As traditional defined benefit plans go the way of the dinosaur and 401(k) plans take their place, plan sponsors should keep an eye on the next 15 years as the first generation of workers who will rely most on their 401(k)s to fund their retirements begin to turn 65.
Even with auto enrollment and auto escalation tools, retirement readiness remains a concern. More than three-quarters of large and midsize U.S. employers that sponsor 401(k) and 403(b) plans say retirement readiness has become a major issue for their employees, according to research from consulting firm Towers Watson.
A number of benefits can stem from offering in-plan products such as annuities, says John Pickett, senior vice president and financial advisor at CAPTRUST and an adviser to the Institutional Retirement Income Council. Pickett notes in a recent IRIC brief that in-plan products can help reduce plan expenses, improve workforce management, attract and retain employees, and help ensure the future success of the defined contribution model.
Also see: Concerns over annuities persist
But plan sponsors remain cautious about in-plan products. According to study data from consulting firm Aon Hewitt, only 10% of the plans in a 2013 survey were found to offer in-plan annuities, and another 12% offered in-plan managed payouts.
Further, Aon Hewitts 2014 Hot Topics notes operational or administrative concerns top the reason (60%) why some employers have not added in-plan income solutions. Waiting to see how the market evolves came in close behind at 56%, the study notes.
Reducing plan expenses, something any employer would want to jump on, might be reason enough to consider adding an in-plan product. By adding more in-plan products, the plans will in turn generate more assets, says Pickett.
In addition to increasing total plan assets, participants who are approaching retirement or have just recently retired tend to have accumulated more assets than younger, less tenured employees, Pickett adds. This can raise the average participant balance and make the plan more attractive to some service providers, thus driving down costs for all participants.
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