Just wished my dad a "Happy Father's Day" (and I do the same to all of you dads) and found myself thinking about his retirement income. He has a pension from his employer as that was common in his arena when he started working. Combined with his investment payouts, it meets his needs and even includes a cost-of-living-adjustment to boot.
Thinking about his pension started me noodling on the Retirement Income bootcamp I attended in late April at the NAPA 401k summit. One of the arguments put forth for offering retirement income solutions in a 401k plan is that (apparently) for every year an employees does not retire in a timely manner, it costs the employer $50,000. The quant in me wanted to ask for the data to back this up but the bootcamp instructor was moving at lightning speed and I couldn't take note fast enough. My suspicion is that the $50,000 is probably some combination of higher healthcare and other insurance premiums along with the financial loss of other employees leaving as their upward mobility is slowed by the employee who has not retired.
Still, the question could be, "Why is this older employee not retiring?". Could it be they are not financially independent enough to retire? Did they earn a living wage? Perhaps they need the structure of the work day? Might they not "have a life" outside of work? Is their identity tied to work? Do they have friends outside of work and if not (or if only a few), might this be why they are staying on? And it could be that work gives them purpose in their lives and that purpose would vanish in retirement.
An argument can be made for offering a retirement income solution/ keeping former employees in the plan (higher AUM can mean lower record keeping fees) and the same argument can be used against retirement income solutions if employers are paying fees on a per head basis. And I also ruminate on whether a retirement income solution might tie a plan to a certain record keeper (ie, if the plan transfers, participants will lose the higher income payments and what will transfer is the current account balance).
It seems to me that what retirement income solutions are trying to do is approximate the pension my dad has. Given the decline of pensions, is this the best the industry can come up with? Lots more questions than answers and that may keep adoption rates low in the small to mid 401k markets for the time being.