Retirement Experts Urge Plan Sponsors to Shift Focus from Accumulation to Generating Lifetime Income

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Generating secure lifetime retirement income should become an urgent priority for plan sponsors and participants, according to the Institutional Retirement Income Research Council (IRIRC). In its first white paper, Institutional Retirement Income Solutions: A Call to Action, available through the organization's website, w http://www.irirc.com, the IRIRC discusses why defined contribution plan sponsors should consider adding retirement income solutions to their plans.

Participants are unprepared to manage the dizzying amount of choices and decisions they must make in order to prepare for retirement.

Generating secure lifetime retirement income should become an urgent priority for plan sponsors and participants, according to the Institutional Retirement Income Research Council (IRIRC).

In its first white paper, Institutional Retirement Income Solutions: A Call to Action, available through the organization's website, http://www.irirc.com, the IRIRC discusses why defined contribution plan sponsors should consider adding retirement income solutions to their plans.

"We realize that the current defined contribution approach is leaving retiring participants unprepared to construct a sustainable draw down of their assets in order to generate secure lifetime income that they will not be able to outlive," said IRIRC co-chair Martha Spano, who is the West Division Practice Leader for the consulting firm Watson Wyatt.

In the 12-month period through October 2008, research has found that 401(k) plans and individual retirement accounts dropped in value by $2 trillion due to market volatility.

"The current economic crisis has exposed the flaws in the existing retirement system and the IRIRC can provide tools and information to help plan sponsors and participants fill in the gaps, and capably manage the ever-changing defined contribution marketplace," Spano said.

An increasing number of workers with retirement plan coverage - nine in 10 - are covered by 401(k) or similar defined contributions plans. As a result, defined contribution plan assets are projected to be the primary source of retirement income for future retirees, and the responsibility to save for and generate a guaranteed retirement income has transferred from institutions to individuals.

"The shift toward individual responsibility has swung too far," said Dr. Jeffrey Brown, William G. Karnes professor, Department of Finance at the University of Illinois and Director of the Center for Business and Public Policy in the College of Business. "Participants are unprepared to manage the dizzying amount of choices and decisions they must make in order to prepare for retirement."

"We need a new model - it is not enough for an individual to accumulate savings to have retirement security at 62. We now need to think about the sustainability it provides as people continue to enjoy longer lives," Brown said.

Institutional Retirement Income Solutions: A Call to Action suggests:

  • Increasing longevity, poor financial literacy and behavioral biases are compounding the challenge for plan participants;
  • Employers' roles are evolving and they are in a unique position to have the greatest impact in helping plan participants become more successful through the emergence of automatic enrollment, escalation and qualified default investment alternatives as common features in many plans;
  • Plan designs should evolve beyond their current focus on helping employees accumulate an adequate amount of retirement savings and expand to encourage participant behavior that accomplishes the goal of securing lifetime income during retirement; and
  • Success of the DC plan should be based on whether the plan facilitates adequate retirement income versus participation rates.

"The only way to quell the increasing public angst around the ability of Americans to retire in the future is for stakeholders from all areas of the retirement industry to come together and encourage plan sponsors to implement optimal retirement income solutions that address many of the problems retirees face in generating secure lifetime income," said Spano.

The Institutional Retirement Income Research Council, an independent think tank, was established in 2007 to advance the interests of retirement savings plan participants, plan sponsors, plan advisors and consultants by: analyzing innovative approaches to in-plan, institutional retirement income solutions; creating acceptable best practices and evaluation tools to supplement the decision making; discussing and identifying regulatory, legislative, and fiduciary issues pertinent to in-plan, institutional income solutions; and producing and publishing relevant findings through various media outlets.

Prudential Retirement is member of the independent think tank. Prudential Retirement is a business of Prudential Financial, Inc. (NYSE: PRU).

Prudential Retirement Insurance and Annuity Company, Hartford, CT, a Prudential Financial company.

http://www.irirc.com

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