Data and Research September 7, 2023

Plan Sponsors’ Retirement Income Thinking Has ‘Evolved’

More employers are considering in-plan decumulation options.

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Plan sponsors have altered their outlook toward implementing in-plan lifetime income solutions, evolving into increased adoption and less exploration, new research shows.

T. Rowe Price’s 2023 Defined Contribution Consultant Research Study found that systematic withdrawal capability is the by far the most appealing option. 

Plan sponsors have made significant progress toward implementation of retirement income offerings. The data shows a significant increase in the share of clients that consultants define as currently offering or planning to add a retirement income solution: 19% of clients in 2023, compared with 8% of clients in 2021, the firm found.

“We did see movement in terms of data for those plans that consultants described as having no stated opinion to actually having an opinion on retirement income,” says Jessica Sclafani, a senior defined contribution strategist at T. Rowe Price. “And then in terms of implementation, we have observed on our own record keeping platform [where] we offer a managed payout solution as an in plan Retirement Income Solution…Starting I’d say as recent as the second half of 2020 we’ve seen more plans reengaging with us on the topic of retirement income.” 

Further evidence of the movement is a “dramatic decrease” in the rate of plan sponsor clients that consultants and retirement adviser firm respondents—24% in 2023, down from 59% in 2021—describe as “having no opinion” on offering in-plan retirement income solutions.

“Among the varied retirement income solutions available, study respondents identify a simple systematic withdrawal capability as most appealing, closely followed by managed accounts with income planning features and target date investments with an embedded, non-insured managed payout feature,” the report stated among its key findings.

Consultants and advisory firm views, scoring on a point scale—one for least appealing, through four for most appealing—revealed the most attractive strategies for delivery of retirement income. The ability to make systematic withdrawals led the way at 3.4, followed by a managed account feature at 2.8 and an uninsured target-date investment with embedded managed payout features at 2.7, the survey showed.

Plan sponsors offering systematic withdrawal facilitates participants drawing down assets from their account balance gradually, allowing workers to spend while also retaining the benefits of enrollment in a retirement plan with institutionally priced investments.

The T. Rowe Price survey “results emphasize the importance of non-investment-centric services in retaining retirees,” the authors wrote.

Research from Cerulli Associates in April found that more than half (54%) of 401(k) plan sponsors are interested in keeping retired participants’ assets in plan, up from 26% in 2019, rather than having those participants roll their assets into an individual retirement account or another employer-sponsored plan.

“We often think of the DC industry is moving at a glacial pace, but the fact that some plans are now proactively communicating to participants why they should stay in-plan is pretty wild when as recent as five to 10 years ago, some plans were structured to automatically kick retirees out of the plan [and there’s been] real shifts there,” says Sclafani.

Consultant and adviser firm respondents to the 2023 T. Rowe Price consultant survey revealed that the features considered most persuasive or effective in retaining retired participants in the plan include:

  • Targeted communications on the potential benefits of staying in plan;
  • Making financial planners/advisers available through the plan; and
  • Offering flexibility in how participants can withdraw plan assets.

Accessibility of systematic withdrawals at retirement varied by plan type, according to the PLANSPONSOR 2022 DC Plan Benchmarking Survey: More than one-third of 401(k) plans (35%) offered systematic withdrawals at retirement, compared with 53% of 403(b) plans and 53% of 457 plans, data showed. Only 7% of 401(k) plans offered in-plan retirement income products, compared with 14% of 403(b) plans and 8% of 457 plans, according to research published by PLANSPONSOR in November 2022.

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Overall, 36.1% of plan sponsors offered participants systematic withdrawal options, and for plan participants, the likelihood of accessing the feature varied: 71.9% of plans comprising retirement plan assets greater than $1 billion included the option, compared with 15.9% of plans with less than $1 million in plan assets, according to additional analysis of the PLANSPONSOR Defined Contribution Survey.

In-plan insurance-based products that guarantee income—annuities, guaranteed minimum income benefits and guaranteed minimum withdrawal benefits—were offered by 6.4% of plans with $1 billion in assets, compared to 3.2% of plans holding less than $1 million, PLANSPONSOR’s analysis found.

