Plan sponsors and participants are primed for in-plan lifetime income options

Defined contribution plans such as 401(k)s are great for helping workers build savings for retirement. But many plan participants face challenges in turning their savings into a steady stream of income that can last throughout retirement.

The SECURE Act of 2019 sought to address these challenges by making it easier for defined contribution plan sponsors to adopt lifetime income options. Many plan sponsors believe—correctly, it turns out—that participants want lifetime income options and will contribute to them if offered in their plan’s investment menus.

A recent Nationwide Retirement Institute survey polled plan sponsors, participants and the advisors and consultants who support them to gauge the need and interest in lifetime income investment options within employer-sponsored retirement plans. The results show that plan sponsors are hungry for guidance on this topic. They trust advisors and consultants and view them as their primary source of information for learning more about in-plan guaranteed lifetime income solutions.

This growing interest from plan sponsors and participants in lifetime income solutions opens new opportunities for retirement plan advisors and consultants to add value for their plan sponsor clients. Advisors and consultants who are knowledgeable about in-plan lifetime income options can put themselves in prime position to build trust and grow their book of business while helping their clients solve a critical challenge.

The savings-to-income challenge

Eight in 10 participants and plan sponsors, respectively, agree that a key element of financial security is having confidence that you won’t outlive your income. That’s why plan sponsors are increasingly looking at including guaranteed lifetime income options to help their participants realize the goal of more secure financial future.

When we asked plan participants about their retirement income concerns, many expressed worry over running out of savings during retirement. Half of them (50%) said they are concerned about being able to manage expenses and lifestyle choices in retirement. Additionally, 48% are concerned about outliving their income. Over four in 10 of the participants we surveyed (43%) said they could use help in converting their retirement plan balances into income in retirement.

Going forward, there’s a good chance that participants’ focus on retirement income will increase. Thanks to the SECURE Act, retirement plan participants will begin to see lifetime income illustrations on their account statement over the next year. Some participants will see them as soon as this month. These illustrations could be a wake-up call for many plan participants, underscoring the need to boost savings rates and plan ahead for their future income needs.

Ready to take action

Our survey found eight in 10 participants (79%) would be at least somewhat likely to allocate a portion of their retirement plan savings into a guaranteed lifetime income option if included in their plan’s investment menu. Participants between age 45-54 were even more likely to say they’d choose to move some of their savings to these solutions. This may represent an opportunity for financial professionals to begin engaging plan sponsors and participants earlier than the traditional pre-retirement stage.

Many plan sponsors are already looking to help their participants solve for their retirement income needs. The majority (81%) said they believe their participants want guaranteed lifetime income options in plan menus. Four in ten plan sponsors (41%) that don’t currently offer guaranteed lifetime income options said they would consider doing so.

This study makes clear that plan sponsors are waiting to hear from their advisors and consultants on this topic. According to the survey, plan sponsors are counting on their advisors and consultants as their primary source for learning about in-plan guaranteed income options. Nine out of 10 say they trust their advisors and consultants to provide guidance on choosing a lifetime income option for their plans.

Get in front of the opportunity

Despite growing plan sponsor interest in lifetime income options, about 60% of retirement plan advisors and consultants don’t think their clients want to explore these solutions. The results of our recent survey show otherwise. That means there’s an opportunity for knowledgeable advisors and consultants to respond to the needs of plan sponsors and potentially grow their book of business.

To start, let’s dispel some common misconceptions about in-plan lifetime income guarantees.

• Fee differences between in-plan and outside-of-plan lifetime income options: Many advisors and consultants who participated in our survey indicated they believe fees for in-plan lifetime income options are similar to options available outside of retirement plans. In fact, in-plan fees will generally be lower.
• Fees for transfers or withdrawals: Contrary to the belief of some of the retirement plan advisors and consultants polled in our survey, participants generally don’t incur fees for transfers or withdrawals with in-plan lifetime income options.
• Rollovers of in-plan lifetime income balances: Plan participants are permitted to roll over balances in lifetime income options to other retirement plans, including rollover IRAs, without penalty, although some restrictions may apply.

Advisors and consultants also may underestimate how often retirement plan sponsors evaluate their investment options. Eight out of ten advisors and consultants participating in our survey said relatively few or none of their plan sponsor clients plan to review their menus in the next six months. Contrary to that perception, seven out of 10 plan sponsors told us they look at their investment lineups at least every six months.

Learn what you need to know

That means the time is right for retirement plan advisors and consultants to start talking about in-plan income guarantees with plan sponsors. The need for retirement income security among plan participants and the desire of plan sponsors to help them address this goal creates opportunities for retirement plan advisors and consultants.

Advisors and consultants who want to pursue opportunities with plan sponsors can start by getting more familiar with the benefits these solutions offer. Nationwide is ready to help with resources that discuss in simple terms how in-plan lifetime income options work and explain the benefits these solutions offer to both plan sponsors and participants.

Retirement plan advisors: Click here for resources to help guide plan sponsor conversations.

Institutional retirement consultants: Click here learn how to guide plan sponsors in choosing in-plan lifetime income options.

The Nationwide Retirement Institute® conducted a survey of 1,000 plan participants 45+ years of age, 500 plan sponsors and 300 plan advisors and consultants. The survey was completed July 19—August 4, 2021.