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Prudential: Guaranteed lifetime income options in 401(k)s helps bring financial security closer to employees, reduce costs for employers
[May 25, 2017]

Prudential: Guaranteed lifetime income options in 401(k)s helps bring financial security closer to employees, reduce costs for employers


Guaranteed income solutions can help bring financial security within reach of employees, helping to reduce the amount they would need to save by as much as 36 percent, according to Prudential Financial1. And a new paper from Prudential Retirement says employers can also benefit through improved workforce management and reduced workforce costs. Prudential Retirement is a business of Prudential Financial, Inc. (NYSE: PRU).

The Prudential Retirement paper, On the Road to Financial Wellness, Lifetime Income Is Key, provides evidence to support what finance executives and plan sponsors are recognizing-that when employees feel financially secure they are also less distracted, more engaged and more likely to retire on time2.

This "wellness effect" is more likely to happen when employers provide an all-too-rare but key component to lasting financial wellness-retirement income that is guaranteed for life, according to the paper. While a variety of options have been available for some time, in-plan guaranteed lifetime income solutions are not being used as much as they could. Fewer than half of plan sponsors offer a retirement income solution as part of their defined contribution plan-typically a 401(k)-and only one fifth of those offer a guaranteed income product.

"Best-practice DC plan design incorporating a guaranteed lifetime income solution can be a key to better retirement outcomes and improved financial wellness," said Douglas McIntosh, vice president, Full Service Solutions at Prudential Retirement. "The fear of outliving one's retirement assets is a top concern for many employees as they contemplate retirement. A guaranteed income solution can help assuage their fears about longevity risk and help them weather market volatility."

Employers who add a guaranteed income option to their 401(k)s have the potential to experience positive outcomes, too. When employees feel more secure about retirement, they are more likely to retire on time. A 2017 Prudential study found that a one-year increase in average retirement age results in an incremental workforce cost of over $50,000. Also, retirees with lifetime income are much more likely to keep their assets in-plan-helping plan sponsors retain the cost benefits that come with scale.

"It's understandable why advisors and plan sponsors might have shied away from offering guaranteed income solutions in the past," McIntosh continued. "But the in-plan guaranteed income market has made great strides in terms of transparency and simplification. Also, regulatory bodies have released a succession of guidance and clarifying rulings in support of income solutions within DC plans."

The paper also examines a wide range of retirement income options available to plan sponsors, including guaranteed minimum withdrawal benefits, which not only provide guaranteed lifetime income, but sustained potential for growth, downside market protection and full liquidity of the underlying assets. They can be purchased at any time, but are usually "turned on" 10 years before retirement.

About Prudential Retirement

Prudential Retirement delivers retirement plan solutions for public, private, and nonprofit organizations. Services include defined contribution, defined benefit and non-qualified deferred compensation recordkeeping, administrative services, investment management, comprehensive employee education and communications, and trustee services, as well as a variety of products and strategies, including institutional investment and income products, pension risk transfer solutions and structured settlement services. With more than 85 years of retirement experience, Prudential Retirement helps meet the needs of 4.2 million participants and annuitants. Prudential Retirement has $395.5 billion in retirement account values as of March 31, 2017. Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, Conn., or its affiliates.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader, has operations in the United States, Asia, Europe, and Latin America. For more information, please visit news.prudential.com

Guarantees are based on claims-paying ability of the insurance company and are subject to certain limitations, terms and conditions. Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force.





 
1 Prudential Financial, What Employers Lose in the Shift from Defined Benefit to Defined Contribution Plans ... and How to Get it Back, 2015, page 9. Calculations of 2,000 Monte Carlo simulations using a guaranteed minimum withdrawal benefit
2

The Cerulli Edge-U.S. Retirement Edition, "What to watch in 2017," 1Q 2017, www.cerulli.com.


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