May 8, 2023


Improving financial security for employees is spurring DC plans to adopt retirement income solutions, and their choices are expanding as the field matures

Defined contribution plan sponsors have always prioritized their participants’ retirement security in their plan design but, increasingly, they realize that the savings or accumulation phase is only one piece of the puzzle. Income solutions that provide a paycheck-like experience in retirement are required as well. Recent market upheavals and a volatile macroeconomic environment have made the consideration and adoption of such solutions more urgent than ever.

While employers’ interest in providing retirement income to participants has become widespread, sponsors are being realistic about the challenges they face in terms of cost, complexity and potential uptake by participants. Sponsors are more determined to reassess their plan design and investment solutions as industry providers continue to innovate and provide more income solutions.

Several types of retirement income solutions are gaining prominence in an evolving market, though none is dominant. The experience of DC plans that have been moving forward to implement retirement income holds useful lessons.

Spectrum of needs and objectives

There are a number of factors driving DC plans toward retirement income solutions. “More employees want to stay in their plans after retirement. The employer is a source they trust, and an increasing number of plan sponsors want them to stay — for a host of reasons, including the belief that participants will be better served by in-plan solutions,” said Rene Martel, managing director and head of retirement at PIMCO. However, “if you want to retain people in-plan, you have to offer options to invest in during that phase of life.”

Other factors are at work as well. “Many DC plans are getting close to a state of net outflows. In response, they are trying to increase scale, and the best way to do that is to retain participants in a plan after retirement,” Martel said. In addition, today’s higher interest rates, in which the same nest egg can deliver higher income, make retirement income solutions more appealing, he said. Further, defined benefit plans are less common than they used to be. These trends are borne out by PIMCO’s 2022 U.S. Defined Contribution Consulting Study, which found that plan sponsors’ interest in retaining participants surged to 76% in 2022, up from 46% in 2015.

Read: As Workforce Sentiments Change, Retirement Income Needs Haven’t

Today, a spectrum of retirement income solutions are offered in the market. “You need a range [of solutions] because the circumstances of participants approaching retirement are more differentiated than earlier in their careers,” Martel said.

Some solutions may involve trade-offs between participants’ preferences and an optimal solution for hedging longevity risk. For instance, “a deferred annuity — a guaranteed solution that offers payouts starting at 80 to 85 years old — makes sense from an analytical standpoint. But behaviorally, it’s not clear yet if people who seek longevity protection will be comfortable waiting that long,” said Martel. Conversely, capital market solutions generally offer better liquidity, but they do involve some longevity-protection trade-offs, he added.

Focus on spending phase

“Collectively as an industry, we fixed the accumulation side with auto features and defaults. Now is the time to make retirement plans about retirement,” said Christopher Nikolich, head of U.S. glide path strategies for multi-asset solutions at AllianceBernstein.

That means fixing the decumulation challenge by adding retirement income, often through guaranteed solutions, Nikolich said. “Plan sponsors are coming around to the idea that adding insurance can help to significantly increase the sustainable spending rates of participants.”

More employees want to stay in their plans after retirement. The employer is a source they trust, and an increasing number of plan sponsors want them to stay.
Rene Martel
Managing Director and Head of Retirement

Participants face many spending problems in retirement, he noted, including overspending and experiencing financial uncertainty due to market volatility, inflation and longevity risk. “One of the reasons why participants overspend is because they have no idea how to create a sustainable withdrawal rate — and plan sponsors realize they need to help them,” he said.

For example, half of plan participants said 7% was a sustainable withdrawal rate and one-third said 10% was sustainable in AllianceBernstein’s participant surveys. A realistic sustainable withdrawal rate is far lower than these targets. The research also found a steady income stream in retirement was the most important savings goal for participants. Growth and liquidity were additional goals, and inflation was a worry.

AllianceBernstein has developed a comprehensive framework for sponsors to evaluate different retirement income solutions. “The key takeaway is DC plans need to focus on the individual, not the average participant,” said Nikolich, who added that a holistic framework needs to account for the impact of all types of potential risks — mortality, longevity, liquidity, inflation. That will help sponsors evaluate the true cost to the participant versus the explicit fee of the solution.

Read: Lifetime Income Fees vs. Costs: Look Beneath the Tip of the Iceberg

Drivers of solutions

“A perfect storm of events and trends is coming together to drive plan sponsors aggressively towards lifetime income solutions for their DC plans,” said Brendan McCarthy, head of retirement investing at Nuveen, the global asset management arm of TIAA.

