Participant Attitudes Toward Guaranteed Income in a Defined-Contribution Plan
Many Americans are approaching their retirement with Social Security as their only protected income. The decline in traditional defined-benefit (DB) retirement pension plans that pay a monthly income is requiring many Americans to assume the risk of determining how best to spend their accumulated savings in retirement without running out of money. Annuities can fulfill the role that traditional DB pension plans played by providing a monthly income for life, but the switch to defined-contribution (DC) plans has not resulted in large numbers of people choosing to purchase income annuities after they retire.
The Setting Every Community for Retirement Enhancement Act (SECURE Act) of 2020 provides additional protections to retirement plan sponsors who add lifetime income products to DC plans. Safe harbor protections should reduce the perceived cost of adding annuities as an investment option within 401(k)s, and more than half of plan sponsors indicated in a 2021 survey that they were moderately or very interested in adding annuities to their DC plan. Forty-three percent of respondent plan sponsors who did not intend to add annuities indicated that their concerns about participant use were a major reason for avoiding annuities, up from 28 percent in 2020 (Alight 2021).