A major obstacle in the acceptance of retirement income options is availability, or the lack thereof, according to a new report.
Global analytics firm Cerulli Associates says that nearly all (92%) of recordkeepers describe offering participants a one-time, lump-sum distribution paid in cash upon retirement or separation as the most frequently offered method of distribution. Alternatively, fewer than a quarter (23%) indicated offering one-time lump sums converted to guaranteed monthly or quarterly payments.
‘No’ Way
Nearly a third of DC plan recordkeepers indicate that none of their DC plan clients have adopted a guaranteed in-plan retirement income option, while only 8% of DC plan recordkeepers report that 16% or greater of their DC plan clients have adopted a guaranteed in-plan retirement income option.
The research highlights several reasons why plan sponsors continue to be reluctant to offer in-plan guaranteed retirement solutions, including:
Regarding litigation, Cerulli cites one large DC plan recordkeeper as reporting that “plan sponsors would like to offer retirement income solutions to participants in-plan, but are hesitant to be a first mover, particularly in today’s extremely litigious environment.”
Cerulli concluded that, “In sum, it is painfully clear that availability of in-plan guaranteed retirement income solutions that solve for the unique challenges of providing income in retirement remains very low, despite being a perennial DC hot-button issue. This is unlikely to change unless the DOL provides further guidance and safe harbor to plan sponsors.”
The findings come from Cerulli’s third quarter 2016 issue of “The Cerulli Edge – Retirement Edition,” which addresses participant engagement and the current perspective on retirement income solutions in DC plans.
Global analytics firm Cerulli Associates says that nearly all (92%) of recordkeepers describe offering participants a one-time, lump-sum distribution paid in cash upon retirement or separation as the most frequently offered method of distribution. Alternatively, fewer than a quarter (23%) indicated offering one-time lump sums converted to guaranteed monthly or quarterly payments.
‘No’ Way
Nearly a third of DC plan recordkeepers indicate that none of their DC plan clients have adopted a guaranteed in-plan retirement income option, while only 8% of DC plan recordkeepers report that 16% or greater of their DC plan clients have adopted a guaranteed in-plan retirement income option.
The research highlights several reasons why plan sponsors continue to be reluctant to offer in-plan guaranteed retirement solutions, including:
- lack of a DOL safe harbor (at least one deemed sufficiently safe);
- potential impact of the DOL’s conflict-of-interest rule, particularly with regard to the implications for retirement income options such as annuities;
- high fees;
- portability; and
- litigation.
Regarding litigation, Cerulli cites one large DC plan recordkeeper as reporting that “plan sponsors would like to offer retirement income solutions to participants in-plan, but are hesitant to be a first mover, particularly in today’s extremely litigious environment.”
Cerulli concluded that, “In sum, it is painfully clear that availability of in-plan guaranteed retirement income solutions that solve for the unique challenges of providing income in retirement remains very low, despite being a perennial DC hot-button issue. This is unlikely to change unless the DOL provides further guidance and safe harbor to plan sponsors.”
The findings come from Cerulli’s third quarter 2016 issue of “The Cerulli Edge – Retirement Edition,” which addresses participant engagement and the current perspective on retirement income solutions in DC plans.
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