2) Easy and Automatic
Many participants find retirement income solutions complicated. As a result, most 401(k) plan investors fail to convert their savings to lifetime income. For this reason, it's important to make the retirement income process easy and automatic. By leveraging an individual's primary retirement savings vehicle—their 401(k) plan—an in-plan solution simplifies an important part of the process by giving employees access to retirement income investment options while they are still in accumulation mode. ING U.S. research tells us more than eight in 10 participants want at least some guaranteed income and like the idea of an option that provides regular monthly income. They also want to have options for income planning before they retire. More than half like the idea of investing in an option while they are actively saving in their retirement plan. The introduction of automatic plan features in recent years such as auto-enrollment and auto- escalation, have helped address the hurdle of human inertia by improving 401(k) participation and savings rates. The benefits of automation can similarly be applied to investments targeting the draw-down phase. It's necessary for an income solution to utilize features that take the guesswork out of retirement planning while minimizing enrollment efforts.
3) Addresses Employer Concerns
One of the biggest concerns plan sponsors have with adopting an in-plan income solution is their expanded fiduciary liability. This liability corresponds to the selection of an insurance company providing the guarantee and the risk that it defaults on the guaranteed benefits. Historically, the Department of Labor's (DOL) fiduciary standard dictated that if an employer wanted to offer an annuity within their retirement plan, it had to be the "safest annuity." Public policy, however, is shaping change to mitigate this risk. The Pension Protection Act of 2006 directed the DOL to revisit this topic and dialogue has begun regarding how to reduce the fiduciary burden on employers. While the DOL has issued a safe harbor for ERISA fiduciaries for the selection of an annuity provider for distribution of benefits from a defined contribution plan, many plan sponsors remain reluctant to undertake the additional liability of selecting an annuity provider. Until new provisions directly address this issue, plan sponsors can consider solutions that mitigate the risk of insurer default. One way is through retirement income options designed with multiple insurance companies. Using a "multi-insurer" model spreads the guarantee among several different insurers instead of only one, further mitigating the default risk and the sponsor's fiduciary liability.
These are unprecedented times. To have a chance at reaching individuals and motivating them to be retirement ready, we need to change the game and focus on income solutions as a piece of the broader puzzle. Those providing, supporting and sponsoring retirement plans at the workplace must understand the pressing need for Americans to be retirement ready and respond with new capabilities that address this need.
Richard T. Mason is president of Corporate Markets for ING U.S. Retirement,
a strategic business unit responsible for the development, marketing and distribution
of retirement products and services for ING U.S.'s 401(k), defined benefit and
stable value clients. For more information, visit http://ing.us