Market Overview

Healthcare Costs and Outliving Savings Dampen Employer Confidence in Employees' Retirement Futures

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Survey finds nonprofits are more likely than for-profits to recommend
lifetime income solutions

A new 2018 TIAA Plan Sponsor Retirement Survey finds nearly half of
nonprofit and corporate, for-profit employers are only somewhat
confident in their employees' retirement futures and one in five say
they are not at all confident. Nearly all surveyed cited rising
healthcare costs (91 percent) followed by outliving retirement savings
(77 percent) as their biggest concerns, yet surprisingly few have built
retirement plan offerings that solve for these challenges.

Employers also worry that many of their employees are not saving enough
(75 percent) or are choosing not to participate in a retirement plan (55
percent). While employers worry about their employees' retirement
futures, budget constraints (63 percent) and attracting and retaining
talent (60 percent) are also significant concerns in managing their
workforce, according to the survey.

"While plan sponsors face a number of workforce challenges, employees
outliving their retirement savings is a top concern," said Doug
Chittenden, executive vice president and president of Institutional
Retirement at TIAA. "Creating a diversified retirement benefits menu
that includes a lifetime income option will not only help ensure
employees have enough money to cover basic expenses in retirement, it
can also help alleviate the stress of rising healthcare costs."

Employees would choose lifetime income over lump sum savings – if
they could

Giving employees access to retirement investments that guarantee income
for life is something both employers and employees say they want.
According to the survey, more than half (51 percent) of all employers
think their employees would prefer receiving $2,700 a month for life
rather than a $500,000 lump sum at retirement; this echoes an earlier
TIAA study
, in which 62 percent of employees said they would make
the same choice. Nonprofits are twice as likely as corporate,
for-profits (56% vs 25%) to believe their employees would prefer monthly
lifetime income over a lump sum.

The reality is that few employees have access to guaranteed options

While employees voice a strong interest in lifetime income options, few
have access through their employer retirement savings plans. According
to the survey:

  • Only 12 percent of employers offer annuities as retirement income
    options for retirement savings; instead, the most common options are
    target date funds (31 percent), mutual funds (30 percent) and stable
    value funds (20 percent), all of which rely on spending down assets
    and none of which create a guaranteed income stream.
  • Fifty-seven percent of employers expect employees to generate
    retirement income through systematic and lump sum
    withdrawals—distribution options that aren't guaranteed.
    • Twenty-seven percent said they don't know how their employees will
      generate income.
    • Only 14 percent expect their employees to generate income from an
      in-plan annuity.
  • Nonprofit plan sponsors are more likely than corporate, for-profit,
    plan sponsors to advocate for their employees to put their savings
    into an investment that offers lifetime income distributions once they
    retire (32 percent versus 23 percent).

"Retirement is a critical financial pillar in our country," said Mr.
Chittenden. "We must make it easier for employers to add lifetime income
options to their retirement plans, not only to help today's employees
reduce their financial risk, but to ensure the financial wellbeing of
generations to come, and support the overall economic health of our
society."

Increasing access to lifetime income

TIAA supports
regulatory and legislative efforts
that are underway to make it
easier for all employers – both nonprofit and corporate, for-profit – to
offer lifetime income options to employees.

In
a 2017 survey
, TIAA found that 71 percent of individuals support
legislation to make it easier for employer-based retirement plans to
include lifetime income products, such as annuities, as investment
options.

"We are actively working with industry leaders and lawmakers to clear
the path to offering lifetime income solutions and to educate plan
sponsors and participants about how in-plan annuity vehicles can
increase financial security," Mr. Chittenden said.

In addition to policy advocacy, TIAA recently co-founded the Alliance
for Lifetime Income
, a nonprofit initiative to help address the risk
of Americans outliving their income. The Alliance has launched a
nationwide, multi-year campaign to highlight the importance of protected
income in retirement.

Opportunities for Improving Retirement Outcomes

While creating the right investment menu is important to improving the
outlook for employee retirement, the survey revealed several other
opportunities for plan sponsors to consider, such as:

  • Analyzing workforce demographics and employee retirement
    • Forty-three percent of plan sponsors have not analyzed workforce
      demographics at all, or only to a limited extent.
    • By using tools like the TIAA Plan Outcome Assessment, plan
      sponsors can gain important insights about their employees'
      demographics, behaviors and overall retirement readiness to better
      tailor advice, education and other resources that their employees
      can utilize for their retirement planning.
  • Work with retirement plan providers to offer free financial advice,
    education and retirement planning tools to improve employee engagement
    and build financial literacy.
    • Plan sponsors say free financial advice (39 percent) and
      comprehensive financial education (33 percent) are the most useful
      resources for employees and the most critical areas for improving
      plans and savings.
  • Educate employees about healthcare costs in retirement and consider
    offering a
    retiree
    healthcare savings option
    .
    • Nine of ten (91 percent) plan sponsors believe that healthcare
      costs are the most significant retirement security issue today.
    • Customizable savings programs, such as TIAA's tax-free Retirement
      Healthcare Savings Program
      , can help retirees retire on their
      terms.
    • There are tools like TIAA's Retirement
      Healthcare Calculator
      that help individuals better understand
      what medical expenses they may face in retirement.
  • Revisit plan design and restructure the plan match formula to help
    increase savings.
    • Twenty-eight percent of plan sponsors cite increasing or modifying
      the employer match as the biggest opportunity to help employees
      maximize their retirement savings.
    • The right plan design can build a strong foundation for the plan's
      structure and service, including investment solutions that provide
      participants with lifetime income, employee engagement with a
      focus on outcomes-based education and advice, and plan management
      that helps mitigate fiduciary risk, drive efficiency and maximize
      value.
    • While budget constraints (63 percent) and attracting and retaining
      talent (60 percent) are of significant concern for plan sponsors,
      lifetime income investment options can help maximize the
      employers' investment in the plan.

"Employers are right to be worried about the myriad of issues employees
face in retirement, but there are many tools and approaches available to
maximize the effectiveness of the plan and better prepare their
employees," Mr. Chittenden said.

For more information about the 2018 TIAA Plan Sponsor Survey, read the
executive summary www.tiaa.org/plansponsorsurvey.

*The survey was conducted by KRC Research from March 5 to April 17,
2018, via a phone survey of 1,001 plans sponsors from nonprofit and
for-profit organizations. Following are the sample sizes and margin of
error for the total sample and each subgroup.

                         
Audience       Total       Nonprofit       For-profit
Base size       N=1,001       N=501       N=500
Margin of Error       3.1%       4.4%       4.4%
                 

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With an award-winning1 track record for consistent investment
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is the leading provider of financial services in the academic, research,
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