Our retirement plan industry is evolving. Since the beginning of 401(k) plans in the early 1980s, service providers have continued to add features such as participant-directed accounts, loans, and self-directed brokerage accounts.

Most of these 401(k) enhancements were driven by the large plan market which filtered downstream to small plans. But one new 401(k) feature that’s starting to take off is being driven by the small plan market.

It’s In-Plan Life-Time Income Guarantees that are part of a 401(k) plan. They work like this: participants have the opportunity while they are still working to use some of their plan assets to provide future lifetime guaranteed retirement income.

There are two kinds guarantees being sold: 1) the guaranteed lifetime withdrawal benefit (GLWB), and 2) the deferred income annuity (DIA). I’ll defer (pardon the pun) the details for another time, but suffice it say that according to LIMRA Retirement Research (LIMRA) defined contribution in-plan guarantee assets totaled $2.2 billion as of Dec. 31, 2012. 

Here’s a plan breakdown on distribution of the 1.8 million participants who have access to in-plan guarantees, according to LIMRA:

  • 20,300 Small Plans (assets less than $10 million) of which 22% cover at least one person
  • 1,200 Mid-Sized Plans (assets between $10 million to $200 million) of which 72%  cover at least one person
  • Less than 100 Large Plans (assets more than $200 million) of which 100% cover at least one person

It’s too soon to tell the extent to which In-Plan Guarantees are added by employers to their 401(k) plans and selected by plan participants. But one thing is certain: There’s $5.1 trillion in defined contribution assets that 401(k) providers have in their sights.
Jerry Kalish is President of National Benefit Services, Inc., a Chicago-based retirement consulting, actuarial, and administrative firm. He has been publishing The Retirement Plan Blog since 2006. He can be reached via email at jerry@nationalbenefit.com.



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