Filed Under:Health Insurance, Medicare

Trends in income solutions within employer-sponsored retirement plans

In-plan guarantee solutions may have a more prominent place in the retirement plan industry in coming years.
In-plan guarantee solutions may have a more prominent place in the retirement plan industry in coming years.

As people prepare for retirement, they need to consider income options that can help assets last their lifetime, protect against market declines, hedge inflation risk and, most importantly, allow them to retire comfortably. 

Eighty-two percent of employees say they would be willing to give up five percent or more of their salary if it meant having reliable income to help them live comfortably during their later years[1].  Retirement security has increased in importance for almost 90 percent of participants over the age of 50 for the last three years2. Options such as in-plan guaranteed income solutions in employer-sponsored retirement plans are aimed at helping participants achieve financial protection and growth potential.

Guaranteed Income Options

Today approximately 22,000 retirement plans offer guaranteed income solutions with between $2.5 and $3.0 billion in market value invested in these products. The number of plans offering guarantees has grown by 53 percent over the past two years, while the assets in these vehicles have risen 62 percent over the same time period.[2] 

  • Integration into existing target date or asset allocation solutions. Several plan providers offer a variety of target-date funds and custom glide path solutions that enable employers to have a choice with GWBs, how to best apply them to their investment menu, and how to integrate the solution into the glide path of the target date portfolio.
  • Cost savings. Employers may be able to offer in-plan solutions at a lower cost to plan participants because the solutions are institutionally priced.
  • Tool to attract and retain top talent. These solutions can be used by human resources and benefits departments to attract and retain top talent for participants at all levels by providing a competitive retirement benefit for employees.
  • Help transition employees into retirement. With market declines, participants closer to retirement may feel the need to work longer, thus creating fewer opportunities for advancement for employees who are earlier in their career. An in-plan guarantee solution may help participants closer to retirement leave the workforce when they are ready. The solution also creates career opportunities for high potential employees to fill positions of more senior level professionals who are leaving the workforce.
  • Benefits for Plan Participants

    • Institutional pricing. An in-plan guarantee investment option may receive the benefit of institutional pricing resulting in lower fees.  
    • Tax-deferral. When investing in an employer-sponsored retirement plan there is the additional benefit of tax-deferral on contributions inside the plan versus outside.
    • Asset protection before retirement. Participants have the advantage of protections and guarantees during the “red zone” — the years immediately before retirement.
    • Help to stay the course with savings.   Downside protection helps give participants the confidence they need to stay the course during market volatility.  By insuring their retirement balance against a down market, participants may be able to maintain a more appropriate level of equity exposure in their asset allocation.  Better asset allocation may lead to better retirement outcomes for participants.

    Because of the continued growth in adoption of these solutions and upcoming government regulations, in-plan guarantee solutions may have a more prominent place in the retirement plan industry in coming years. With the right education and knowledge of these solutions, plan sponsors may be better able to navigate their fiduciary responsibilities in choosing an in-plan guarantee to help create better retirement outcomes for their participants.

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    Nichole Morford

    Nichole Morford
    Managing Editor

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