From Lifelong Savings to Retirement Income: How Plan Sponsors Can Support Retired Participants

May 2023

While defined contribution (DC) plans have historically been viewed as savings vehicles utilized in preparation for retirement, recent data indicates that retirees may be hesitant to withdraw from their accounts. As a result, DC plan sponsors are looking to reposition their plans as not only savings-oriented vehicles, but also as platforms for helping retirees turn lump-sum savings into retirement income.

Why there is a growing and immediate need for in-plan retirement income solutions

The idea of providing retirees with a better way to convert their lump-sum savings into retirement income has been discussed across the industry for years, partly because the average number of participants keeping assets in their plans for at least three years into retirement is trending upward.

Recent study findings indicate that 59% of plan sponsors recognize the need to help participants convert DC plan balances into retirement income.1

More Assets Are Remaining in Plan Postretirement

(Fig. 1) Account value retained in DC plan by participants age 65+ after one, two, or three years following separation from service

Bar charts show account value left in defined contribution (DC) plans one, two, and three years following retirement. The charts illustrate how retirees are increasingly keeping more in their DC plan in retirement.

As of December 31, 2021.
Source: T. Rowe Price recordkeeping platform.2

Where does the in-plan retirement income market stand today?

Based on the increasing number of retirees allowing their savings to remain in plan, there’s an apparent need to develop a better solution for helping them convert their savings into retirement income. In identifying that solution, it’s important to first understand the current offerings in the market and how plan sponsors and advisors feel about these options.

In two separate surveys, one for DC investment consultants or advisors and the other for plan sponsors, we asked professionals to rate current retirement income products and features from least appealing to most appealing. The results produced slim margins, which indicates the marketplace lacks conviction around any single retirement income product or feature.

While the results yielded a landscape with little differentiation from one solution to the next, respondents did generally support non-guaranteed retirement income solutions over guaranteed solutions. For both the consultants and plan sponsors, the top three options did not offer a guarantee:

  1. Simple systematic withdrawal
  2. Managed account (with income-planning feature)
  3. Target date investment with managed payout feature (non-insured)

These results indicate that the broader DC industry is evolving, specifically when it comes to offering plan participants a more personalized experience. Those who are in retirement, for example, may need a more customized withdrawal strategy and personalized investment solution than those who are still working and building their savings.

Survey Results Yield Little Differentiation Across Potential Solutions

(Fig. 2) Average ratings from plan sponsors and consultants on retirement income products and features

Retirement Income Products and Features
(Ordered by average consultant/advisor score)
DC Investment Consultants and Advisors* DC Plan Sponsors
1. Simple systematic withdrawal 3.4 2.9
2. Managed account (with income planning feature) 2.9 2.6
3. Target date investment with managed payout feature (non-insured) 2.6 2.7
4. Investment option with managed payout feature 2.5 2.2
5. Target date investment with embedded annuity feature  2.5 2.6
6. Investment that incorporates a partial guarantee 2.4 -

7. Investment solution to help maximize Social Security benefits

2.3 2.7
8. Deferred income annuity (DIA) or qualified longevity annuity contract (QLAC)  2.0 2.1
9. Immediate annuity 1.8 2.1
10. Annuity portal (access to out-of-plan annuities) - 2.0
11. Bond ladder-based investment options 1.6 2.0

Rating: Least Appealing (1) to Most Appealing (4).
*Source: T. Rowe Price, 2021 Defined Contribution Consultant Study.
Source: T. Rowe Price, Retirement Income Plan Sponsor Survey, 2020.
DC plan sponsors were not asked to rate, “Investment that incorporates a partial guarantee,” and DC consultants and advisors were not asked to rate, “Annuity portal (access to out-of-plan annuities).”
Guarantees are subject to the claims paying ability of the insurer.

What has T. Rowe Price done to address the solution gap for plan sponsors and their participants?

Several years ago, a client on our recordkeeping platform asked us to develop a solution that could integrate into their current offerings and help their retired plan participants convert their lifetime savings into a steady stream of income.

They were looking to provide a monthly payment option for fully vested participants over age 59½ who were terminated or retired. The sponsor had a few requests; the solution needed to be:

  • 100% liquid and not locked in
  • Portable
  • Easy to communicate to participants
  • Simple to evaluate and monitor

In collaboration with the plan sponsor, we developed an optional managed payout feature for their retired plan participants. The solution was implemented in 2019 as an additional vintage of the plan’s target date suite.

5 observations following the implementation of our managed payout solution

#1: It’s a feature for plan sponsors to opt into, which is an important distinction for many.
We found that plan sponsors are more comfortable having a feature like this if they can choose to “turn it on” for their participants, rather than an entirely separate investment outside of their current offerings. This flexibility has helped spur adoption.

#2: Participant experience is paramount.
Participants need to be well-informed about the feature that can help them create lifetime income from their retirement savings. When educational communications are provided, we learned that participants are much more likely to engage.

#3: Retirement income isn’t a priority for all plans. Is it for yours?
The onset of the coronavirus pandemic forced sponsors to shift their priorities to other areas. But now that we’ve turned a page on this global pandemic, more plan sponsors are re-engaging with us to explore adding an investment option with a managed payout feature to their suite.

#4: It takes time to implement a new retirement income product.
Generally, the option of in-plan retirement income isn’t a default setting for participants. Because it’s something that must be opted into, it takes time to garner participation and adoption. It is recommended that plan sponsors set their expectations for participant engagement accordingly.

#5: Getting the whole picture is key to success.
Boosting participation is an ongoing effort, and plan sponsors will need to continue offering those nearing retirement more opportunities for learning. Retirees need to understand what their full financial picture looks like in retirement to truly comprehend the importance of a feature like this. You may need to help them look at the big picture by considering all sources of retirement income, including Social Security, investments, annuities, and employer-sponsored retirement plans.

Taking the first step toward more effective in-plan retirement income solutions

As our survey of plan sponsors and advisors indicates, there is no single solution when it comes to creating retirement income. For that reason, we see a managed payout solution as an effective first step in helping plan sponsors develop an entire retirement income ecosystem built on a plan design that provides retirement income “paychecks,” a broad array of investments, and access to financial advice.

For more information on providing in-plan retirement income solutions for participants, read our full report.

1 T. Rowe Price Retirement Income Plan Sponsor Survey, 2020. Includes responses from 211 DC plan sponsors and conducted with Pensions & Investments Content Solutions Group and Signet Research in November 2020. Not all survey respondents completed all survey questions.

2 T. Rowe Price Retirement Plan Services Recordkeeping Platform. Based on the large-market, full-service universe of T. Rowe Price Retirement Plan Services, Inc., retirement plans (401(k) and 457), consisting of 660 plans and over 2 million participants; data as of December 31, 2021.


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