Retirement Income Stands out as a Rare Consensus Focus for Politicians

While expectations around retirement regulation and enforcement shift meaningfully depending on who sits in the White House, retirement income access within defined contribution plans has emerged as one of the few truly bipartisan topics where political parties, regulators, and the industry are aligned.

A couple of critical factors underlie the bipartisan support for easier access to retirement income within DC plans. There’s been a meaningful shift from defined benefit pensions to DC plans over the last several decades. DB plans offer retirees guaranteed income for life while DC plans put the responsibility for retirement income planning on the individual; a real challenge for most Americans to manage. Combined with increased life expectancies, this lack of income certainty is causing concerns for those near or in retirement.

Retirement income uncertainty does not just impact workers, employers are affected as well. With the relatively low unemployment rate in the U.S. recently, employees can be more selective with where they choose to work. The Employee Benefit Research Institute’s 2021 Retirement Confidence Survey showed that three quarters of workers would prefer in-plan solutions that offered some guaranteed income for life.  Inclusion of those offerings can benefit employee retention and recruitment. One of the impacts of retirement income insecurity, is delayed retirement. A 2017 study by Prudential showed that that the cost to employers of a single employee delaying retirement for one year is more than $50,000.

These challenges are real for both individuals and their employers, but retirement income solutions may solve these challenges. Retirement income offerings can both help make a company an attractive place to work, and also facilitate timely retirements; helping companies compete for talent and better manage expenses.  

Both major political parties and the business community agree on the need for solutions to help address these challenges, and they’ve taken action to address.  The Setting Every Community Up for Retirement Enhancement Act of 2019 was passed with bi-partisan support in the House and Senate before being signed into law by President Trump. That law made it easier to include annuities in 401(k) plans by offering a fiduciary safe harbor, which reduces liability for plan sponsors when selecting a guaranteed retirement income solution.  The SECURE 2.0 Act of 2022, also passed with bi-partisan support, was signed into law by President Biden. SECURE 2.0 builds upon the 2019 law’s efforts to improve access to retirement income with several additional provisions. It allows individuals to move up to $200,000 from a retirement plan or IRA into a Qualified Longevity Annuity Contract and also encourages the use of annuities with provisions including annuity portability.

With employee and employer retirement income needs clear, the federal government responded with rare, consensus action to address those needs. The next step in executing on delivery of retirement income access through DC plans falls on the business community. That has not happened as quickly as many had planned or hoped, but positive signs are emerging. Delivering better outcomes for American workers requires industry collaboration along the same lines we have seen from politicians. Standardizing nomenclature around guaranteed retirement income offerings, educating advisers and plans sponsors, and increasing availability of these solutions are crucial for success. In 2022, Broadridge started a Retirement Income Consortium to bring like-minded firms together to increase plan sponsor consideration of retirement income solutions (both guaranteed and non-guaranteed). Since its inception, there have been more than 20,000 views of the consortium’s educational webinars.  In January, Fidelity announced national availability of its Guaranteed Income Direct Solution; a bold move from the U.S.’s largest retirement provider. In March, the second largest retirement record keeper, Empower, announced the launch of four retirement income solutions on its platform. Also in March, BlackRock CEO Larry Fink’s annual letter to investors highlighted its ‘LifePath Paycheck’ solution, which offers guaranteed income access. Fink expects that investment strategy to be the most used in DC plans. Finally, a retirement income training certificate program offered by the National Association of Plan Advisors was oversubscribed at the group’s annual conference last April.  There is much more to be done, but these ‘green shoots’ of activity bode well for increased retirement income access.

The table has been set for a blue-ocean retirement plan opportunity and progress depends on the collective action of business leaders, policymakers, plan sponsors and other stakeholders in the retirement ecosystem. Embracing innovative retirement income solutions is a win-win for individuals and businesses, and now is the time to turn bipartisan consensus into action to create a robust pathway to a dignified retirement for all.

John Faustino is the head of retirement products at Broadridge Financial Solutions. Bonnie Treichel is founder and chief solutions officer at Endeavor Retirement.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.