Understanding Sponsors’ Concerns about In-401(k) In-Plan Life-Time Income Products

Last week I wrote that the next big thing for 401(k) plans is In-Plan Life-Time Income Guarantees.

As providers put more resources into distribution, advisors are going to have to understand plan sponsor concerns about in-plan retirement income solutions.

Aside from the expected fiduciary concerns, a 2009 PIMCO survey provides advisors some insight as to what concerns plan sponsors have:

• Insurance company default risk (84%)
• Cost (72%)
• Transparency (66%)
• Fiduciary oversight (59%)
• Insufficient government support, e.g., safe harbor, regulatory clarity (41%)
• Lack of participant demand (28%)
• Monitoring/Benchmarking concerns (19%)
• Other, e.g., liquidity, portability, administrative issues, product immaturity, communication difficulties (16%)
• Selection criteria (9%)

But, you may say, that was four years ago. To which I would say maybe that’s why not much of this product has been sold. As I indicated in the article, LIMRA Retirement Research (LIMRA) reported that defined contribution in-plan guarantee assets totaled just $2.2 billion in a $5.1 trillion defined contribution market as of Dec. 31, 2012.

But one thing about these products is certain. They are extraordinarily complicated, and advisors are going to have to dig into the details to be able to discuss these products with their clients.

But this shouldn’t obscure the big picture. That is, there are also retirement income solutions outside of 401(k) plans.

Stay tuned.

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.