What Plan Sponsors Need to Know About Lifetime Income

The conversation around guaranteed lifetime income has been steadily growing since the SECURE Act of 2019 changed safe harbor provisions to protect in-plan annuities. Participants have long wanted lifetime income built within their retirement plans to mirror the benefits of now essentially extinct defined benefit plans. They understand that guaranteed income has a significant role in securing their retirement and are looking to their employer to help them in that process.  

When asked about their views specifically on guaranteed income, many plan sponsors see that a guaranteed income solution can improve the risk/return profile for participants. In addition, they see a growing need to explore the available options for lifetime income given the current market environment, but where do plan sponsors begin?

Summary:

The discussion with Nuveen consisted of four parts. First is to understand the U.S. retirement landscape today. Second is to consider why plan sponsors offer a retirement plan. Third is to know the lifetime income landscape. Lastly is to engage with participants along the journey.

The retirement crisis is real and it affects all of us. Almost half of private-sector workers lack access to an employer-sponsored retirement plan. If nothing changes in Social Security, there is a projected 20% benefit cut happening by 2033. There are 3 major gaps in the U.S. retirement savings system:

1. Coverage Gap - not enough Americans have access to a plan
2. Savings Gap - individuals aren't saving enough
3. Guarantee Gap - U.S. workers aren't managing their savings after they retire to ensure income for life

So why do plan sponsors offer a retirement plan? In 2021, 49% of plan sponsors say because it's the right thing to do while 45% say that is helps attract and retain talent. To give some perspective on the importance of retention, in October of 2023, 3.6 million people quit their jobs costing $1.8 trillion in lost productivity annually. Since employee turnover impacts a company's bottom line, costing them approximately 40% of an employee's base salary to hire a new employee with benefits, there are huge benefits to increasing retention.

To understand the lifetime income landscape, Jessica likes to break it down into two different buckets: the side that emphasized liquidity and the side that emphasizes longevity risk protection. For liquidity, this means systematic withdrawals, managed payout funds, and guaranteed minimum withdrawal benefit. When emphasizing longevity risk protection, this includes deferred fixed annuity, deferred income annuity, and qualified longevity annuity contract.

Educating participants about their retirement plans is very important. Keep them at the top of your mind when making major changes to a retirement progra. During education, be sure to use clean, simple language. Employees want to know they'll have secured income at retirement and how much it will be. Lifetime income solutions bridge their expectations with reality.