For much of the 45-year history of the defined contribution (“DC”) industry, plan sponsors have focused their efforts on increasing employee participation and helping them accumulate sufficient savings during working years to have adequate assets for retirement. In recent years, as more participants neared and entered retirement, a greater emphasis has been placed on what happens once workers retire (i.e., the decumulation phase). Given that the DC construct, relative to defined benefit schemes, shifts multiple risks to the participant such as sequence of returns, longevity, and investment risk, ensuring that participants’ retirement dollars last for the remainder of their lives is a major concern. This increased focus has also been aided by the concern that the Social Security program is projected to run out of reserves in approximately ten years, leaving roughly 66% of recipients seeing their benefits cut by 23-25%. Ensuring that participants have enough assets to last them through their retirement years is a crucial matter for plan sponsors today.
In this paper we will discuss recent legislative initiatives that focus on retirement income, the benefits and constraints of several existing retirement income solutions, and considerations that plan sponsors should evaluate as they contemplate which strategies they can and might consider offering to plan participants. Since many public DC plans contain guaranteed income solutions in their structures, we focus our analysis primarily on the private DC sector.