Nationwide accelerates adoption of in-plan protected retirement solutions with launch of Dynamic Default feature

Nationwide accelerates adoption of in-plan protected retirement solutions with launch of Dynamic Default feature

Next generation of automated retirement plan features to address critical U.S. retirement income challenge

In 2020, Nationwide led the industry with the launch of an entire suite of in-plan protected retirement solutionsto help employer-sponsored retirement plan participants convert their savings into protected income they won't outlive in retirement. Now Nationwide will accelerate adoption of these solutions by being the first in the industry to allow plan sponsors to automatically default participants into a protected retirement solution through Dynamic Default. While many employers are familiar with setting a default investment for participants - Nationwide's dynamic default will allow the employer to select multiple default investment options based on age.

In the past year, adoption of Nationwide's in-plan protected retirement solutions has skyrocketed. As of the end of the first quarter of 2024, 6,931 plans offered in-plan protected retirement solutions supported by Nationwide with $4.95 billion in assets under management (AUM) for 64,372 participants who have adopted a protected retirement investment solution. That's up from 1,042 plans, $1.14 billion in AUM and 52,314 participants a year ago, representing a 565% increase in plans, a 367% increase in AUM and 23% increase in participants year over year.¹

Much of this growth is being driven by plan sponsors that choose to offer an in-plan protected retirement solution as a default fund for participants. Based on positive feedback from these plan sponsors, Nationwide will build on this success with the introduction of a new Dynamic Defaultfeature.

"We're really starting to see a lot more employers become more comfortable offering protected retirement solutions, and we believe offering them through dynamic default will be the next generation of retirement plan auto features," said Eric Stevenson, President of Nationwide Retirement Solutions. "Employers are recognizing that their participants want and need help translating their savings into retirement security. The key is not just making these solutions available, but making them automatic for employees who don't know where to start. Auto-features for enrollment and escalation of contributions have been tremendously successful in driving greater retirement preparedness across the industry. Our Dynamic Default feature will build on this success to support even greater retirement security for plan participants."

Embarking on the third era of the American Retirement System
For decades, defined benefit (DB) plans, or pensions, were the retirement plan of choice for employers and helped ensure workers had enough income in retirement. When DB plans began to decline based on companies no longer being able to carry the financial risk, America entered the second era of its retirement system: defined contribution (DC) plans, common examples being 401(k)s and 457(b)s. Now, as retirement uncertainty rises and Americans increasingly worry about outliving their savings, Nationwide is helping to usher in a third era by providing a pension-like stream of income to workers automatically through Dynamic Default within DC plans.

A 2023 Nationwide Retirement Institutesurvey found nearly three-fourths (73%) of employees ages 45+ who participate in 401(k) plans wish they were offered a pension-like income stream within their employer-sponsored plan.

"Our protected retirement solutions marry some important benefits of both DB and DC offerings to offer plan sponsors next-level retirement benefits and participants the tools they need to retire with confidence," adds Stevenson. "To address the U.S. retirement crisis and make retirement security table stakes for all working Americans, this type of industry innovation is necessary to bring us into this imperative third era."

The industry is starting to take notice. A new whitepaper from Ernst & Youngdocuments how these solutions can help participants retire with more confidence and help employers by increasing asset retention, participation satisfaction and employee loyalty.

In fact, the City of Columbia in South Carolina recently added one of Nationwide's protected retirement solutions, NCIT American Funds Lifetime Income Builder Target Date Series, as part of the Dynamic Default feature for its participants.

"The average pension benefit for our employees varies, due to the amount of time they spend with the City, and that could cause a shortfall in retirement income needs," said Matthew Lue, Director of Finance for City of Columbia. "That's why we felt a need to help our participants close the retirement income gap by offering solution that automatically helps them not only save for retirement, but also liquidate those accumulated assets into protected retirement income."

More about Nationwide's new Dynamic Default
Nationwide's Dynamic Default feature begins when a participant enrolls in the plan, either on their own, or through auto-enrollment. If the participant fails to select their own investment, they will be placed into an initial default fund and their assets will remain there unless they take action. Since many investors don't have the time, expertise or confidence to make these types of decisions, a large percentage view the default as a simple and easy way to choose an investment with the help of their plan fiduciary. Lastly, participants will transition from the initial default fund - likely an investment primarily focused on growth opportunity - to a second default investment, like a protected retirement solution as they near retirement (around age 50, for example).

"We know that investing for the long-term means managing longevity and market risk, and retirement plan participants want more help from their employers - particularly as they get closer to retirement," said Cathy Marasco, leader of Nationwide's Protected Retirement team. "While defaulting new participants into an investment option upon enrollment is a great first step, there is no one-size-fits all solution, so it makes sense that participants may need to transition to a different type of investment as they age and face the risks of market volatility or outliving their retirement income. And we know that defaults work. Historically, 8 in 10 participants have entered default options when offered, and 70% remain in that option five years later."²

Employees are ready to adopt in-plan protected retirement solutions
When asked what would most increase their confidence in their retirement plan and financial investments, 55% of respondents in Nationwide's 2023 surveyindicated 'guaranteed income options.' Nearly 9 in 10 employees ages 45+ (87%) say they would be at least somewhat likely to rollover their retirement savings into a guaranteed lifetime income investment option if they had the ability.

More information about Nationwide's protected retirement solutions:

• For financial professionals
• For plan sponsors

¹ These numbers include assets from a recordkeeper and insurer perspective.
² Approximate numbers shown for defaults when offered as a target date fund; "Made to Stick: The Drivers of Default Investment Acceptance in Defined Contribution Plans", Morningstar, 2020Guarantees are subject to the claims-paying ability of the issuing insurance company.
Provisions of these options may vary based on plan selection and/or by state regulation. These investment options may not be available in all states.
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