Plan Sponsors Missing Opportunities to Improve Employee Retirement Outcomes

Nearly half of nonprofit and corporate, for-profit employers are only somewhat confident in their employees’ retirement futures and one in five say they are not at all confident, according to the 2018 TIAA Plan Sponsor Retirement Survey.

Nearly all surveyed cited rising health care costs (91%) followed by outliving retirement savings (77%) as their biggest concerns, yet TIAA says surprisingly few have built retirement plan offerings that solve for these challenges. Employers also worry that many of their employees are not saving enough (75%) or are choosing not to participate in a retirement plan (55%).

Giving employees access to retirement investments that guarantee income for life is something both employers and employees say they want. According to the survey, more than half (51%) of all employers think their employees would prefer receiving $2,700 a month for life rather than a $500,000 lump sum at retirement; this echoes an earlier TIAA study, in which 62% of employees said they would make the same choice. Nonprofits are twice as likely as corporate, for-profits (56% vs 25%) to believe their employees would prefer monthly lifetime income over a lump sum.

While employees voice a strong interest in lifetime income options, few have access through their employer retirement savings plans. Only 12% of employers offer annuities as retirement income options for retirement savings; instead, the most common options are target-date funds (TDFs) (31%), mutual funds (30%) and stable value funds (20%), all of which TIAA notes rely on spending down assets and none of which create a guaranteed income stream.

Fifty-seven percent of employers expect employees to generate retirement income through systematic and lump sum withdrawals—distribution options that aren’t guaranteed. Twenty-seven percent said they don’t know how their employees will generate income. Only 14% expect their employees to generate income from an in-plan annuity. Nonprofit plan sponsors are more likely than corporate, for-profit, plan sponsors to advocate for their employees to put their savings into an investment that offers lifetime income distributions once they retire (32% versus 23%).

“Retirement is a critical financial pillar in our country,” says Doug Chittenden, executive vice president and president, Institutional Retirement at TIAA.  “We must make it easier for employers to add lifetime income options to their retirement plans, not only to help today’s employees reduce their financial risk, but to ensure the financial wellbeing of generations to come, and support the overall economic health of our society.”

“We are actively working with industry leaders and lawmakers to clear the path to offering lifetime income solutions and to educate plan sponsors and participants about how in-plan annuity vehicles can increase financial security,” TIAA spokesperson said.

In addition to policy advocacy, TIAA recently co-founded the Alliance for Lifetime Income, a nonprofit initiative to help address the risk of Americans outliving their income. The Alliance has launched a nationwide, multi-year campaign to highlight the importance of protected income in retirement.

Other opportunities for improving participants’ retirement outcomes

The survey revealed several other opportunities for plan sponsors to consider to help improve the outlook for employees’ retirement. Forty-three percent of plan sponsors have not analyzed workforce demographics at all, or only to a limited extent. Tim Walsh, senior managing director, Institutional Investments at TIAA, says plan sponsors can gain important insights from their employees’ demographics, behaviors and overall retirement readiness to better tailor advice, education and other resources that their employees can utilize for their retirement planning.

“It’s interesting to look at the investment trends of our plans.  What we see is many employees 50 and older have most of the portfolio in annuities while most near term employees have their assets in TDFs. Obviously, not a huge surprise given inertia for longer standing employees and TDF exploding as defaults over the last 10 years, but interesting how many longer tenured employees have not moved to TDFs. The opportunity out of this is the ability to embed annuities into the TDF and really align with the demographic trends and provide a default that meets the needs of both types of investors,” Walsh notes as an example.

Plan sponsors say free financial advice (39%) and comprehensive financial education (33%) are the most useful resources for employees and the most critical areas for improving plans and savings.

TIAA suggests educating employees about health care costs in retirement and consider offering a retiree health care savings program (RHSP). Walsh says planning for health care costs in retirement should be part of a comprehensive health and wealth strategy—one that helps employees pursue a sense of financial well-being and puts them in a better position to pay for retiree expenses. offers a powerful triple-tax advantage that could potentially stretch benefit dollars up to 50%: employer contributions are made tax-free, earnings grow tax-free, and distributions are tax-free. Taking a total benefits approach may yield the necessary funding to support such an offering. As one example, according to Walsh, the potential savings generated by shifting from a health maintenance organization (HMO) to a high-deductible health plan (HDHP) could cover the employer contribution and administration costs of an RHSP sufficiently.

Twenty-eight percent of plan sponsors cite increasing or modifying the employer match as the biggest opportunity to help employees maximize their retirement savings. Walsh offers an example of stretching the match formula: “A simple example of an ‘effective match’ strategy is a 50% employer match on the first 6% of an employee contribution instead of 100% employer match on the first 3% of an employee contribution. This change incentivizes the participant to contribute 6% instead of 3%.”

More information about the 2018 TIAA Plan Sponsor Survey is here.