As Retirement Income Needs Grow, DC Plan Sponsors Weigh Solutions

As more plan participants worry about retirement income security, demand for guaranteed income solutions is growing—and plan sponsors are pondering the options. While there are many ways to measure the benefits, we believe that some approaches—like in-plan and default options—have distinct advantages.

In response to the far-reaching economic impact of COVID-19, many plan sponsors have intensified their focus on critical priorities like handling furloughs and making emergency distributions. As conditions slowly return to normal, we expect renewed emphasis on plan design to tackle a top-of-mind issue: retirement income security.

Lifetime-Income Demand Grows…but Adoption Lags

Strong demand from plan participants for reliable retirement income could be incentive enough for sponsors to start taking next steps now.

Some 87% of plan participants who use target-date funds considered some form of guaranteed income option—such as an annuity—appealing, according to AllianceBernstein’s (AB) Inside the Minds of Plan Participants survey. Plan sponsors agree: 96% expressed some appeal to adding a target-date fund guaranteed option, based on our latest survey. But a much smaller group (38%) actually plans to follow through any time soon (Display).

96% of plan sponsors said a guaranteed-income target date fund is appealing. But only 38% expect to add one within two years.

If the benefits of and demand for guaranteed income options are clear, what’s the reason for the disconnect between interest and action? For many plan sponsors, the path to offering these solutions isn’t as clear-cut as the need. And lingering uncertainty about how to evaluate and implement them are, in our view, still hurdles.

The good news? The gap between high appeal and low implementation of guaranteed income options seems to be narrowing.