Dan Notto, ERISA Strategist, discusses key considerations for DC plan sponsors thinking about offering in-plan retirement income solutions to retired employees.
In recent years, defined contribution (DC) plan sponsors have shown an increased desire to keep retired employees in their plans. Those that do often have a genuine concern for the well-being of their former employees and believe that these individuals would continue to benefit from their plans’ lower investment fees, in contrast to the fees they would pay if they rolled over their savings to an IRA. Furthermore, keeping retirees—along with their typically higher account balances—in their plans may help the plans continue to qualify for lower-cost investments.
If their goal is to keep retirees in their plans, prudent fiduciaries of DC plans subject to the Employee Retirement Income Security Act (ERISA) should provide an effective mechanism for retirees to receive benefits throughout their retirement years. There are a number of questions fiduciaries may want to consider as they go about the process of adding retirement income solutions to their plans.
Choosing the type of retirement income solution
A plan sponsor wishing to add a post-retirement income solution to the DC plan’s menu should engage in a deliberate process to determine the type of solution to be added. A good place to start is to collect information about the types of products available in the marketplace. This will help sponsors gain an understanding of how different products work and their features, benefits and tradeoffs.
1 DOL Reg. Section 2550.404a-4(b). Also note that bipartisan bills have been introduced in Congress that would create a statutory fiduciary safe harbor for the selection of insurance companies to provide guaranteed lifetime income contracts for defined contribution plans. One such bill is the Retirement Enhancement and Savings Act, H.R. 1007.