Plans, savers more aware of retirement income, but will demand follow?

Workers and their employers are becoming more concerned about how to spend down 401(k) assets during retirement, according to a recent survey commissioned by BlackRock.

Despite years of posturing by the retirement services industry and a handful of products designed to meet that need, retirement income is not the norm in defined contribution plans. And when plans do offer some way for participants to withdraw their assets, the most common options are through drawdown services or managed accounts, data from a separate report published earlier this year indicate.

Among retirement plan participants, about 90% said they are interested in retirement-income products and that having guaranteed income would be a plus, according to the BlackRock survey, which was conducted by Escalent. The survey was conducted in March among 225 large DC plans in the U.S., along with more than 1,000 participants and 300 retirees, according to the firms.

Among the retirees, two-thirds said they felt confident that they would not run out of money, due to having pension plans, annuities or other forms of guaranteed income, the report noted.

More than 80% of employers that do not include retirement income options in their plans said that they would like to add them during the following 12 months, according to BlackRock.

Many, about 63% of large DC plans, include some type of retirement income option, according to a report in February from the Callan Institute. Forty-five percent said they provide managed accounts for retirees, while just 12% offer annuities as a distribution option, that report found. Meanwhile, only 5% include in-plan guaranteed withdrawal benefits.

When asked about what topics were most important to communicate about with participants, plan sponsors ranked retirement income as one of their lowest priorities, according to Callan’s report.

The industry has been anticipating more demand for such products following the 2019 SECURE Act, which sought to make 401(k) plans more compatible with annuities.

The pandemic might also have had an effect on the perception of guaranteed income. According to BlackRock’s survey, 68% of plan sponsors said that helping participants with retirement income has become more important due to Covid.

The pandemic did not appear to affect the percentage of workers who feel “on track” with their retirement savings, at 68%, according to BlackRock. But it did appear to hurt those who were already behind on saving, with 47% of people saying the global event negatively impacted their retirement preparation, that survey found.

Overall, participants focused more on saving in 401(k) plans, if they had access to one, another report found.

A separate report last week by T. Rowe Price found that the average 401(k) account balance increased by 13% during 2020, going from $100,600 to $113,900 during the year. Participation rates also went up, going from 66% to 67%, as did the average contribution rate, which grew from 7.6% to 7.8%, according to figures from the plan provider’s book of business.