He pointed to three drivers: the passage of the SECURE Act, or the Setting Every Community Up for Retirement Enhancement Act of 2019, which offered safe harbor provisions for annuities; increasing life expectancy coupled with the rarity of corporate DB plans; and recent market declines. “Those three trends, plus the ‘nowhere-to-hide market,’ where both equity and fixed income went down [in 2022], heightened the value of annuities inside a DC plan,” McCarthy said.

TIAA’s recent Retirement Insights survey further accentuates the importance of guaranteed solutions for both sponsors and participants. It found that both employers and employees rate their retirement plan highly, but 38% of employers believe lack of access to income in retirement is the biggest feature that is missing in a plan. “This research [further underscores] what is driving plan sponsors towards lifetime income,” McCarthy said.

To move forward, each plan sponsor needs to define the objective of its 401(k) plan. “Is it just a tax-savings plan or is it something that can provide employees with guaranteed lifetime income, similar to a traditional defined benefit plan?”

Plans with the first objective could offer participants the option of purchasing an annuity at retirement. In contrast, plans with the second objective can look to an integrated lifetime income solution. “Here, sponsors design retirement income as the outcome of the plan, with guaranteed income embedded into the pre-retirement savings vehicle, which is typically a target-date fund,” McCarthy said.

Annuities can be both complex and expensive — but not always. “Institutionally priced annuities can offer a low-cost structure,” he said, adding that they can be flexible and portable, with the ability to be rolled over if the participant leaves the plan. “Solutions with these features are garnering the most interest from employers.”

Read: Building a common framework for spending down assets in retirement

Reexamine fixed income

“The objective of the DC plan is evolving to also address the needs of participants nearing and in retirement,” said Jessica Sclafani, senior defined contribution strategist for the Americas division at T. Rowe Price. To do this, sponsors who wish to retain retirees need to identify potential retirement income solutions and proactively engage with participants about the choices they will face upon reaching retirement. “It’s important to build the relationship with the participant sooner rather than later. It can’t just begin when the participant decides to retire,” she said.

Understanding who is using the core menu and for what purposes can be a helpful starting point when assessing the plan’s fixed-income investment offerings, said Sclafani. She pointed to findings from T. Rowe Price’s research that has explored DC plan sponsor preferences when offering participants fixed-income investments. “Older participants are more likely to be core menu users compared to younger participants, and they are using core menu fixed income to derisk as they approach retirement.”

However, participants face a range of fixed-income choices, and the asset class has been negatively affected by recent interest rate increases. “Coming out of 2022, we learned the value of a well-diversified, actively managed fixed-income allocation. Fixed-income markets have structurally changed, suggesting that a new approach to fixed income in DC plans is warranted,” Sclafani said.

She suggested plan sponsors reexamine their fixed-income offerings, both in the target-date glidepath and the core menu. “With many plans seeking to retain retiree assets, the time is right to revisit how the plan’s fixed-income options align with the plan’s demographics and objectives.”

Looking ahead, the future of retirement income is not just new approaches to fixed income, but also increasing personalization. According to Sclafani, “Solving for in-plan retirement income will require more information about the individual participant than what sufficed for the saving stage.”

T. Rowe Price is exploring how to complement a target-date solution with a more personalized approach for participants nearing retirement using a dynamic QDIA, or qualified default investment alternative, structure. “The dynamic, or dual, QDIA would allow plan sponsors to introduce portfolio personalization as participants near retirement, when they can potentially benefit most from the more customized approach,” Sclafani said.

“We believe our approach to personalization is differentiated from much of the marketplace today because it leverages the target-date team’s best thinking and positions the managed account as an extension of the target-date solution.” As interest in offering personalized solutions in DC plans continues to grow, “we think it will be an increasingly attractive benefit for a plan’s target-date and managed-account methodologies to be in sync,” Sclafani added.

Read: Good News for Retirement Income

Not why, but how

“The idea that at retirement participants receive a lump sum of assets is an old model that’s giving way to doing more and better in providing income solutions,” said Robert Crothers, managing director and head of product and strategy for the Retirement Group at BlackRock.

For most plan sponsors, the issue is no longer why retirement income, but how. “There are many different products, and each seeks to address the retirement income challenge in a slightly different way,” he said, noting that today integrated retirement-income solutions, which pair traditional assets like stocks and bonds with insurance, are attracting the most interest from plan sponsors.

As an example, a target-date fund, usually the default investment during a participant’s accumulation period, can be paired with the option to buy an insurance product for the decumulation phase, Crothers noted. While the value of a participant’s assets is intrinsically volatile, as illustrated by recent market events, guaranteed retirement-income solutions remain comparably stable. “That benefit is compelling,” he said.

