NEW YORK, May 25, 2021 /PRNewswire/ -- Nearly half (45 percent) of all plan sponsors, and 55 percent of 403b providers (55 percent), say the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 increased their interest in offering in-plan guaranteed lifetime income options, but there is an opportunity to educate plan sponsors on the legislation, as just half say they are familiar with the legislation, according to the recent TIAA Retirement Insights Survey.
Among plan sponsors who say they are familiar with the SECURE Act, many are still unfamiliar with specific provisions of the bill that can improve access to in-plan lifetime income solutions, including safe harbor protections (56 percent), annual lifetime income disclosure requirements (54 percent), and the provision that allows for the portability of annuities for participants (53 percent).
"It's understandable that amid more than a year of economic uncertainty, plan sponsors would shift their focus toward meeting the immediate, day-to-day financial needs of their employees over longer-term savings goals," said Doug Chittenden, Head of Client Relationships at TIAA. "However, there is a surging interest in guaranteed lifetime income in retirement – one that continues to trend upwards as both plan sponsors and participants view retirement savings as more than just an accumulation vehicle for getting to retirement – and an opportunity for plan sponsors to familiarize themselves with available in-plan guaranteed lifetime income options and SECURE Act provisions ahead of further retirement legislation likely to come later this year."
More 403b providers than 401k providers are already familiar with in-plan guaranteed lifetime income options (73 percent v. 59 percent) and the differences between institutional and retail annuities (68 percent v. 50 percent). Plan sponsors who currently offer access to secure, guaranteed lifetime income consider them highly valuable for employees (86 percent), and 71 percent think the average employee would be interested in a lifetime income annuity. Among plan sponsors who say participants would not be interested, 55 percent say it's due to a lack of understanding about the products.
As interest in guaranteed lifetime income grows, plan sponsors should revisit SECURE Act provisions and plan designs.
While the SECURE Act made it easier to include guaranteed lifetime income options in retirement plans, the Securing a Strong Retirement Act – often referred to as "SECURE 2.0" – is poised to implement further provisions that can help Americans save for retirement. Ahead of this legislation, plan sponsors should consider reviewing their plan designs to include:
- Auto-enrollment and auto-escalation policies for new plans: Mandatory auto-enrollment is one of the provisions outlined in "SECURE 2.0," but currently, less than half (49 percent) of plan sponsors in this study offer auto-enroll to their employees and 43 percent auto-escalate their participants' contributions. Further, participants don't always recognize that they are auto-enrolled or auto-escalated; 44 percent say they were auto-enrolled into their savings plan, but just 28 percent say their employer auto-escalates their contributions.
- Default investment options: While 8 in 10 plan sponsors say they are satisfied with their current default investment option, 52 percent said they were satisfied, but open to new options to replace it. Plan sponsors should think about the default and auto features that can fight inertia and help participants clearly understand the implications for their savings, which can improve retirement outcomes.
- Target Date Funds (TDFs) with lifetime income options: The large majority (84 percent) of plan sponsors who offer TDFs say they are extremely or very satisfied with them, and 79 percent say they are satisfied with their current default investment option. However, 77% of plan sponsors would be extremely or very interested in a product if there was a new type of Target Date Fund that as the target date gets closer would start allocating assets into an investment that provides plan participants with the option to receive guaranteed lifetime income anytime—typically at retirement.
- Lifetime Income Disclosures: A large majority (87 percent) of plan sponsors believe an annual lifetime income disclosure is a good idea, and 77 percent believe that it will increase employee interest in acquiring in-plan guaranteed lifetime income. Enabling participants to have adequate income in retirement is the biggest influence on plan design (34 percent).
To see the full survey results, click here.
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