PLAN SPONSORS AND RECORDKEEPERS AGREE THAT RETIREMENT INCOME WILL BE “THE BIGGEST TREND” OVER NEXT FIVE YEARS
New York, NY – June 5, 2012 – As attention to the importance of creating retirement income grows, a new MetLife study finds that plan sponsors of the largest workplace retirement plans and their recordkeepers have taken the first steps to help participants secure retirement income – but a lot more work needs to be done to pave the way for participants to begin to take action.
MetLife’s Retirement Income Practices Study: Perspectives of Plan Sponsors and Recordkeepers for Qualified Plans℠, released today, examines the dynamics of the plan sponsor-recordkeeper relationship with regard to the provision of lifetime income options in qualified plans. The study assesses whether, and to what extent, plan sponsors of defined benefit (DB) and defined contribution (DC) plans, and recordkeepers are communicating about – and closely coordinating their efforts to offer – retirement income education, strategies and solutions for their participants. A full copy of the study, which includes considerations for plan sponsors, recordkeepers and policy makers, can be found at www.metlife.com/retirementincomestudy.
Retirement Income Will Emerge As Biggest Retirement Practice Trend
Both plan sponsors and recordkeepers agree that a focus on retirement income will be one of the biggest retirement practice trends to emerge in the near future. Ten of the 12 recordkeepers surveyed said an increasing focus on retirement income is among their top predictions for the next three-to-five years and one-third of plan sponsors agree – it was the most frequently cited prediction among this group.
“While recent actions by the U.S. Treasury Department are expected to pave the way for millions of Americans to have better and more accessible retirement income options, plan sponsors and recordkeepers need to work together to facilitate participants’ ability to understand their retirement income needs and use their plan(s) to generate a paycheck for life,” said Cynthia Mallett, vice president, Product & Market Strategies, Corporate Benefit Funding, MetLife.
Plan Sponsors Favor Self-Service Approach for Projecting Retirement Income but Few Participants Interact With the Tools Provided
While many tools have been developed that will show the amount of monthly income a participant might receive during retirement, the research found that such projections are not automatically shown to participants when they view their account balances online, nor are they routinely provided to plan participants on statements summarizing their total and vested account balances. Instead, plan sponsors appear to favor a self-service approach to modeling retirement income projections for their plan participants.
Plan sponsors and recordkeepers recognize that this “do-it-yourself” model is not taking hold among participants. The majority of recordkeepers surveyed estimated that 25% of plan participants or fewer have made the effort to project their retirement income.
Plan Sponsors Say Participants Want Guarantees
Nearly half (44%) of plan sponsors said that the majority of their DC plan participants would prefer to “receive at least part of their retirement savings as monthly income for as long as they live rather than receiving all of it in a lump sum that they would invest themselves.” Furthermore, 68% of plan sponsors said they believe the majority of their DC plan participants favor “guarantees that offer stable but somewhat lower returns” over a “higher degree of risk because the returns could be greater.”
However, income annuities, which combine stable returns and guaranteed lifetime income, are not yet widely offered by plan sponsors. In fact, only 16% of plan sponsors surveyed offer any form of in-plan retirement systematic income option. Of these plan sponsors, the most widely offered option is an in-plan deferred annuity (27%). A startling 56% of plan sponsors who offer an in-plan retirement income option don’t know specifically what type of product is being offered.
Incomplete Understanding of Recordkeepers’ Retirement Income Commitment, Capabilities and Offerings
Similarly, the majority of recordkeepers do not make institutional income annuities and other retirement income products available at the point of retirement nor do they have the ability to administer in-plan accumulation annuity options on their platform. Only four of the 12 recordkeepers surveyed currently offer in-plan retirement income options. However, of the eight recordkeepers who do not currently offer these, four said they are very likely to build the infrastructure required for in-plan retirement income options to be available on their platforms in the next 18 months. Among those recordkeepers with no plans to build this infrastructure, low demand from plan sponsors and participants is cited as the reason.
“Those who manage qualified retirement plans are at an important crossroads in the evolution of these workplace benefits,” said Jody Strakosch, national director, Strategic Alliances for Retirement Income Products, MetLife. “What remains to be seen is who will act first. Will plan sponsors start to demand that recordkeepers include retirement income options as part of their platform? Or will recordkeepers step up to offer these solutions first? Ideally, plan sponsors and recordkeepers should be coordinating their retirement income discussions now to determine the primary objectives of their plans, and how these objectives will help meet participants’ needs.”
Fiduciary Concerns Preventing More Widespread Offerings
Eight in 10 plan sponsors (79%) say that fiduciary liability concerns are discouraging them from more widespread offering of income annuities within their DC plan. More than half of plan sponsors (56%) also believe these concerns are dissuading their recordkeepers from more widely offering these products on their platforms. Most plan sponsors believe that their company (62%) is more concerned about annuity-related fiduciary liability issues than their recordkeeper.
“There is little doubt that fiduciary concerns must be addressed by public policymakers before income annuities will take hold as a primary feature of DC plans. While clarifying the fiduciary selection regulation is not a ‘silver bullet’ it would go a long way in encouraging more widespread offering of income annuities in DC plans,” Strakosch added.
About the Study
The MetLife Retirement Income Practices Study was conducted in two phases between October 2011 and January 2012. In Phase I, the qualitative phase, MetLife commissioned RG Wuelfing & Associates, Inc. to conduct phone interviews with 12 defined contribution plan recordkeepers that service primarily FORTUNE 500® Companies. The interviews were conducted from mid-October to mid-November 2011.
In Phase II, the quantitative phase, MetLife commissioned the research firm MMR to conduct an on-line survey with plan sponsors of retirement plans in cooperation with Asset International. A total of 215 plan sponsors participated in the survey, including 113 from FORTUNE 1000TM companies. Phase II of the study was conducted between December 14, 2011 and January 30, 2012.
MetLife, Inc. is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.
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