One hurdle to adoption involves overcoming the behavioral biases of annuities. “The historical stigma is changing through education, and core to this is bringing behavioral finance principles into the conversation, which can mitigate decision fatigue and make sure people are oriented and informed of the benefits of lifetime income,” Crothers said.

Read: Asset Allocation Implications of Household Diversity

Address current concerns

Collectively as an industry, we fixed the accumulation side with auto features and defaults. Now is the time to make retirement plans about retirement.
Christopher Nikolich
Head of U.S. Glide Path Strategies for Multi-Asset Solutions

Retirement income and the financial security it provides to participants is more relevant than ever, said Brendan Curran, head of U.S. defined contribution investment strategy at State Street Global Advisors. “Retirees need help. More people are navigating the retirement savings-to-spending transition, and participants want help from their employers. This isn’t an employee-only situation; employers are part of the equation,” he said.

Today’s unsettled macroeconomic and political backdrop has dampened participants’ overall optimism around retirement preparedness, according to State Street’s December 2022 Global Retirement Reality Report. “Women are particularly concerned,” said Curran. Nearly half of those surveyed said annuities offer safety and stability, while one in four saw them as an essential part of a retirement income solution.

Given these findings, Curran suggested that plan sponsors consider the role of insurance in a retirement income solution. “Annuities insure against the risks that your employees outlive their savings,” he said, noting the value of deferred annuities that offer longevity protection and can provide payouts significantly higher than immediate annuities.



The decision-making process and plan design have evolved to ease implementation of retirement income solutions

Retirement income is undeniably a complex issue for sponsors and participants alike. How should plan sponsors go about integrating and implementing retirement income into the DC plan? What are the key practical considerations, including cost and complexity? They face many choices: in-plan or out of plan? Guaranteed income or not? Is plan redesign required?

The good news is that DC providers, along with record keepers, asset managers and sponsors, are working together to enable more efficient implementation of retirement income solutions while also providing a seamless experience for participants.

Read: Addressing Longevity Risk

The participant experience

“The retirement income solution ‘experience’ is what is most important for sponsor adoption,” said Curran at State Street. This experience includes how seamlessly the solution can be integrated into a record keeper’s platform, the ease of explanation to participants via plan communications and the sponsor’s fiduciary oversight and education.

To assess a solution, “the key considerations are complexity, costs, fiduciary risk and liquidity risk,” he said, noting that fiduciary risk can be mitigated by outsourcing insurance selection. Liquidity can be addressed by allocating only a portion of retirement savings to an annuity, and one in which activation is deferred, he said.

State Street’s retirement income offering, IncomeWise, addresses these issues. “It eases decision-making around the spend-down phase,” Curran said. It consists of a target-date fund with an option to generate income. Managed drawdowns provide immediate income, and they can be combined with a deferred annuity for longevity insurance. “We select the insurer through a transparent process,” he added.

The solution also includes specific participant communications designed to educate and drive action: “The crown jewel of our solution is an interactive, participant-friendly microsite that is both a modeling tool and an [income]-election site,” said Curran.

Bring it into the default

“Plan sponsors are looking for solutions that are simple and flexible to meet the needs of different types of participants, have transparent costs and are feasible operationally,” said Nikolich at AllianceBernstein. They need to match the flexibility of existing target-date funds with the ability to provide guaranteed income as well, he said.

“Sponsors understand that to impact a broad percentage of their population, lifetime income solutions must be part of the default,” Nikolich said. He also pointed out that the default cannot be one-size-fits-all. “It needs to offer flexibility in the guaranteed income level, retirement date and the date that the participant secures income.”

“We did well as an industry when we fixed poor participation, contributions and investment diversification through the use of defaults, auto-escalation and target-date funds. We should leverage the default to fix the retirement income side as we did for accumulation,” he said.

However, any investment used as a default still needs to provide liquidity and optionality, even if a portion is allocated to guaranteed lifetime income. “You can’t default someone into something that requires them to make an irrevocable decision. That’s the distinction between many products in the market,” he said.

“Though plan sponsors are thinking about fees, they also need to think about intrinsic costs,” he said. These are the opportunity costs identified by AllianceBernstein’s holistic framework for some types of guaranteed income solutions. For instance, participants could risk forgoing growth in their returns and face mortality risks if they were to die prematurely.

