Point of View’s recent survey on retirement income strategies reveals that plan sponsors don’t believe their DC plans are adequately structured to address plan participants’ “decumulation of wealth” in retirement.
As more baby boomers move into their retirement years, the need for additional education and emphasis on decumulation of retirement savings for defined contribution (DC) plan participants has become increasingly apparent. Although 401(k) plans have become the most prominent way to accumulate wealth for retirement, they are not designed to address the distribution of income at retirement.
More and more plan sponsors are beginning to turn their attention toward decumulation of wealth strategies. According to a recent Point of View survey, roughly two-thirds of respondents said they believe their DC plans are not adequately structured to address providing retirement income for participants. But many are considering implementing a strategy in 2010. These responses reflect a growing trend within the industry.
“We are definitely seeing more interest from plan sponsors seeking ways to help address the retirement income issue,” says Susan C. Czochara, senior product manager, defined contribution solutions, Northern Trust Global Investments.
Until now, the focus of most plan sponsors has been on wealth accumulation and overcoming the inertia of plan participants, giving rise to innovations in plan design such as auto-enrollment and the use of target date funds as the Qualified Default Investment Alternative. This evolution continues, with DC plan sponsors giving more consideration to expanded asset classes and glide path construction within the target date funds offered.
DC plan sponsors are taking the same approach to the retirement income side of the equation, with a growing interest in concepts such as automatic annuitization and the increased use of Treasury inflation-protected securities (TIPS), and commodities.
“It’s encouraging to see plan sponsors beginning to shift their focus to the income side of the equation,” Czochara says.
To learn more about the shift in focus from wealth accumulation to retirement asset distribution, read “The Next Priority for DC Plans,” in the Fall/Winter 2009 issue of Point of View.