Incorporating guaranteed solutions into defined contribution plans provides greater retirement income and security

NEWARK, N.J.--(BUSINESS WIRE)--The incorporation of guaranteed minimum withdrawal benefits, or GMWBs, into defined contribution plans may reduce the level of assets required for plan participants to achieve the same level of retirement income, according to a report released today by Prudential Retirement. Prudential Retirement is a business unit of Prudential Financial, Inc. (NYSE: PRU).

“As a result, employers are provided with a powerful tool to increase the probability that more of their workforce can retire at a certain age, thereby improving the employer’s ability to forecast and manage staffing needs.”

The white paper, What Employers Lose In The Shift: From Defined Benefit To Defined Contribution Plans… And How To Get It Back, demonstrates that participants may need less in their retirement savings to achieve the same outcome compared with the recommended maximum level of withdrawals from a traditional plan. The paper notes that by pooling the longevity risk of defined contribution participants, plan participants with GMWBs benefit from the ability to have guaranteed income for life and get more income from the same amount of savings. These guarantees benefit plan sponsors as well by allowing them to help manage workforce planning challenges which will be even greater in the future.

“Despite employers’ substantial investments in defined contribution plans – including matching contributions and participant education – many DC participants will not be able to retire when they want without a guaranteed income solution,” Christine Marcks, president, Prudential Retirement, said. “The incorporation of these guarantees into DC plans directly addresses the challenges facing individuals and employers today by reducing the amount that individuals must save to achieve a desired level of retirement income and increasing the probability than an individual can retire by a certain age. We believe that incorporating GMWB’s into retirement plans is essential if we are to tackle America’s retirement savings challenge.”

The report notes that because plan participants are having to work longer and save more to achieve a secure retirement, they are delaying retirement. This has consequences for employers, including making it harder to forecast and manage staffing needs, increasing workforce costs and reducing employee engagement.

“Incorporating income guarantees into a DC plan increases the probability plan participants can retire when they choose,” Jamie Kalamarides, senior vice president, Retirement Strategies and Solutions, Prudential Retirement, said. “As a result, employers are provided with a powerful tool to increase the probability that more of their workforce can retire at a certain age, thereby improving the employer’s ability to forecast and manage staffing needs.”

To read the entire report click here.

The paper's comparison of retirement outcomes from a traditional DC plan versus a DC plan with a GMWB are based upon Prudential Financial's calculation of 2,000 Monte Carlo simulations of different patterns of investment returns.

Prudential Retirement delivers retirement plan solutions for public, private, and non-profit organizations. Services include state-of-the-art record keeping, administrative services, investment management, comprehensive employee investment education and communications, and trustee services. With over 85 years of retirement experience, Prudential Retirement helps meet the needs of nearly 3.7 million participants and annuitants. Prudential Retirement has $214.9 billion in retirement account values as of March 31, 2011.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $859 billion of assets under management as of March 31, 2011, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. In the U.S., Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit http://www.news.prudential.com/.

Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company, Hartford, CT, or its affiliates. Prudential, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.