More than half (59%) of plan sponsors in the not-for-profit sector are concerned that employees will run out of money in retirement, according to a new survey by TIAA. The study also finds that the top concern among sponsors is that workers would delay retirement due to inadequate savings (64%).
These sentiments are often reflected in the private defined contribution (DC) plan sector as well, and TIAA points to several solutions that may allay these fears including in-plan retirement income options – a choice offered by more than half of the plans TIAA surveyed.
However, the firm says those who don’t offer one share common misconceptions about annuities. Thirty-four percent say employees have better access to these investment vehicles outside the plan. Meanwhile, 21% believe the fees associated with these options are too high.
Derek Heaslip, senior managing director of institutional retirement, TIAA, says in-plan options can offer various benefits participants may not find in retail products, including lower fees.
“In-plan lifetime income options are usually group annuities so the participant typically gets better fees,” he tells PLANSPONSOR. “You can also start contributing before you retire. When you accumulate over time, you typically get better rates and the benefits of vesting and compounding, as opposed to investing in a guaranteed income option at the point of retirement.”
Ron Pressman, CEO of Institutional Financial Services at TIAA, adds: “We’ve seen that employees who contribute to an annuity through their retirement plan over time can generate more retirement income than those who simply purchase one upon retiring.”
However, research suggests that lifetime income options across the board can be very complicated for several participants to comprehend. This is why plan sponsors can benefit from a targeted, holistic approach to educating employees around key aspects of their retirement plans, including annuities as investment options.
Simple Education Needed
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