For U.S. 401(k) Plans, Retirement Income May Be Next on the Agenda

For U.S. 401(k) Plans, Retirement Income May Be Next on the Agenda
FOR IMMEDIATE RELEASE

June 2018, Boston. In the 250th issue of The Cerulli Edge–U.S. Asset and Wealth Management Edition, Cerulli Associates, a global research and consulting firm, finds that as continued innovation in the defined contribution (DC) market removes control from the hands of participants and pushes it closer to the employer-driven defined benefit (DB) market, DC plans are beginning to evolve to offer participants a guaranteed income stream to ensure they do not outlive their savings.

“We are seeing a DC industry in which plan sponsors and consultants are taking a degree of control away from the participant with the intention of guiding plan participants to better decisions around retirement savings,” says Bing Waldert, a managing director at Cerulli. “As part of this continued innovation, converting the 401(k) plan to an income platform is a step in taking DB market experience and applying it to the 401(k) market,” explains Waldert.

“This conversion can be thought of in two phases. The first is perhaps the simplest—many 401(k) plans simply are not designed for investors to flexibly take out income,” continues Waldert. “Consultants, recordkeepers, and asset managers can work with plan sponsors to redesign the plan to offer a broader set of distribution options, including partial withdrawals or regular, systematic payments.”

“The second and more challenging development for evolving 401(k) plans to become an income platform is offering the correct products. The simplest inclusion is making retirement income options available in target-date products,” explains Waldert. “For example, managed payout funds aim to provide steady retirement income to plan participants by achieving specific annual payout targets.”

“Retirement market service providers should educate plan sponsors on the role of secure income in their participants’ retirement planning,” says Waldert. “This means making the DC platform more suitable for income, both from a flexibility and product standpoint.”

These findings and more are from the June 2018 issue of The Cerulli Edge–U.S. Asset and Wealth Management Edition, which follows the evolution of the financial services industry since the first issue of The Cerulli Edge was published in 1997. In addition, we offer our insights on potential strategies for the industry’s future success.

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