AlllianceBernstein’s solution solves for these trade-offs, Nikolich said. “We use an in-plan default that provides guaranteed income for life. It behaves a lot like a target-date fund for younger participants, with a mix of stocks and bonds that gradually becomes more conservative over time. However, the income stream from these assets is covered by a multi-insurer, guaranteed lifetime-withdrawal benefit.” The participant continues to have exposure to growth assets and liquidity, and the lifetime income won’t fall but can ratchet up each year through a high-water mark measured by total assets.

“Most participants don’t want to become portfolio managers, especially in something as complex as providing income in retirement. They want income for life, regardless of the market environment and how long they live,” Nikolich said.

Read: How to Determine the Amount of Income You Will Need at Retirement

Factors for success

PIMCO has created a conceptual framework that is helpful to plan sponsors in implementing a retirement income solution. “We’ve identified four factors that increase the likelihood of success,” said Martel.

It’s important to build the relationship with the participant sooner rather than later. It can’t just begin when the participant decides to retire.
Jessica Sclafani
Senior Defined Contribution Strategist, Americas Division
T. Rowe Price

“First, understand the other income sources of participants,” he said. Sponsors need to assess the income-replacement rates provided by Social Security or perhaps a DB plan. “Make the retirement income solution complementary to these other income sources,” he said.

“Second, plan demographics are important,” Martel said. For instance, a relatively low-earning participant population may find that Social Security alone could provide sufficient income replacement, reducing the need for a dedicated retirement income solution.

The third factor is the record keeper’s ability to support a solution. “Solutions may incorporate annuities or the need for periodic income distributions, but not all record keepers have that capability. If not, assess whether it is realistic that it can be built,” Martel said.

The final item is to develop appropriate educational messaging for those nearing or in retirement. “When you introduce retirement income, there is likely to be an acute communications need, since solutions may have features that participants haven’t previously encountered,” he said.

These four factors will be shaped by the plan’s demographics, the sponsor’s objectives and the cost and complexity of income solutions. Martel concluded, “Going through all the steps increases the likelihood of designing the optimal solution. However, you still have to make sure the record keeper has the capability to implement it and inspect the implementation plan for any potential challenges.”

Read: Generating retirement income. For life.

An embedded solution

“Some of the income solutions that are coming to market are designed to be inside an existing solution, such as a target-date fund or managed account,” said McCarthy at Nuveen. He noted this type of implementation has advantages for employees because they are already familiar with the investment solution. But it is useful for employers as well: “A stand-alone annuity involves a lot of education and monitoring. It can be easier and simpler for the plan sponsor to embed the solution into something that the plan is already familiar with,” he said.

Nuveen put these principles into practice through its TIAA Secure Income Account, which is a fixed-income annuity with a loyalty bonus. “Our offering acts very much like a stable-value fund during accumulation and is designed to fit inside of a target-date fund or a managed account. At retirement, it gives you that option of guaranteed income,” McCarthy said. It has bonus features for participants as well. For instance, he said, “the longer you are in this solution through your accumulation, the higher the potential benefit at retirement should you choose to annuitize. You are able to attain a potentially higher rate, because of TIAA’s unique loyalty bonus feature.”

Read: Implementing an In-Plan Retirement Income Solution

Managed payouts

“From our surveys, we observe greater interest in liquid and portable retirement income solutions rather than those with an explicit guarantee,” said Sclafani at T. Rowe Price. The firm’s proprietary research showed that sponsors want to re-create a paycheck-like experience for retirees. It also found that 60% of plan participants said they rely on their DC plan manager to help them achieve their lifetime financial goals.

Given these preferences, Sclafani pointed to the attractiveness of managed payouts. “From a practical implementation perspective, a managed payout feature can be a noncontentious starting place for plan sponsors to begin their retirement income journey. A managed payout feature can re-create the paycheck-like experience participants are seeking without requiring the plan sponsor to introduce a new and distinct investment,” she said.

T. Rowe Price has provided this solution to its record-keeper clients since 2019, and it is currently utilized by more than 45 plans. “In very simple terms, the managed payout is an additional share class of the plan’s target-date suite and is designed to provide a monthly payment based on a 5% annual withdrawal target.” The managed payout feature is offered on an opt-in basis for terminated or retired participants ages 59 ½ and older to avoid penalties, and it is not guaranteed.

Read: A fiduciary’s guide to offering lifetime income

Keep it flexible

“Our research suggests that many people don’t know how to spend in retirement — it is something they need help with,” said Crothers at BlackRock. “Participants are looking for flexibility, with a preference for a total-return strategy that offers optionality for guaranteed income.”

