Various Approaches to In-Plan Income

Art by Subin Yang

There is a disparity in how different groups of retirement industry stakeholders approach in-plan retirement income products, says the fourth-quarter 2018 issue of “The Cerulli Edge – U.S. Retirement Edition.”

Notably, according to Cerulli’s 401(k) plan sponsor survey, plan sponsors do not necessarily think only of annuities when contemplating the addition of an in-plan retirement income option. Yet, recordkeepers commonly point to an annuity-based product as being top of mind for plan sponsor clients.

While defined contribution (DC) plan sponsor implementation of in-plan retirement income solutions remains low, Cerulli wrote, there was also “a reinvigoration of the subject in 2018.” With this renewed focus, defined contribution investment only (DCIO) product managers are getting more involved in discussions about new in-plan income opportunities.

“This shift involves plan sponsors proactively inquiring as to how the DCIO’s in-plan retirement income solution is structured and implemented,” Cerulli wrote. “This inquiry contrasts with prior years in which DCIO managers described discussions with plan sponsors on lifetime income solutions that were either politely listened to without any follow-up or rebuffed outright.”
Based on a previous Cerulli survey of 41 DCIO asset managers representing more than $3.8 trillion in DCIO assets, close to half (41%) currently offer an in-plan retirement income product and another 10% are considering adding one. For the 41% that offer an in-plan retirement income product, Cerulli wrote, target-date funds (TDFs) are the most common structure.

The research firm contends that inclusion of a guaranteed component is “not a prerequisite for an effective retirement income product.” But, at the same time, a basic asset-allocation shift to more conservative investments “may not be enough to address the diverse financial situations of investors near or at retirement age.”

Possibly Adding Retirement Income

According to Cerulli data generated in 2017, close to 13% of plan sponsors surveyed said they expected to add or were thinking of adding a retirement income solution to their plan menu in 2018. Cerulli then asked this cohort to identify what type of product they were considering to fill that role.

“Th[e] data demonstrates that the financial services community, including asset managers, recordkeepers, consultants and plan sponsors, talk past each other regarding retirement income solutions,” Cerulli reported. “For example, close to one-fourth (24.5%) of 401(k) plan sponsors considering adding a retirement income solution identify a broad-based fixed-income strategy in a mutual fund vehicle as the strategy they would be most likely to offer participants.”