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Employees are clear about what they’re looking for in a retirement program — “guaranteed lifetime income,” according to October Three consultant John Lowell. Let’s discuss what this means.
Employees are wary of "annuities" but highly value "guaranteed lifetime income." Framing retirement benefits around lifetime security significantly increases employee engagement and perceived value.
Modern market-based cash balance plans eliminate the volatility of traditional pensions. Because assets and liabilities grow in lockstep with the market, employer costs stay predictable and within budget.
The SECURE 2.0 Act has made it easier and more cost-effective for private-sector employers to implement these innovative defined benefit plans, helping to solve the modern retirement crisis.
Employees are clear about what they’re looking for in a retirement program — “guaranteed lifetime income,” according to October Three consultant John Lowell. People are discussing it so frequently that it’s become a buzzword in the industry.
The word “guaranteed” resonates deeply with people of all ages.
“Now, for a technical person, one of the things you might think is, ‘Well, isn't that an annuity?’ Lowell told Broadcast Retirement News. “When you test it, and this is particularly true, it seems among Gen X and Baby Boomers, the word ‘annuity’ has really negative connotations for some of those people.”
However, if you don’t mention “annuity” and tell people, “I’m going to give you guaranteed lifetime income,” they will be thrilled.
For employees, defined benefit (DB) plans are the most cost-effective and equitable way to earn a guaranteed lifetime income. Over the past 50 years, the number of DB plans offered by American employers has decreased dramatically due to their perceived risk and volatility. Unfortunately, very few private sector workers today have access to a pension plan, which can hinder a secure retirement.[i]
As the retirement crisis has accelerated, the DB universe has evolved to create sustainable pension solutions for employers and employees. Since President Biden signed the Secure 2.0 Act in December 2022, interest in market based cash balance plans has surged. The law opened the door for businesses to implement these innovative plans, creating a cost-effective way for organizations to offer their workforce a secure lifetime income.
With a market based cash balance plan, an employee's account balance grows with an actual basket of investments, enabling assets and liabilities to grow in lockstep. What makes it attractive to employers? Unlike a fixed cash balance plan, they aren't on the hook to pay more than the annual market return. The costs stay very close to the budget, making it comparable to a defined contribution (DC)/401(k) plan.