Diverse Stakeholders Look to Boost In-Plan Retirement Income

The Institutional Retirement Income Council (IRIC) has published its annual review of top retirement industry trends for plan sponsors, providers and advisers to watch in 2019.

Thanks to the work of various stakeholders, IRIC says it expects a growing number of plan sponsors to evaluate and adopt retirement income solutions and decumulation strategies for their defined contribution (DC) plans.

“The continued decline of defined benefit plans along with the Social Security trustees again projecting that both Social Security and Medicare face long-term financing shortfalls puts more pressure on define contribution plans to become income generators for future retirees,” says Bob Melia, executive director of IRIC. 

According to Melia, DC plans are well positioned to significantly add to American’s financial security by adopting retirement income solutions that are currently available in the market today. Beyond this, legislative changes that could come into play next year—say with the passage of either the Retirement Enhancement and Savings Act or the Automatic Retirement Savings Act, among others—would likely drive greater interest and adoption of guaranteed income options for DC plans.

IRIC’s analysis suggests fee compression will continue “in all areas of the marketplace.” At the same time, the advocacy organization says continued net flows out of the DC system, driven by Baby Boomer retirements, could cause continued consolidation and redoubling of efforts by recordkeepers to keep assets in DC plans. 

“Such recordkeepers could improve their revenues and increase the security of its participants by offering institutional income solutions as part of defined contribution recordkeeping services,” IRIC suggests.

Beyond a deeper focus on retirement income solutions, IRIC believes health savings accounts (HSAs) will continue to enjoy greater attention and adoption among employers.

“DC recordkeepers that integrate with HSAs will have an advantage as the definition of retirement security broadens to include health care costs late in life,” IRIC says. “Additionally, the further integration will reinforce the trend of open enrollment including 401(k) plans, giving participants better tools for deciding how to invest HSAs assets while encouraging accumulation of HSA savings for retirement.”

IRIC concludes a broader and more comprehensive view of retirement security can also help DC providers to consolidate retirement assets in the participant’s DC plan and offer draw-down strategies that increase the security of the participants who take advantage of such services.

With the prospect of slower growth and greater volatility in 2019, IRIC says the way participants react to these challenges could drive greater proliferation of, and demand for, products offering downside protection. This means participants may be more interested in stable value contracts, insurance products such as deferred annuities and guaranteed income benefits, alternative funds and real asset funds, IRIC says.

“All eyes will be on Washington and the new Congress next year as any retirement legislation could drive plan sponsor interest in offering guaranteed income options to their 401(k) plan participants,” says Martha Tejera, an IRIC member with Tejera Associates. “The bills that have been introduced signal bipartisan support for plan sponsors to adopt retirement income strategies. Additionally, plan sponsors have been taking a more proactive role in offering employees financial wellness tools, which are philosophically aligned with the intent of retirement income solutions.”

Another IRIC member, Dana Hildebrandt of Willis Towers Watson, says the increased attention paid to lifetime income “definitely presents opportunities” for all industry stakeholders.  

“In terms of products, specialized non-guaranteed (investment-only) lifetime income options emerging in the DC landscape represent a simple, straightforward compliment to annuities and guaranteed products as income options,” she says. “In terms of flexibility, amending plan documents to allow for periodic payments and systematic installments may allow recordkeepers to retain assets under management while providing participants with institutionally priced funds as they draw down their nest egg. This could benefit participants immensely as keeping assets institutionally invested through the draw down phase will allow them to receive the benefits of that pricing.”

For more research and information about IRIC, visit www.iricouncil.org.