Income-Replacement Goals Overlooked by Plan Sponsors

By Stephen Miller Jan 31, 2011

At a time when retirement security is at the forefront of many Americans' minds, new research suggests that retirement plan sponsors are missing opportunities to help their workers manage their "nest eggs" long-term.

Only one-third of U.S. plan sponsors at Fortune 1000 companies describe their retirement benefits philosophy as supporting employee efforts to “create retirement income for the future.” And while two-thirds of plan sponsors say that retirement income is an important objective, many are struggling to translate their intention into action, according to MetLife’s inaugural Qualified Retirement Plan Barometer, a study of Fortune 1000 defined benefit and defined contribution plan sponsors.

Among the key study findings, most plan sponsors (82 percent) do not set income replacement goals for their retirement plans. And while 77 percent of plan sponsors say that their employees are aware of company-provided materials and tools pertaining to the importance of saving for retirement, just 58 percent think that this support gives participants a clear idea of how to generate retirement income from their plans.

“Although most of the burden for retirement security has shifted to employees, plan sponsors still play a critical role,” said Robin Lenna, executive vice president, corporate benefit funding, at MetLife, a provider of financial services and employee benefits. “Most plan sponsors continue to skew their goals, plan design, communications and decision support tools toward savings, which favors accumulation over income.”

Retirement Benefits Philosophies

Fortune 1000 executives who make decisions regarding retirement benefits policy and design were asked which corporate philosophy best represented their company's views on retirement benefits:

To be successful in a competitive workforce environment by providing retirement benefits in the most costefficient manner possible.

45% of respondents

To support employees’ efforts to create retirement income for the future when taken together with Social Security and their personal savings.


To offer financial and other resources that support our employees’ needs to determine and achieve their retirement savings goals.


Source: MetLife.

Lump Sum vs. Periodic Payments

Even companies offering a defined benefit pension report that they do not communicate about retirement income; just 20 percent of these companies agree that they provide extensive materials on the pros and cons of taking a lump sum vs. a periodic income distribution from the plan.

“While the majority of plan sponsors provide education about the need to save for retirement and the risks of investing, very few concentrate on retirement income-related issues such as longer life spans/longevity risk, how to create retirement income, taking a lump sum vs. periodic payments, and when to begin taking Social Security benefits," said Cynthia Mallett, vice president, product and market strategies, for MetLife’s corporate benefit funding group. "Given their current focus, plan sponsors—even those who fund traditional DB plans—appear to be undercommunicating with employees about the importance of retirement income.”

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Employees' Retirement Readiness Is Employer Priority, SHRM Online Benefits Discipline, January 2011

401(k) Contributions Rise Along with Concerns over Social Security, SHRM Online Benefits Discipline, December 2010

Study: Typical 401(k) Participant Can’t Retire Until Age 73, SHRM Online Benefits Discipline, December 2010

Americans Wish They Had a Pension, Would Consider Annuities, SHRM Online Benefits Discipline, August 2010

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