trendspotting | PLANADVISER March/April 2017

Guaranteed Income Worries

Fiduciary exposure, costs and recordkeeping are sponsors’ primary concerns

By PA Staff | March/April 2017

Only 5% of 401(k) plans offer a retirement guaranteed-income product, says the Plan Sponsor Council of America (PSCA) in its 59th Survey of Profit Sharing and 401(k) Plans.

Large plans were more likely to offer a guaranteed-income product (5.7%) than were small plans (4.4%). The types of such products include 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%).

However, PSCA reports, 12.1% of respondents indicated their organizations are considering adding a retirement guaranteed-income product, 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 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 one of these products to their plan was fiduciary exposure (38.3%). Others 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 a guaranteed-income product yet. Also, the 2016 PLANSPONSOR Defined Contribution Survey found low usage of lifetime income products in defined contribution (DC) plans overall, but greater usage among 403(b) plans.

Plans’ Guaranteed Income Concerns

High costs
Risk exposure
Source: Plan Sponsor Council of America, 59th Annual Survey of Profit Sharing and 401(k) Plans