More specifically, meaningful retirement income — income that, in conjunction with other sources of income, is sufficient to maintain a person’s current standard of living — is the central purpose of retirement plans. Frankly, it is just that simple.

And yet, as a society, particularly in the private sector, we have built a complex infrastructure of retirement programs that require a lot of effort for an individual to attain that goal. It doesn’t have to be that way.

The power of defined benefit pension plans

In this regard, the most fortunate Americans are those who participate in pension plans. DB plans have been shown to reduce economic hardship among retirees. For example, refer to Closing the Gap: The Role of Public Pensions in Reducing Retirement Inequality, a 2023 study by the National Institute on Retirement Security (NIRS) and the UC Berkeley Labor Center.

Overall, Americans see those with pensions as being more likely to have a secure retirement, and more than two-thirds of Americans believe that pensions are better than 401(k) plans for achieving retirement security, according to a 2024 NIRS survey on retirement insecurity. While there are critical differences, this is true whether the plan is a traditional pension plan or a hybrid plan, such as variable annuity or cash-balance plans. This helps explain why there’s renewed interest in DB plans.

Unfortunately, most workers are enrolled only in defined contribution plans

Typically, these programs require the individual to elect to participate, save and invest — all in the right proportions throughout their careers.

Knowing how much to save, where to invest, how to balance savings with current financial needs and converting savings accounts into income streams — each of these steps is structurally complex.

The dual legislation of the 2019 SECURE Act and the SECURE 2.0 Act of 2022 (following various other legislation of the past decades) enabled passive safe harbors for enrollment, deferral rates (and escalators) and target-date funds. Further, the first SECURE Act enabled safe harbors for selecting in-plan annuity options. However, we know these tools are ultimately a band-aid.

Remember where we started this piece — meaningful retirement income is the central function of retirement programs. Decades of data and research illustrate the challenge of attaining this goal when so much of the burden is on the individual. Consider that 12 percent of 401(k) plan participants miss out on a full employer match because they do not contribute enough, according to a 2021 survey by MagnifyMoney. Earlier this year, social scientists from Boston University’s Center for Innovation in Social Science discussed challenges in amassing retirement income and savings.

Individuals shouldn’t have to bear the brunt of the burden on their own

Earlier this year, in a Letter to Investors, Blackrock’s Chairman, Larry Fink, outlined and described many of the challenges facing individual Americans as they plan for financial aspects of retirement. To quote but one memorable line from the letter: “Today in America, the retirement message that the government and companies tell their workers is effectively: ‘You’re on your own.’”

Again, it doesn’t have to be that way.

Let’s look forward

What should plan sponsors do to ensure a successful retirement program (in addition to the full list of fiduciary responsibilities that they must attend to)?

Focus on the outcome of income by taking two important steps:

1. Assess your current retirement program.
2. Make changes to your retirement program to address any shortcomings.

Assess your current plan

The only way to know if your program is operating successfully is by defining success as meaningful retirement income.

When assessing success, answer these questions:

• Are your people on track to attain that goal?
• If you don’t offer a DB plan — which is clearly the most direct method of attaining income in retirement — how does your program help individuals generate income in retirement?
• Are those methods cost effective?
• Are they sufficiently secure?
• Do your people understand how they work?
• Will the methods provide the peace of mind that a retiree will need as they might evolve in their cognition through various stages of aging?

Make changes to your plan to address any shortcomings

You are not the only sponsor whose program isn’t yet optimized. Be one of the exemplary ones willing to address the challenge.

Addressing shortcomings may require changes to:

• Plan design (e.g., increasing the benefit)
• The investment portfolio (i.e., enhanced to ensure greater benefit growth)
• Communications to make sure individuals understand the plan and how to maximize the opportunities it provides

The current marketplace is full of solutions to the challenge. Some of these solutions are effective for the right population; but to be successful requires knowing the right plan design and income solution for each sponsor and population.

Determining the right answer can be difficult.

As trusted advisors who only win when our clients feel successful, Segal retirement plan consultants and Segal Marco Advisors investment consultants are uniquely situated to help you craft the right plan design and select the right retirement-income solutions for your people.