Retirement Insights

Access To Guaranteed Lifetime Income Boosts Employee Confidence, Retirement Savings

More than 30 percent of employees increased their retirement savings contributions in 2020; Popularity of in-plan lifetime income solutions grows among 401(k), 403(b) plan sponsors

A new Retirement Insights survey from TIAA reveals that amid the pandemic, 3 in 4 sponsors are actively working with employees to help improve their retirement savings. Access the full report here.

NEW YORK February 23 2021 – Helping employees save for retirement remains a priority for a substantial majority (74 percent) of employers and, despite economic uncertainty, more than three in ten employees say they increased their retirement savings contributions in the last year, according to the TIAA Retirement Insights Survey.

Further, 80 percent of employees who have guaranteed lifetime income in retirement — like an in-plan annuity — say they feel confident in their progress toward their long-term savings goals, compared to 45 percent of those who do not have a source of guaranteed lifetime income. Similarly, nearly nine in ten employers who offer in-plan guaranteed lifetime income options consider them to be extremely or very valuable for employees.

Survey Suggests The Pandemic Is Shifting Attitudes Toward In-Plan Guaranteed Lifetime Income Options

Adding in-plan guaranteed lifetime income options to retirement plan designs will likely be a significant trend this year as 74 percent of employers say helping their employees save for retirement is a priority, and as most employers (88 percent) view retirement plans as both a vehicle for accumulation and a way to provide their employees with secure income through retirement.

According to the survey, more than one-third (34 percent) of employers say enabling income replacement in retirement is most influential to their retirement plan design, and 77 percent are interested in adding new target-date funds with lifetime income allocations to their plans. Seventy-one percent of employers say they believe their employees would be interested in guaranteed lifetime income options and more than half (51 percent) of employees agree, saying they would be highly interested in an in-plan guaranteed lifetime income annuity.

“In response to concerns about outliving retirement savings, the long-term prospects of Social Security income and an anemic interest rate environment, participants are looking for the certainty that comes with guaranteed lifetime income[1],” said Doug Chittenden, Head of Client Relationships at TIAA. “Employers play an integral role in providing participants with solutions that can create a clear path to retirement while ensuring they have a sound retirement income strategy that supports them through their retirement years.”

401(k) & 403(b) Providers Differ On The Value Of In-Plan Guaranteed Lifetime Income

Although both employers and their employees see the value of guaranteed lifetime income options, differences appear among 401(k) and 403(b) providers when it comes to retirement plan design. The survey found 403(b) plan sponsors see income replacement as the biggest influence on their plan decisions (46 percent vs. 30 percent) and consider the retirement income replacement ratio (41 percent vs. 21 percent) and retirement readiness (37 percent vs. 19 percent) as key metrics of their plan’s success. 403(b) providers are also more inclined than 401(k) providers to believe their participants would be interested in a guaranteed lifetime income annuity (82 percent vs. 67 percent).

Beyond guaranteed lifetime income, the survey also suggests that employees are eager for tools and solutions from their plan sponsors that can help them achieve their retirement savings goals. Of employees who increased their plan contributions in 2020, nearly half (48 percent) said they were motivated to do so by a retirement income calculator or projection and among those who saw a retirement income projection, 61 percent considered it extremely or very helpful.

Key findings from the survey also suggest employers should consider:

  • Viewing retirement savings plans as an employee retention tool: Employers most often cite attracting and retaining talent as the top reason they offer retirement plans, though more 401(k) providers (51 percent) than 403(b) providers (32 percent) see this as one of their top two reasons.
  • Expanding customized retirement plan offerings: Six in ten employers consider their plan to be highly customized to the specific demographics of their employees and overall retirement offering. However, more than half (51 percent) of employees say they would prefer more personalization.
  • Offering more financial education resources: Employees are very interested in almost all types of financial education or support that might be offered in the workplace, with nearly three-quarters saying they’d like more information about their plan or retirement savings in general. While there is a tremendous amount of interest in guaranteed lifetime income from participants, only 26% are extremely or very familiar with annuities, illustrating a significant opportunity for increased employer education on the topic.
  • Increasing online communication and updating content: Seventy seven percent of participants have checked their retirement account balance this year, and 61 percent say they have visited a provider website, highlighting engagement likely driven by the dramatic uncertainty of 2020. About half pay close attention to the performance of their retirement investments and plan statements.
Nearly 9 in 10 sponsors who offer in-plan guaranteed lifetime income options consider them to be extremely/very valuable for employees...

Excerpts from the TIAA Retirement Insights survey:

Despite the volatile year, 3 in 10 participants increased their plan contribution. Retirement income calculators/projections were the most common motivators. Of those who were motivated to increase their contribution, 48% credit an income calculator/projection for the motivation. In addition, among those who saw a projection, 61% considered it extremely/very helpful. Further, 80 percent of employees who have guaranteed lifetime income in retirement say they feel confident about their progress toward their long-term savings goals.

Sponsors are 3X as likely to say the main purpose of their plan is to provide secure income throughout retirement vs. just considering them vehicles for accumulation. In addition, half consider both of these purposes to be equally important. Sponsors are also most likely to see “enabling adequate income replacement” as the single biggest influence on overall plan design.

86% of sponsors who offer in-plan GLI options consider them to be highly valuable for employees and 71% think the average employee would be highly interested. Participants aren’t quite this enthusiastic, but a full 51% of all participants do say they would be extremely/very interested in an in-plan GLI annuity.

7 in 10 of both participants and sponsors would consider a program that offered ways of obtaining guaranteed income to be extremely/very valuable. Sponsors also see a great deal of value in guidance on how much to save, pre-retirement planning programs, and educational resources regarding personal finance. Nearly three-quarters of participants say they’d like more information about their plan or retirement savings in general.To see the full survey results click here.

  • Nearly 9 in 10 sponsors who offer in-plan guaranteed lifetime income options consider them to be extremely/very valuable for employees.
  • Of sponsors who do not offer lifetime income, interest in doing so is more muted: only a third are highly interested. However, 9 in 10 are at least somewhat interested. 77% would also be highly interested in a new TDF geared towards allocating to lifetime income.
  • In general, sponsors strongly believe the average participant would be highly interested in a GLI annuity: 71% say participants would be extremely/very interested. 403(b) sponsors are especially likely to say this is the case (82% vs. 67% of 401(k) sponsors).
  • Half of participants are either highly interested in GLI annuities or already claim to own one. Looking specifically at those who do not own GLI, a third are
    extremely/very interested.
  • Lastly, the appeal of GLI annuities definitely increases when offered in-plan: half of all participants are highly interested and 44% of those without GLI say the same.

 

 

 

[1] Any guarantees are backed by the claims-paying ability of the issuing company.