If your plan has been considering adding “in-plan guarantees” to the menu of retirement savings options you offer, new research finds an appetite for them among U.S. defined contribution plan participants.
Although the actual market for these instruments in the United States is still limited, the guarantees, which give employees an opportunity while still working to use some of their plan assets to provide future guaranteed lifetime retirement income, are gaining ground, according to market analysis.
A survey by LIMRA, a financial services research firm, of insurers that sell in-plan guarantees to DC plan sponsors showed these assets totaled about $2.2 billion at the end of 2012. About 1.8 million participants have access to in-plan guarantee choices in their DC plans, the firm said, and a large number who didn’t expressed interest in having the option, according to LIMRA.
The greatest early adoption of in-plan guarantees was found among small plans — defined as those with assets under $10 million, LIMRA said. In the study, 20,300 small plans offered in-plan guarantees, with 22 percent of them reporting at least one participant covered by a guarantee. More than 1,200 midsize plans (with assets between $10 million and $200 million) had the option, with 72 percent of that size plan having at least one person covered by the option. Only a few large plans, (assets of $200 million and more) offered in-plan guarantees, the LIMRA survey found, but of those, all had at least one participant enrolled in a guarantee.
Two types of in-plan guarantees typically are sold: the guaranteed lifetime withdrawal benefit and the deferred income annuity. A GLWB translates as a rider on a variable annuity that allows minimum withdrawals from the invested amount without having to annuitize the investment. The amount that can be withdrawn is based on a percentage of the total amount invested in the annuity. A DIA is a newer type of annuity, essentially a cross between single-premium immediate and deferred annuities.
“[T]he potential is tremendous as there are more than $5.1 trillion in DC assets in the United States,” said Alison Salka, corporate vice president, LIMRA Retirement Research, in a May 10 announcement about the study. “We anticipate more sponsors of larger plans will begin to offer these products to their participants. Many employees look to create a guaranteed income stream from their accumulated assets. The industry has been working to address the issues like portability that have been a concern to sponsors.”
Importantly, LIMRA’s research with consumers found that more than a third of Americans with DC plans would be interested in purchasing an in-plan guarantee product.
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