Data and Research September 19, 2016

DC Plan Participants Lack Flexible Distribution Options

Research finds DC plan sponsors are hesitant to offer retirement income solutions in their plans.
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According to research by global analytics firm Cerulli Associates, 92% of recordkeepers describe offering participants a one-time, lump-sum distribution paid in cash upon retirement or separation as the most frequently offered method of distribution. Only 23% indicated offering one-time lump sums converted to guaranteed monthly or quarterly payments.

The firm also found that nearly one-third of defined contribution (DC) plan recordkeepers indicate that none of their DC plan clients have adopted a guaranteed in-plan retirement income option. Conversely, only 8% of DC plan recordkeepers report that 16% or greater of their DC plan clients have adopted a guaranteed in-plan retirement income option, Cerulli research found. Moreover, Cerulli found that less than half of surveyed recordkeepers let their participants take ad-hoc withdrawals as needed.

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“DC plan sponsors and recordkeepers have considerable work to do in expanding the range of distribution options available to retired or separated participants to access their savings in a flexible manner,” says Jessica Sclafani, associate director at Cerulli.

However, the research also shows recordkeepers are incrementally more focused on providing outcome-related metrics such as retirement income replacement ratio and projected participant shortfall or surplus, that gauge participant success in the decumulation phase.

“This shift from focusing on account balance to retirement income terms is also reflected in DC plan participant data with participants under age 39,” says Anna Fang, research analyst at Cerulli. “This group is more likely than older cohorts to view projected monthly income in retirement as the most important information on their statement. The older cohorts remain focused on account balance.”

Sclafani adds “While some DC plan participants may have access to retirement income projections on their statements or plan website, there remains a lack of in-plan investment solutions that facilitate the transition from accumulation to decumulation.”

The research highlights several reasons why plan sponsors may be weary of offering in-plan guaranteed retirement solutions including lack of safe harbor from the Department of Labor (DOL), high fees and lack of portability associated with these options.

Cerulli cites one large DC plan recordkeeper as reporting that “plan sponsors would like to offer retirement income solutions to participants in-plan, but are hesitant to be a first mover, particularly in today’s extremely litigious environment.”

The firm also cites education as a barrier to offering these types of options. Cerulli notes that the DOL’s Conflict of Interest Rule, which goes into effect April 2017, will have a bearing on education because plan sponsors will no longer be able to mention specific investment products in educational illustrations or models, making explaining an already complex product, such as an annuity, even more difficult with plan participants.

In its report, Cerulli also emphasized that segmenting plan participants into ever-specific criteria can be effective in identifying how they process plan-related info and view investing in general. The firm highlights areas such as age, gender and investment balance as key factors in determining these trends among their participants.

In its report, Cerulli noted, “For example, participants age 39 and under overwhelmingly receive statements by email only, with 60% of the 30–39 age range and 79% of the under-30 cohort receiving statements by email only. Only 44% of those age 60–69 receive statements electronically. Recordkeepers can acknowledge this difference by keeping both media available, and focusing costlier written communications on older participants who are more likely to read them.”

Still, the firm says that guidance in the regulatory field is essential for plan sponsors to consider income products and provide retired participants with access to their savings in a flexible manner.

Cerulli concluded that “In sum, it is painfully clear that availability of in-plan guaranteed retirement income solutions that solve for the unique challenges of providing income in retirement remains very low, despite being a perennial DC hot-button issue. This is unlikely to change unless the DOL provides further guidance and safe harbor to plan sponsors.”

These findings are from Cerulli’s third quarter 2016 issue of “The Cerulli Edge – Retirement Edition,” which addresses participant engagement and the current perspective on retirement income solutions in DC plans. It can be purchased online here.

Benefits September 16, 2016

Employees Confused and Stressed About Selecting Health Benefits

More than half of employees working for companies offering health insurance say they would prefer assistance from their employers when choosing their health plans, according to a new report.

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Nearly half (49%) of employees eligible for employer-sponsored benefits say making health insurance decisions is “always stressful,” according to a survey conducted by Harris Poll and published in a new report by technology firm Jellyvision.  

The research found that 41% of employees find their companies’ open-enrollment process “very confusing,” and only 34% say they pay attention to all the material provided to them about their benefits. And while 52% of employees found their companies’ benefits communications “informative,” researchers note that “others use more critical language, calling their benefits communication complex (18%), disappointing (15%), boring (10%), or a waste (7%).”

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Ineffective communication strategies can mean that some employees are misinformed about key aspects of their benefits options potentially hindering them from making the best decisions. The survey found that 20% of employees regret the benefits choices they make.  

“One of the most important things we learned from this data,” says Jellyvision CEO Amanda Lannert “is employees aren’t getting enough from their current benefits communication to be fully empowered to make smart decisions. For instance, 68% of employees whose company offers a high-deductible health plan (HDHP) say the HDHP feels more expensive than other options. That kind of thinking misses the point, and it’s helpful to no one.”

The research also found that only about half of employees know their out-of-pocket maximums (53%) or their employers’ contributions to the costs of health insurance (47%). This is important to note considering research that indicates health care costs for employers is rising.

“These numbers represent a huge opportunity for employers,” adds Lannert. “First, the focus on deductible totals versus the total health plan cost may have many employees either making the wrong health-plan decision for their situations or making the right decision while thinking it’s the wrong one. If employers can better communicate that, they’ll have a happier – and healthier – workforce.”          

NEXT: How Employees Prefer Information

The research also offered insights into how employees prefer to consume health benefits information. Sixty-two percent of respondents said they want material about employer-sponsored health benefits electronically, followed by print (54%), live group presentations (30%), personal consultations (30%) and benefits fairs (21%). One percent said “other,” and only 3% said they would rather figure it out on their own.  

However, researchers also emphasized that the content in this material can be equally as important as its delivery. In its report, Jellyvison notes “Part of what makes navigating health insurance and other benefits topics so challenging for most people is all the incomprehensible jargon … While those of us who are exposed to the jargon all the time understand it, employees who only deal with it once a year can find it overwhelming. Whether you’re providing plan information to employees or promoting helpful information sessions, tools, or resources, be sure to use simple, conversational English so you can make your content easy to love.”

However, 62% of employees say they trust the information provided by their employers more than the information offered through their health insurance providers. Employees are also willing to commit effort to understanding what their employers have to say about their benefits, the research found. Sixty-seven percent of respondents said they spend either “a great deal” or “a lot” of time understanding their health care benefits.

The study found that only 10% of employees say their HDHP offers “great coverage.” The report also noted that “employees used negative terms like ‘risky’ (30%) and ‘disappointing’ (19%) more frequently than positive terms like ‘affordable’ (18%) and ‘a good value’ (17%).”

These findings are from “What Your Employees Think About Your Benefits Communication,” a joint report by Harris Poll and Jellyvision.

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