Plan Sponsors Could Do More

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

As for their biggest concerns, nearly all respondents cited rising health care costs (91%), followed by their retirees outliving their savings (77%). Yet, TIAA says, surprisingly few have built retirement plan offerings that solve for these challenges. Employers also worry that many of their employees save too little (75%) or are neglecting to participate in a retirement plan (55%).

For employees to have 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 workers would prefer to receive $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 that choice. Nonprofits are twice as likely as corporate, for-profit firms (56% vs. 25%) to believe their employees would choose monthly lifetime income over a lump sum.

While employees voice a strong interest in lifetime income options, few have access to one through their employer retirement savings plan. 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 are not guaranteed. Twenty-seven percent say they do not know how their employees will generate income. Only 14% expect them 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% vs. 23%),” the study says.

“Retirement is a critical financial pillar in our country,” says Doug Chittenden, president, institutional retirement at TIAA.