DC plans: Savings accumulators or income generators?
There's a bit of a gap between sponsors' perceptions and participants' interests.
Retirement plan sponsors don’t see their offering as merely a vehicle for accumulating savings. Sponsors are three times as likely to say their plan is primarily a way to provide income throughout a participant’s retirement, according to TIAA’s Retirement Insights Survey.
However, half of sponsors noted that those two functions — savings tool versus income tool — were equally important.
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TIAA surveyed over 1,000 full-time workers between ages 25 and 70 who were enrolled in their company’s defined contribution plan. The survey also includes responses from over 500 plan sponsors covering at least 50 participants. Sponsors were evenly split between 401(k) and 403(b) plans.
Sponsors clearly feel they have a role to play in participants’ retirement success. Sponsors’ biggest influence in plan design is how it will help participants save enough for retirement, according to the report.
Although most sponsors, especially 401(k) plan sponsors, offered their retirement plan as a recruiting tool, their secondary reasons are characterized by helping workers save and making sure they have enough income in retirement.
Three-quarters say they are currently working to help their employees address retirement savings, and 44% say they need help doing so. The same percentage of sponsors said they could use some help educating employees on debt management or debt counseling.
Participant engagement
Engagement among participants was higher in 2020, according to the report, no doubt due the increased volatility caused by the pandemic. Three-quarters of participants checked their account balances, and over 60% visited their retirement plan provider’s website.
Participants were less likely to actively seek guidance regarding their account. Just 23% of participants reached out to their provider for guidance, and half of participants have never asked for help.
Don’t doubt the value of a retirement calculator. Although just 30% of participants increased their contributions this year, almost half did so after running a projection with a retirement income calculator. Of those, 61% called the projections extremely or very helpful. Furthermore, two-thirds of respondents who have never seen a retirement projection believe it would be very or extremely helpful.
Participants would like more retirement planning resources in general, the survey found. Seventy-two percent said information aotu how to get guaranteed income in retirement would be welcome, while two-thirds would like guidance about how much to save every year or a pre-retirement planning program. More than half of participants say they would like retirement information from their sponsor to be more personalized, while 28% say they’re getting highly personalized information already.
Guaranteed income
Respondents were generally confident about their ability to meet long-term goals, but TIAA found that those who had guaranteed lifetime income were almost twice as likely to report high levels of confidence. Fifty-two percent of respondents said they were very or extremely confident about their goals, a share that shot up to 80% among participants with GLI options compared to 45% who didn’t or weren’t sure.
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Nine out of 10 sponsors who offer GLI options believe participants value them, and 71% of all sponsors believe the average participant would be very interested in these products. There’s a bit of a gap between sponsors’ perceptions and participants’ interests, as 51% of participants expressed high levels of interest in GLI options.
Over half of participants said they would be interested in an in-plan guaranteed option, and 77% said they were extremely or very interested in a target-date fund that would gradually allocate 20% of their assets into a GLI product as the target date got closer.
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