); consultants (41%); third-party administrators (17%).
What they said: Slightly more than half (53%) do recommend their clients adopt withdrawal solutions for their DC plan participants to help participants with drawing down assets or establishing a lifetime income stream (or both); slightly less than one-quarter of respondents (23%) do not recommend these solutions; and 23% said it depends on the client’s circumstances.
Those who answered “It depends” said it requires a full view of all assets participants have saved for retirement and it depends on participants’ needs. One commented: “If their assets are such that they won’t outlive them, withdrawal strategy is probably not necessary. However, this is rarely the case.”
What are the best solutions? One respondent said lump sums or rollovers are best: “Plan sponsors do not need the burden of maintaining ex-employees’ records. Ideally, participants would roll over to an IRA or other outside product.”
Once again, individual plan situations may dictate different solutions. “All the options have a place,” one respondent said. Another response was, “The solution depends on the plan and participant behavior. [I] favor allowing systematic withdrawals and out-of-plan annuity options, since they don’t clutter the investment lineup. Also, [I] do not have a high level of confidence that participants understand a guaranteed minimum withdrawal benefit option or in-plan annuity.”
However, one respondent did recommend using a guaranteed minimum withdrawal benefit (GMWB) option; another suggested a combination of an annuity and systematic withdrawal to provide optimal flexibility. One respondent recommended the type of annuity that would provide institutional access and pricing for participants, combined with “fiduciary due diligence services for the plan sponsor, and an automated platform-integrated quote/acceptance engine.”
- “Need to make available solutions that meet all needs and create the greatest flexibility”
- “Out-of-plan solutions minimize risk to an employer sponsoring the plan”
- “Annuity option, because folks often lack discipline and need guarantees”
Thanks to all who responded!