Benefits September 7, 2023

Saver’s Match: Opportunity to Help Close Retirement Savings Access Gap

Outlined in SECURE 2.0 to be introduced for the 2027 tax year, the Saver’s Match is a 50% federal matching contribution deposited directly into a taxpayer’s IRA or retirement plan.

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When looking for wider access to retirement savings, as well as more equitable benefits, the Saver’s Match will offer an opportunity to amass meaningful amounts of money in the retirement accounts of workers with low incomes, according to experts who spoke at the seventh annual Aspen Leadership Forum on Retirement Savings, held May 31-June 2 and summarized in a recent report released by the Aspen Institute Financial Security Program.  

The SECURE 2.0 Act of 2022 revised what was formally known as the Saver’s Credit, which allowed qualified individuals—namely low- and mid-income workers—participating in a retirement plan or contributing to an IRA to receive a nonrefundable tax credit of up to 50% of their contribution, up to a maximum contribution of $2,000 (or $4,000 if married filing jointly). 

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The Saver’s Match will replace the Saver’s Credit, changing from a credit paid as part of a tax refund into a federal matching contribution that must be deposited into a taxpayer’s IRA or retirement plan. The match program is equal to 50% of IRA or retirement plan contributions, up to $2,000 per individual. 

According to law firm Schneider Downs, qualified participants will be able to choose which retirement account to receive the contribution, excluding Roth accounts. If a participant’s annual contributions are less than $100, the matching contribution will be applied to lower their tax liability, or, if elected, a participant can have their matching contribution applied to pay their tax return, similar to how the Saver’s Credit functions. 

The match deposited into an individual’s account does not count toward an annual contribution limit. The goal is to make it easier for people to save for retirement by actually putting more money into retirement accounts. 

This match is set to become effective for taxable years after December 31, 2026, according to the provision. 

Retirement experts at the Aspen Leadership Forum said there is concern that without “thoughtful and strategic preparation,” the program may not reach its full potential.  

“We need to do the necessary background work to ensure that the Saver’s Match succeeds—and we need to begin that work now,” the brief from the Aspen Institute stated. “Specifically, we must identify potential operational challenges and programmatic bottlenecks and preemptively establish the necessary workarounds and solutions. At the same time, we must build a broad and powerful cross-sector base of support to help this program be most effective for the workers it is meant to serve when this match becomes available in 2027.” 

Joshua Luskin, the managing director of Secure Retirement Trust, a nonprofit retirement plan for home care workers in Seattle, says the Saver’s Credit is beneficial for low-income participants, but very few currently take advantage of it. He says more education about this benefit would make it more effective and, as a whole, more legislation is needed to help low-income workers. 

 

SECURE 2.0 requires that the U.S. Department of the Treasury increase public awareness of the matching contribution program. This will include: 

  • Developing and distributing digital and print materials about the Saver’s Match, including materials for state-facilitated retirement savings programs;  
  • Translating these materials into the 10 most commonly spoken languages in the U.S.; and 
  • Making people aware of the potential penalties for withdrawing matching contributions early. 

The Treasury must submit a report to Congress by July 1, 2026, summarizing its planned promotional efforts.  

Speakers at the Aspen Institute forum also argued that the retirement industry, as a whole, needs more diverse voices and should partner with peers in related areas of household finance, including those focused on expanding economic opportunity, access to housing and credit, debt relief and more, in order to help close the retirement savings access gap. 

“Given the interconnected nature of these issues and the burgeoning sense that national policy will be required to eradicate the retirement savings access gap, there is an urgent need to bring new voices, expertise, and perspectives to the inclusive retirement savings community in order to both learn from one another and share networks, resources and ideas, and also to build a broader, more diverse coalition that better represents the larger ecosystem of household wellbeing, of which retirement is a critical piece,” the Institute’s summary stated. 

The Aspen Leadership Forum welcomed retirement experts from the public, private and nonprofit sectors, including corporate leaders, policymakers, researchers and advocates convened at the Sagamore Pendry Baltimore hotel. Conducted under the Chatham House Rule, which prevents speakers from being identified by name or by affiliation, the Aspen Institute’s summary was written by Loren Berlin who served as forum rapporteur. 

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