With defined benefit plans on the outs, companies with defined contribution plans are looking for better ways to help their employees understand what they need to retire in comfort and help them to achieve that.
One way is to include guaranteed lifetime income products within their plans, according to a white paper by DrinkerBiddle.
"Lifetime Income in Defined Contribution Plans: A Fiduciary Approach" looks at the significant risks workers face now that they don't have access to defined benefit plans. One of the biggest challenges is a lack of understanding about the amount of money they will need to retain their current lifestyle and the likelihood that most people will outlive their retirement income. Many people also don't understand how much money they can withdraw from their retirement accounts and still have money left 20 years down the road.
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According to the paper, "Providers of 401(k) and 403(b) plans are developing or enhancing products intended to be similar to defined benefit plan distributions. Government regulators are examining ways to change perceptions regarding the purpose of a savings plan from a platform for asset accumulation to a vehicle for income distribution. As part of this process, they are also looking at possible legal hurdles that may impede the adoption of lifetime income solutions."
The report also found that plan sponsors are beginning to find ways to better educate their participants and to provide them with products that will help them obtain guaranteed lifetime income in retirement.
The hardest part for a plan sponsor is finding a lifetime income provider that will be there in the future to make the payments and the paper looks at how a fiduciary must act prudently in making that selection.
"While the Department of Labor has provided a safe harbor regulation under ERISA for the selection of annuity providers, it does not provide a true roadmap for fiduciaries to follow," the report found.
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