Is lifetime income
poised for the main stage?

Time to read: 2 minutes

Higher education and healthcare have been ahead of the curve in offering in-plan annuities, but annuity fluency is still a challenge.

Retirement plan sponsors have for years prioritized making it easier for employees to save for retirement. Their attention is now turning to how best to ensure employees can replace their income throughout retirement.

TIAA’s first annual survey of 500 decision-makers for defined contribution (DC) retirement plans demonstrates that employers are ready to take advantage of the all-important safe harbor protections for in-plan annuities, courtesy of the SECURE Act of 2019. 

Critically, eight in 10 employers currently not offering an in-plan annuity are considering doing so, and four in 10 say they will do that in the next two years. In fact, nearly half of survey respondents (48%) say that offering guaranteed lifetime income through the retirement plan was second only to increasing the employer match as a top way to positively impact an employee’s retirement. 

A year of annuity fluency.

Most drivers can’t describe how their engine works but are still comfortable getting behind the wheel. For in-plan annuities, however, an “annuity fluency” gap could be standing in the way of broader adoption.

TIAA’s survey found that 85% of plan sponsors acknowledge that employees will need more guaranteed income beyond Social Security. They get that, as people live longer, there’s a greater risk that some retirees—even the most disciplined savers—will outlive their savings.

Most employers understand the basics of annuities but more than six in 10 can't explain why they matter. They want help with the specifics. Some confusion stems from the differences between annuities offered through a DC plan and ones people can purchase individually on the retail market, but in-plan annuities are generally more straightforward than the retail alternatives, and vetted by the plan sponsor.

The good news is that employers have a track record for embracing innovative plan design. Two decades ago, target-date portfolios were newcomers on the block, but a combination of regulatory support and education cleared the way for wide-spread adoption by employers. Today, target-date portfolios have become mainstays in defined contribution plans.

Indeed, in-plan annuities themselves are increasingly available as components of target-date portfolios. Research firm Morningstar began covering the target-date portfolios that include annuities in 2024, often a sign that a nascent product is growing.

One clear message from the survey is that employers want more support from consultants, particularly when it comes to big ideas and strategies for their retirement plans. If consultants needed any more impetus to brush up on in-plan annuities, plan sponsors rank “consultant advice” first among their motivators for adding annuities.

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This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.