Next-gen retirement income solutions must be fueled by technology and customization, PGIM study finds
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“The passage of the 2019 SECURE Act had positive implications for plan sponsors and their participants as it relates to retirement income. But our research indicates that we must continue to evolve these offerings, particularly with the help of technology, to ultimately meet the decumulation needs of American workers,” said
Retirement income solutions on the investment menu
Plan sponsors indicate stable value funds are the most common retirement income solution, with 54% offering them in their 401(k) plan, followed closely by income funds in a target-date fund series (50%).
Other investment solutions offered include long-duration fixed income funds, managed accounts, in-plan and out-of-plan annuity products and managed payout funds.
However, 23% of plan sponsors indicate they do not offer any retirement income solutions as part of their investment menu.
Plan design and communication
While nearly all (89%) of plan sponsors offer tools and advice on how to meet retirement readiness goals, PGIM’s research indicates there is room for improvement in terms of plan features that facilitate a better understanding of how to spend down assets in retirement. For instance:
- Only 66% of plan sponsors said they communicate account balances to participants in terms of projected retirement income;
- 49% allow participants to take systematic withdrawals; and
- 35% set retirement readiness objectives for participants and measure results.
“In addition to investment options, plan design and communications play a critical role in helping workers solve for lifetime income,” Cohen said. “Communicating lifetime income projections, which will be required for DC plans subject to ERISA thanks to the SECURE Act, and allowing systematic withdrawals are relatively simple enhancements plan sponsors can make to have a positive impact on employees’ retirement income stream.”
The future of retirement income
According to PGIM, the next generation of retirement income solutions should deliver both guaranteed lifetime income as well as non-guaranteed components that leverage asset allocation and asset-structure best practices, liability-driven investing concepts and institutional investments.
Cohen added, “Plan sponsors need to evolve their defined contribution plans to focus not only on retirement savings, but also achieving adequate retirement outcomes. By embracing new technologies, robust income communications, customization opportunities, and risk mitigation solutions with both non-guaranteed and guaranteed investments, DC plans have the potential to help workers meet their retirement income challenges.”
PGIM’s research series, The Evolving Defined Contribution Landscape, conducted in partnership with
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ABOUT THE SURVEY
The research was conducted by
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