Although employers are growing more comfortable with auto-enrolling employees in a retirement plan — 40% of employers do so, statistics show — retirement income products are a relatively new frontier, and the products have yet to gain traction among plan sponsors.
“The thrust is in anticipation that employers will say that the retirement income products are complicated and, ‘We don’t want the employees criticizing us for invading their personal space,’” says William Charyk, partner at Arent Fox LLP and author of a new briefing, “Retirement Income Products: Will Employees Welcome or Resent This Form of Employer Activism?” published by the Institutional Retirement Income Council. “They may think that their [employee’s] retirement and future past employment is none of their business. But, if it’s done properly, some level of employer activism can be appreciated.”
Although one of the main factors stopping employers from offering guaranteed income options is a lack of knowledge or information about the products — which guarantee a level of income after retirement, usually allotting 4% or 5% of the fund each year after an employee’s stops working.
“It’s easy to find someone as an investment manager who can tell what all the investment funds that are out there and you feel comfortable with third-party advice, even though you’re making the decision. It’s hard to find that yet in the guaranteed income products,” Charyk says. “Each product is relatively new and some of the benefit consulting firms are scrambling to do the compare and contrast.”
Still, Fidelity finds that 85% of Americans aged 55-70 now value guaranteed monthly income more than above-average returns. Charyk thinks employees at least should be given the choice to enroll in one of these plans. Social Security will continue to be the key source of annuitized wealth for most workers. However, many middle- to high-income workers would benefit from additional longevity insurance and guaranteed streams of income, according to a joint report produced by AARP, the American Society of Pension Professionals & Actuaries and the Women’s Institute for a Secure Retirement.
“While you’re working, you’re in an environment [where] you’re given a lot of information and as soon as you retire, you’re on your own,” Charyk says. “There is usually very little information given out about what to do with the money. For the average person to figure this out for themselves is daunting.”
An employer initiative may not only assist in overcoming the tendency to resist change but may also reinforce the importance of the area that is the focus of “activism.” In an economy where social security funds may dwindle or be faced with taxation, self-funding is gaining importance.
“It does require an employer who’s willing to put time into understanding it,” Charyk says. “Some employers feel that it’s their responsibility to take care of [employees] only while they’re there, but not after they leave, which is an unfortunate attitude to have.”
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