Data & Research January 13, 2017

401(k) Plans Have Concerns About Guaranteed Income Products

Concerns expressed in a survey included fiduciary exposure, high costs and operational hurdles such as recordkeeping issues, among other things.
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Only 5% of 401(k) plans offer a retirement income guarantee product in the plan, according to the Plan Sponsor Council of America’s (PSCA)’s 59th Survey of Profit Sharing and 401(k) Plans. 

Large plans were more likely to offer an income guarantee product (5.7%) versus small plans (4.4%). The types of retirement income guarantee products offered included guaranteed minimum withdrawal benefits (GMWB)/guaranteed lifetime withdrawal benefits (GLWB) (40%), traditional fixed annuities (33%), variable annuities (33%), managed account services (26.6%), managed payout funds (13.3%) and deferred/longevity annuities (13.3%).

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However, 12.1% of respondents indicated their organizations are considering adding a retirement income guarantee product, PSCA reports, with large plans (18%) expressing more interest than small plans (7%).

“While guaranteed income products such as lifetime annuities have been in the headlines, plan sponsors are proceeding with caution,” says Steve McCaffrey, senior counsel II at National Grid and PSCA’s board chairman. “Plan sponsors continue to have questions about the role these products play as part of a plan, and the challenges and potential unintended consequences associated with them.”

The top concern plan sponsors expressed about adding a retirement income guaranteed product to the plan was fiduciary exposure (38.3%).  Other concerns included high costs (33.3%), operational hurdles such as recordkeeping issues (32.9%), non-portability (28.9%), risk exposure from the insurer guaranteeing the product (26.5%), lack of interest from participants (17.3%), and “not the role of the employer” to provide lifetime income products (13.3%). 

Not all plan sponsors had concerns; 34.5% expressed that they just had not added an income guaranteed product yet.

The 2016 PLANSPONSOR Defined Contribution Survey also found low usage of lifetime income products in defined contribution (DC) plans overall, but greater usage among 403(b) plans. 

PSCA’s 59th Annual Survey reflects the 2015 plan-year experience of 614 DC plan sponsors. The survey is available at https://www.psca.org/research.

Products January 12, 2017

PEI Suggests Ways for Mid-Sized DBs to Get Back on Track

The company offers an article with a checklist for plan sponsors to use.
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According to Portfolio Evaluations, Inc. (PEI), recent market research suggests that sponsors of mid-sized defined benefit (DB) plans (those with assets of between $50 and $500 million) remain most concerned with risk management, lower future return expectations and stock market volatility. However, what the company finds more concerning is these same surveys also indicate that many DB plan sponsors have yet to formally develop a goal for their retirement programs, nor have they designed a road map for getting there.

Richard Torbinski, partner/co-founder, Marcia Peters, CFA, chief investment officer, and Edward Landsman, senior consultant, have written an article, “Mid-Sized Pension Plans: How to Get Back on Track in 2017.” The article provides a checklist for plan sponsors to use.

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In their article, the authors note that one commonly found, yet unintended, roadblock to achieving a plan’s goals is lack of proper plan oversight. In many cases an organization’s chief financial officer (CFO) has taken on sole responsibility for this, and may meet independently with plan service providers to review portfolio logistics and develop a schedule of next steps. However, the authors say, “without a properly designed road map, each of these providers ends up working autonomously, deprived of the benefits of having an interrelated and cohesive strategy.”

The authors say, in addition, often the roles of the actuary, investment adviser and asset managers are misunderstood by plan sponsors. There are also times when the fiduciary oversight process has been loosened or abandoned after a plan has been frozen.

The article offers sample governance and investment procedures designed to help mid-sized DB plan sponsors get back on track toward achieving plan objectives.

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