What Retirement Plan Features Do Employees Really Want?
An Interview with Lee Gold, ASA, EA, MAAA, a principal at Mercer
By Patrick Ring
Retirement Section News, April 2023
The Retirement Section and the Aging and Retirement Strategic Research Program of the Society of Actuaries (SOA) requested researchers to submit a proposal to survey employees on what features they value most from a retirement plan. An SOA Project Oversight Group (POG) was formed to oversee the project. Specifically, researchers were asked to submit a proposal that would employ conjoint survey techniques, requiring respondents to make trade-offs as they answered the survey.
The winning research group has completed the project and the results will be released after the POG has completed its review. The results of the survey should aid plan sponsors and retirement professionals in understanding what plan features are most important to employees. In addition, the results may help policymakers in understanding where legislation is needed to allow the most attractive approaches to retirement.
The following interview with Lee Gold, a member of the SOA POG, highlights some of the survey results.
PR: Which research group conducted the survey and how was the survey constructed?
LG: Deloitte was selected to conduct the research. The POG and Deloitte spent several months preparing the questions and structuring the survey. Once the survey was completed, a third-party survey panel was asked to take the survey. Results were screened to eliminate those where the survey was incomplete or completed too quickly, indicating a lack of thought in the responses.
PR: I understand that the results were based on a conjoint analysis. Explain what that means.
LG: Conjoint analysis is a technique that requires respondents to make choices between various attributes. If you ask a respondent “Do you like survivor benefits?” they are very likely to say “yes.” What’s not to like about survivor benefits? Rather than asking about one feature, respondents were asked to choose between two packages with four to five different features where one of those features might be the presence of survivor benefits. By asking survey participants to choose between two packages, multiple times where each time the features are a little different, allowed us to accurately determine which features are most important. For example, if the package with survivor benefits is always chosen, regardless of the other features, survivor benefits must be very important. However, it’s rarely that simple. The presence of other features complicates the decision. For example, what if the package without survivor benefits provided lifetime income with a guaranteed COLA, and the package with survivor benefits offered just 10 years of payments, and no COLA? The decision-making becomes more complex.
PR: What were some of the data fields in the survey?
LG: There are too many to list. We asked many demographic questions so that we have statistically valid cuts by age, gender, marital status, race, education level, and income level. We also asked about financial fragility (debt, household savings). The features we tested are:
- Retirement age
- Access to funds after retirement
- Fixed versus variable payments
- Surviving spouse benefits
- Ability to bequeath funds
- Limitation on payment duration
- Investment exposure before retirement
- Cost of living adjustments
- Requirement to make contributions
- Enhanced benefits with additional contributions
- Benefits upon disability
- Access to funds pre-retirement
- Impact of employer’s financial performance on retirement benefits
- Access to employer-provided medical plan at retirement
- Access to employer-provided dental and vision plan at retirement
PR: In your view, what are some of the most important findings of the survey?
LG: There are so many findings that one might deem important. The final report will be over 70 pages. Here are a few findings that I think are noteworthy:
- Survivor benefits and the ability to bequeath funds to other family, friends, charities are important features.
- All else equal, only having monthly payments is not as desirable as the ability to withdraw in any desired pattern.
- All else equal, respondents are more likely to prefer fixed payments rather than variable payments during retirement.
- All else equal, a 20-year certain and life annuity would be the top choice for all participants in the survey. Said another way, 100 percent of participants would select a plan with a 20-year certain and life annuity, versus any other payout option we tested if all other plan features were identical.
PR: Did any of the results surprise you? Which ones and why?
LG: The life annuity was not the most preferred payout feature. Respondents wanted some guaranteed payments in the event of early death. In fact, 86 percent of respondents would choose a 20-year certain only annuity over a life annuity, all else being equal. Life annuities with term-certain features were the most desired options. The fear of losing out in the event of early death seems to be more important than the fear of living a very long time.
Respondents generally want a fiduciary to pick their investments (compared to doing it themselves). However, if they don’t have the ability to change what the fiduciary has chosen, they would rather pick investments themselves. That need to have the final say is powerful, despite that respondents having conceded that a fiduciary would to a better job than they could by themselves.
PR: What challenges for plan sponsors and/or retirement professionals did the survey uncover?
LG: There are some cases in the data where respondents want to “have their cake and eat it too.” As an example, respondents generally prefer a combination of flexibility to withdraw in any amount, want a fixed benefit (versus variable), desire a 20-year certain and life payout, and benefits unaffected by investment returns. The flexibility to withdraw funds as needed, without affecting the fixed lifetime payout is not possible in a single plan.
The above indicates that a combination of flexibility and certainty may be the best way to meet the competing desires of respondents. For example, having both a DC plan and a DB plan is one way to provide that flexibility and certainty at the same time.
PR: What suggestions would you give to plan sponsors and/or retirement professionals based on the findings?
LG: Traditional approaches (all DB or all DC) are not likely to be “the best.” Employees desire more certainty, but at the same time they want flexibility, survivor benefits and the ability to make a bequest. Again, as mentioned previously, a combination of plans may be the most appealing approach in meeting these competing perspectives. Look for non-traditional approaches that better meet the preferences of employees. We may also need legislative changes in order to gain the plan design flexibility necessary to create the most attractive packages.
PR: Is there anything else you would like to share about this project?
LG: This project took a couple of years to bring to completion, but it was very rewarding. We have so much rich data and it will take a long time to look at it from all the possible angles. I’m excited that a “dashboard tool” will be made available so that anyone can construct different packages and see how a pool of respondents is likely to react to the packages offered. I hope everyone will take some time with the dashboard, have some fun with it, and see what can be learned from it.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.
Patrick Ring, ASA, volunteers as chair of the SOA Retirement Section Council’s Communications Team. He can be reached at pringactuary@gmail.com.