Interest in Retaining Retiree Assets Has Grown, Highlighting Retirement Income

More than half (54%) of all 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, new Cerulli Associates research shows.

“Many larger plan sponsors are considering or implementing plan design and investment lineup changes to make their plans decumulation-friendly,” stated Shawn O’Brien, an associate director at Cerulli Associates, in a press release. “As more plan sponsors strive to keep participants’ assets in-plan, asset managers should focus their retirement income product distribution on the mega plan market.”

Vanguard Group research published earlier this year also showed defined contribution retirement plan participants increasingly remaining in the plan after terminating employment.

ATTN: Asset Managers

Increasing interest from DCIO asset managers potentially presents greater room for in-plan retirement income developments, because the Cerulli research found retirement income is the most prevalent issue within the DCIO space.

Nearly nine in 10 (88%) defined contribution investment-only asset managers said conversations with plan sponsors, advisers and consultants related to in-plan retirement income have increased in the last year, as some larger plan sponsors want to implement the plan design and investment lineup changes necessary, according to Cerulli’s April research brief.  

“Overall, growing interest from plan sponsors in making their plans more retiree-friendly creates an opportunity for asset managers and retirement plan providers to satisfy a nascent, albeit largely unmet, need for more effective, comprehensive in-plan decumulation solutions,” stated O’Brien.

Findings from Cerulli’s 2022 DC Consultant Survey find similar results to the intertest among plan sponsors: 16% of consultant-intermediated plans actively seek to keep retiree assets in-plan—under a broader definition of retirement industry consultants that includes both institutional investment consultants and retirement aggregators, says a spokesperson—and another 42% prefer to keep retiree assets in-plan. When looking specifically at plans intermediated by institutional investment consultants, 35% actively seek to retain retiree assets and an additional 40% prefer to retain retiree assets but do not actively seek to retain them, research shows.

“Considering the size of the plans that institutional investment consultants advise, this data confirms what many industry stakeholders suspect—that interest in keeping retiree assets in-plan is greater among plan sponsors in the large and mega plan market than those in smaller plan asset segments,” the research brief stated.

Mega plans have assets greater than or equal to $1 billion, and large plans have between $250 million and $1 billion in assets, according to a Cerulli spokesperson.

Recommendations

With more plan sponsors, plan consultants and retirement plan advisers interested in talking about retirement income, Cerulli recommends:

• Asset managers’ key account managers and consultant-relations personnel schedule periodic check-ins with plan sponsors to assess any progress or new initiatives for making their retirement plan more suitable for decumulation; and
• Creating user-friendly, cost-conscious retirement income solutions—that distill investment algorithms, scenario analyses and Monte Carlo simulations used by asset managers into simple, straightforward investment products and participant user experiences—are likely to resonate with both end-users and plan sponsors.

For retirement income planning, the Cerulli brief stated that for most defined contribution plan participants, personalized advice is most valuable.

“Currently, DC managed account providers are best positioned to deliver holistic, advice-based retirement income solutions, but most are geared toward improving participants’ ’retirement readiness’ as opposed to delivering a paycheck in retirement,” wrote Cerulli.

Cerulli Associates gathered the data for the April Retirement Income Issue in the third quarter of 2022 as part of Cerulli’s Defined Contribution Distribution 2022 report, based on a proprietary survey of 35 DCIO asset managers, including the 10 largest by DCIO assets as of year-end 2021, according to a Cerulli spokesperson.  

The full Cerulli Edge report is available for purchase.