Key considerations for plan sponsors one year after the passage of the SECURE Act

The SECURE Act – a law aimed at easing Americans’ transition into retirement – turns one year old this December. This milestone sheds a light on how the retirement landscape has changed since the Act was first passed in 2019 due to the impacts of the COVID-19 pandemic.

From stock market volatility to widespread layoffs and business closures and lockdowns, workers nearing retirement are now struggling to take the step into retirement in the wake of the pandemic – and this is concerning for plan sponsors.

Even prior to COVID-19, employees’ ability to ready themselves for retirement was a concern. According to MetLife’s Evolving Retirement Model Study, 81 percent of plan sponsors said workers were delaying retirement because they feel “financially trapped.” The economic impacts of COVID-19 have only further impacted employees’ financial stability, and anxiety around retirement savings is growing.

The one-year anniversary of the SECURE Act – which has made it easier than ever for defined contribution (DC) plan sponsors to offer annuities in their plans – should prompt employers to consider how the pandemic has impacted employees nearing retirement over the past year, and how these lessons highlight the importance of offering a retirement income solution that can provide employees a sense of security in this environment and beyond.

Here are three key considerations:

1. The need to cope with financial instability in times of crisis.

Many employees were caught off guard by the widespread economic impact of COVID-19. In fact, according to MetLife’s 18th annual U.S. Employee Benefit Trends Study, more than half (52 percent) of employees are most concerned about their financial health during COVID-19 – more so than even their physical (44 percent), mental (44 percent) or social (44 percent) well-being.

When asked what was contributing to their financial stressors, 39 percent said stock market volatility and 31 percent said impacts to long-term savings were to blame.

While the economic effects of the pandemic will likely not disappear any time soon, this is not the first time older workers have experienced market volatility in their lifetime and it may not be the last. Fixed income annuities, which are not impacted by stock market volatility, can provide workers about to retire with a sense of stability and security in their finances, even in uncertain times.

2. The need for an income that retirees can’t outlive.

According to MetLife’s Evolving Retirement Model Study, 88 percent of plan sponsors agreed that retirees need a source of guaranteed income they cannot outlive. However, ensuring that savings will last throughout the entirety of one’s retirement is becoming an increasingly unattainable goal for some workers – especially as many cope with the financial impacts of the pandemic. In fact, a large majority (87 percent) of plan sponsors noted that increasing life expectancy can also impact retirement security, with the need for retirees’ savings to last over a longer period of time.

With an annuity, retirees don’t have to worry about their savings running dry during retirement because it guarantees plan participants a fixed income for life.

3. The need to reimagine retirement.

This year, employees were understandably focused on their immediate financial needs in order to manage the impacts of the COVID-19 outbreak. However, as we transition into the “new normal,” we are continually reimagining the ways in which to work and live day-to-day, and that shouldn’t stop with retirement.

Plan sponsors should look to reassess their employees’ retirement needs and consider all of the options that are available for them, including fiduciary protections for offering institutional income annuities as distribution options thanks to the SECURE Act. In fact, 8 in 10 employers indicated they were likely to offer a guaranteed income option within five years of the clarification being issued, according to MetLife’s Evolving Retirement Model Study, so it is clear the interest is there.

With all that has occurred in 2020, the passing of the SECURE Act and what it allows has taken on new importance for those looking to retire in the wake of the pandemic. Now is the time for plan sponsors to consider this offering, which makes it possible for retirees to have financial stability and security even in the face of uncertain times.

Roberta Rafaloff is Vice President, Institutional Income Annuities, with MetLife.