US DC Plan Participants Want Certainty and Control

Jennifer DeLong: When plan sponsors are considering what type of retirement income solution to add to their plan, they should certainly take into consideration what the participants are really looking for. AB’s done a lot of research in this space for many years. What is it that we find from our research that participants really are looking for in their DC plans?

Andrew Stumacher: Two things. Certainty and control. The ability to know that when they retire there is a baseline income that will be coming in no matter what the markets do, no matter how long they live. Yet at the same time, the accumulated savings that they have from their entire life, they have full control to take that money out, at the drop of a hat, and do whatever they want with that. No one wants to work their entire life, save up this nice sum of money and then turn it over to an insurance company. They want to see that balance. And even though they have no intent necessarily of taking it out of their plan, there is a freedom associated with seeing it, knowing they could if they wanted to. And so that control is really important to participants.

JD: And so that’s contrasted perhaps with some types of lifetime income retirement—income solutions—where the participant may need to, at a point of annuitization, actually hand their money over and lose control of it?

AS: Yes. Absolutely. While some of those solutions might come with slightly more income at the cost of the liquidity. And there’s cases where people have sort of activated those benefits and lost the mortality lottery and forfeited that money to those who live longer.

JD: If participants are really looking for solutions in their DC plans that provide both that certainty of income so that they can plan the rest of their lives, including their lives in retirement, as well as the control, do solutions like that actually exist?

AS: The most common is a guaranteed lifetime withdrawal benefit, which is a really long way of saying variable annuity with the living benefit. And that’s what we’ve structured our AllianceBernstein lifetime income strategy around. But we’ve done it in a way that really elevates the model, and it’s quite elegant in how it works. It’s a multi-insurer solution so that we actually have insurers bidding every quarter on the ability to secure more income for each participant. And over time, this allows the insurers to manage their own capacity for the solution, allows the solution to be more diversified. And it tends to give us stronger rates from those insurers. And we have our solution implemented with two plans today. And we currently see a lot of activity in plan sponsors and consultants wanting to learn more, and learn how they can make it work for their own plans.