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 Greenwich Associates, surveyed 138 DC plan sponsors to shed light on changes within the industry including the use of OCIOs, alternatives, ESG and retirement income. For more detailed findings, check out The Holy Grail of DC: Income in Retirement.
For timely insights and perspectives on the defined contribution space, follow Josh Cohen on LinkedIn.
ABOUT THE SURVEY
The research was conducted by Greenwich Associates from March 5 through July 17, 2020, using an online, quantitative approach with 138 DC plan sponsors who have at least one 401(k) plan and at least $100 million in 401(k) assets.
PGIM, the global asset management business of Prudential Financial, Inc. (NYSE: PRU), ranks among the top 10 largest asset managers in the world* with $1.5 trillion in assets under management as of Dec. 31, 2020. With offices in 16 countries, PGIM’s businesses offer a range of investment solutions for retail and institutional investors around the world across a broad range of asset classes, including public fixed income, private fixed income, fundamental equity, quantitative equity, real estate and alternatives. For more information about PGIM, visit pgim.com.
Prudential Financial, Inc. (PFI) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. For more information please visit news.prudential.com.
* Prudential Financial Inc. (PFI) is the 10th largest investment manager (out of 527 firms surveyed) in terms of global assets under management based on Pensions & Investments’ Top Money Managers list published on June 1, 2020. This ranking represents global assets under management by PFI as of March 31, 2020.