The barometer is falling when it comes to how well companies are helping employees focus on their retirement income as well as retirement savings. In a new report on Fortune 1000 companies, MetLife’s inaugural Qualified Retirement Plan Barometer assigned a score across all plan types of 59 out of a possible 100. The higher the barometer, the stronger the overall culture of retirement income. While individual scores vary, the companies that offer broad access to defined benefit and defined contribution plans outpace plan sponsors who offer only a DC plan or incidental access to a DB plan as well as a DC plan.
MetLife commissioned the research with top plan sponsors to assess whether and to what extent a new culture is taking hold in the largest U.S. companies with respect to their qualified retirement plans (both defined contribution and defined benefit plans) — one that gives equal emphasis to retirement savings and retirement income.
Retirement plan design focuses on encouraging savings, rather than creating lifetime income for participants, according to the report. Although 93% of plan sponsors report that retirement savings is an extremely or very important objective of their retirement plans, only two-thirds (65%) deem income as comparable in importance.
According to Robin Lenna, executive vice president, Corporate Benefit Funding, MetLife, ““Although most of the burden for retirement security has shifted to employees, plan sponsors still play a critical role. Plan sponsors have more work to do. [They] continue to skew their goals, plan design, communications and decision support tools toward savings, which unfortunately favors accumulation over income.”
Distribution options for DB plans do not strongly encourage the creation of lifetime income, the report found. While 94% of plan sponsors who offer a DB plan provide standard annuity distributions, only 54% offer a full lump sum distribution and 35% allow a partial lump sum distribution.
Communication is another area where companies fall short. Although a vast majority (77%) of plan sponsors report that their employees are aware of company-provided materials pertaining to the importance of saving for retirement, just 58% think that the materials give them a clear idea of how to generate retirement income from their plans. And only one-third (34%) of plan sponsors have conducted an employee survey to gauge employee satisfaction with their employer’s education and support for their retirement plans.
“While the majority of plan sponsors provide education about the need to save for retirement and the risks of investing, very few concentrate on retirement income-related issues. Given their current focus, plan sponsors appear to be under-communicating with employees about the importance of retirement income,” commented Cynthia Mallett, vice president, product & market strategies for MetLife’s Corporate Benefit Funding group.
Mallet also noted that the balance between accumulation and income may be the optimal balanced scorecard for qualified retirement programs in the future. “Accumulation is an important plan objective —֫ and it’s crucial that plan sponsors not lose sight of that — but what we believe needs to emerge is the addition of income-related outcomes to traditional accumulation measures.”
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