PLANADVISER - July/August 2018 - 8

data points
Plans' Approach to Income
T
Largest plans are stepping up to an income platform
he Pension Protection Act of
2006 (PPA) resulted in massive
reform of the retirement planning
industry, permitting a safe harbor for
plan sponsors to automatically enroll
participants into the company defined
contribution (DC) plan. The time is ripe
for the next big development-plans
embracing retirement income, predicts
July's " The Cerulli Edge - U.S. Asset
and Wealth Management Edition. "
" We are seeing a DC industry in
which plan sponsors and consultants
are taking a degree of control away
from the participant, with the intention
of guiding plan participants to better
decisions about retirement savings, "
says Bing Waldert, a managing director
at Cerulli. " As part of this continued
innovation, converting the 401(k) plan
to an income platform is a step in taking
DB [defined benefit] market experience
and applying it to the 401(k) market. "
Cerulli says the first step the
industry should take to make this
happen is to encourage plans to keep
retired participants in the plan. The
second is to work with recordkeepers
to allow participants to take systematic
withdrawals, and the third is to
offer target-date funds (TDFs) that
include retirement income options.
Offering annuities in 401(k) plans
is another obvious option, Cerulli says,
but before this is likely to happen, the
Department of Labor (DOL) will need
to offer plan sponsors a safe harbor for
the selection of an annuity provider.
A look at the 2017 PLANSPONSOR
Defined Contribution
Survey
finds
that the most common way plans now
approach the retirement income question
is to allow for systematic withdrawals,
with this offered in 35.5% of
plans. As the size of plans increases,
this practice becomes more common.
For instance, it is offered in only 18.9%
of micro plans, but 49.2% of midsize
plans, 51.0% of large plans and 64.5%
of mega plans.
The second most common
approach is to offer in-plan managed
account services that turn balances
into monthly income, this being done
in 15.0% of plans overall. Only 9.9%
of micro plans offer such a service,
but, like systematic withdrawals, it
becomes increasingly common as plan
size grows-found in 18.2% of midsize
plans, 21.2% of large plans and 32.1% of
mega plans.
The third most common option-
though less than half so
as
the
previous two-is offering in-plan products
that guarantee monthly income
at retirement, with 7.1% of plans doing
this. Just 5.0% of micro plans choose
the option, as do 8.2% of midsize plans,
8.3% of large plans and 8.5% of mega
plans.
Fourth most common is to use an
out-of-plan annuity purchase/bidding
service; 4.8% of plans do this, specifically
2.1% of micro plans, 4.6% of
midsize plans, 7.7% of large plans and
13.2% of mega plans.
While 37.4% of plans offer no
income-oriented products or services,
if Cerulli's projections are correct, this
could change dramatically in the years
to come. -Lee Barney
Retirement Income-Oriented Products/Services Offered in 401(k) Plans
2017
Overall
Systematic withdrawal option at retirement
In-plan professional managed account service
that turns balances into monthly retirement income
In-plan products that guarantee monthly
income at retirement
Out-of-plan annuity purchase/bidding service
In-plan managed payout fund(s) specifically
designed to generate a cash flow stream
Unsure what type of income product(s)
are offered
None-we offer no income-oriented
products/services
Source: 2017 PLANSPONSOR Defined Contribution Survey
35.5%
15.0%
7.1%
4.8%
4.7%
20.9%
37.4%
Micro
18.9%
9.9%
5.0%
2.1%
3.8%
29.6%
45.4%
Small
36.8%
13.8%
8.1%
5.1%
4.7%
21.8%
36.4%
Midsize
49.2%
18.2%
8.2%
4.6%
5.1%
14.6%
31.8%
Large
51.0%
21.2%
8.3%
7.7%
5.8%
6.4%
34.3%
Mega
64.5%
32.1%
8.5%
13.2%
6.8%
5.6%
17.9%
8 | planadviser.com july-august 2018
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