Retirement income solutions may be the new desired benefit when it comes to recruiting and retaining top talent. As the Great Resignation continues to trundle on, employers may consider adding retirement income solutions, such as a guaranteed lifetime income feature, to their retirement plan to increase its competitiveness.
Around 70% of people said they would choose a job that offered retirement income solutions over one that did not. An in-plan lifetime income option is a highly valued benefit, according to recent TIAA survey. In-plan retirement income has a similar impact on retention, TIAA found. Three-quarters of respondents said the feature would entice them to stay at a job. Conversely, workers would consider leaving a job if an in-plan retirement income feature were eliminated. According to TIAA, about 60% of workers said their employers should have a duty to help them with retirement income options. The same number said they were interested in having annuities in their workplace retirement plans.
While employees appear to value in-plan retirement income solutions, they aren’t yet widely available in 401(k) plans. Although some employers have expressed interest in adding retirement income solutions, many have not yet taken the plunge. To date, that reticence has been mostly driven by a lack of regulatory guidance from the Department of Labor. The fiduciary responsibilities around selecting annuities and providers is difficult for plan sponsor fiduciaries to navigate. However, the tide may be turning: The Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in late 2019 did provide some clarification. The DOL has also offered additional guidance on in-plan retirement income solutions in recent years.
According to InvestmentNews, which cited the TIAA study in a recent article, insurers, investment companies, and retirement plan services providers have all been monitoring the in-plan retirement annuity space closely. They anticipate a significant uptick in demand. A Cerulli Associates study found last year that most investment providers anticipate annuities will be part of their products in the future.
Previously, providers attempted to fill the in-plan retirement income gap with hybrid target date funds/managed account solutions. Empower Retirement and Fidelity both offered similar options. Those options transitioned retirement plan participants’ target date fund assets to managed accounts based on a specific milestone, such as age. Now, providers appear to be delivering similar retirement income solutions designed to transition assets from target date funds to annuities. J.P. Morgan recently announced a forthcoming offering, and BlackRock announced a similar option last year. And a collaboration known as Income America has an offering that includes a target date collective investment trust (CIT) with a guaranteed lifetime withdrawal benefit. Big-name players in the industry are involved: American Century is the architect of the glidepath, and the product includes investments from Prudential, Vanguard, and Fidelity. Additionally, Prime Capital Investment Advisors is the registered investment advisor (RIA), while the guarantee is being provided by Lincoln Financial Group and Nationwide.
Less than half of those TIAA surveyed said they felt confident their retirement savings would last more than 20 years. However, those with lifetime income annuities or pensions were more confident than those without, the study found. For plan sponsors and retirement committees who are interested in learning more, the Institutional Retirement Council, a self-proclaimed non-profit think tank for retirement planning, is releasing a series of white papers for fiduciaries that are considering adding in-plan retirement income features, including annuities that are part of a qualified default investment option.
