After nearly a decade of intense development, testing and promotion, guaranteed income features are available in only 10,000 to 12,000 defined contribution plans nationally, about two percent of the total. What gives?
Advisors aren’t the problem. According to our current research, nearly seven in ten 401(k) advisors are at least somewhat interested in a guaranteed income feature within a DC plan. Among heavy advisors (the 25% of 401(k) advisors who derive 60% or more of their income from 401(k)), interest rises to 79%. As well, 79% of 401(k) advisors who acknowledge a formal fiduciary role with their current plans are at least somewhat interested.
By 401(k) Share of Income
Interest In Guaranteed Income Features
How interested are you in being able to offer a guaranteed income feature within a DC plan?
| |
Total |
Light
(1-19%) |
Medium
(20-59%) |
Heavy
(60+%) |
| Net: Interested |
|
|
|
|
| |
68% |
61% |
70% |
79% |
| Very Interested |
29% |
27% |
39% |
22% |
| Somewhat Interested |
39% |
34% |
30% |
57% |
| Not Very Interested |
12% |
12% |
16% |
8% |
| Not Interested At All |
18% |
24% |
15% |
12% |
| Net: Not Interested |
30% |
36% |
30% |
21% |
So what’s holding things up? Inadequate product choices from the advisor and consultant standpoint? Plan sponsor anxiety around cost, complexity and portability? Fear of fiduciary exposure? No doubt all of the above, at least to some extent. But maybe the root problem lies with participants.
Exposed to a guaranteed income concept in a recent study, most DC participants express curiosity about an option “within your plan that instead of accumulating an asset balance focuses mainly on generating a guaranteed monthly income in retirement.” But confronted with a one percent wrap fee to pay for it, interest collapses to six percent “absolutely certain” to sign on and an additional quarter calling themselves “very likely” to do so.
Likelihood of Contributing to Guaranteed Income Option
Base: Excludes "not at all interested" in plan with retirement income features (93% of participants)
How likely would you be to commit at least part of your contributions to this option if it carried a significant incremental cost to provide the guarantee, say 1.00% of hte value of hte underlying assets?
Tellingly, interest declines with rising household income (packaged solutions are so middle market) and (unsurprisingly) is much lower among households expecting significant retirement income from a DB plan. Perhaps less intuitive and more troubling, interest also declines with age. Participants 50 to 64 are the least interested in parting with DC account assets to generate a guaranteed income in retirement.
We may be stuck in neutral a while longer.
About the Research
These findings are based on telephone interviews with a representative crosssection of 628 advisors deriving income from 401(k) plans conducted in waves between June, 2010 and May, 2011 and interviews with 1,098 active DC participants conducted online in the fourth quarter of 2010.
About Brightwork Partners, LLC
Delivering both multi-client and custom studies, Brightwork is a research-based consulting firm with a special focus on investment, product and distribution issues in the retirement services industry; www.brightworkpartners.com
For more information: Merl W. Baker or Ronald L. Bush, 203.487.2000; mbaker@brightworkpartners.com , rbush@brightworkpartners.com