Retirees need help. More people are navigating the retirement savings-to-spending transition, and participants want help from their employers. This isn’t an employee-only situation; employers are part of the equation.
Brendan Curran
Head of U.S. Defined Contribution Investment Strategy
State Street Global Advisors

These preferences could present design challenges for plan sponsors and investment managers. “The solutions that resonate are those that leverage what has been proven to work [in the past] as well as those that are simplest from a technology, communications and record-keeping perspective,” Crothers said.

BlackRock is developing an integrated retirement solution consisting of a target-date fund paired with the option to purchase annuities. “It is an all-in-one solution with the option to purchase out-of-plan annuities that provide a lifetime income stream,” said Crothers. The solution has the distinctive feature of using an allocation to a new class called lifetime income that looks and feels like fixed income within the target-date portfolio, without changing the target-date fund’s liquidity profile. This allocation, which begins at age 55, increases to approximately 30% of assets at age 65. It can be rolled over by the participant to purchase annuities from insurers, selected by BlackRock, to provide guaranteed income for life. If purchased, the remaining 70% of assets remain fully within the participant’s control to invest or use as they see fit.

BlackRock also offers other retirement income solutions such as retirement-tier and managed payout products. “We need to offer multiple types of solutions because plans have different needs and participants have different needs. But a low-cost, simple, integrated approach that uses proven methods philosophically underpins everything that we do,” Crothers said.

Annuity selection process

Selecting an annuity provider is an important decision for plan sponsors and one that can affect their participants’ financial security for years to come. “It is critical that the plan sponsor consider the fiduciary risks involved with selecting an annuity provider,” said Curran. State Street acts as a fiduciary for insurance selection, uses independent fiduciary experts and follows a more stringent selection process than ERISA requires, he said. “In addition to soliciting annual bids from insurers, we also use institutional annuities for our retirement income solution, IncomeWise, mitigating additional fees and costs.”

Furthermore, following SECURE 2.0, State Street has seen an increase in fiduciary safeguards, according to Curran. “The provisions removed the 25% cap on what a participant could allocate to a QLAC, and they also increased the total dollar amount,” he said. The provisions also give participants a 90-day period in which to reverse the purchase of a qualified longevity annuity contract.

“With these immediately enacted provisions, plan sponsors and participants are able to annuitize a larger potential monthly payment. Thanks to the availability of a trial period, participants can get a more informed sense of their retirement income experience,” Curran said.

When it comes to fiduciary concerns, and the selection of an annuity provider, “plan sponsors should focus on who is playing what role and what those roles are,” said Crothers at BlackRock. “Unlike some retirement income solutions, which require a plan sponsor to engage directly with specific insurers, our approach is to act as the fiduciary in selecting and monitoring insurance providers on behalf of plan sponsors.



Effective communication is key to the adoption of retirement income solutions, while regulatory clarity has encouraged plan sponsors to take action

There is an increasing consensus that the success of retirement income solutions in DC plans involves meeting participants where they are in terms of life cycle, preferences and learning styles. The industry is also focused on improving personalization and sharpening communication to achieve higher participant engagement with income solutions. These efforts have increased following recent regulatory clarity and guidance around annuity provider selection and income solutions.

Support the three R’s

Personalization is the dominant trend in participant education and is supported by advances in data and technology, according to McCarthy at Nuveen. “The ease with which participants can upload data to personalize retirement planning continues to improve, and gamification can further engage participants in learning and planning,” he said.

Plans still face the challenge of trying to educate across many different personality types, from those who want to be heavily involved in their 401(k) decisions to those who don’t. McCarthy’s solution: “Default the least active and enable those who want to be more active through a personalized approach.”

A DC plan that offers pension-like income can have a profound effect on participant behavior, including their commitment to their employer. “It enables employers to recruit more talented employees than competitors; seeing that track to lifetime income retains employees; and finally, it allows participants to retire on time,” McCarthy said. A reluctance to retire because of worry about outliving assets is bad for the employee, but it’s also bad for the employer, because keeping them longer than expected can dramatically increase workforce costs. “Providing employees with pension-like retirement income supports the three R’s: recruitment, retention and retiring on time,” McCarthy said.

Plan sponsors can leverage educational material from the solutions providers that will help participants understand the value of the solution and how it works. “Making personalized planning tools available and creating effective education campaigns can make retirement feel more immediate and attainable,” said Curran at State Street.

Curran noted that participants already understand the importance of retirement preparedness. Adding retirement income may require additional education, but it provides more than just improved financial security: “The inclusion of our solution signals to employees a long-term investment in their well-being and is a response to employees’ perception of transactional workplace culture.”

Workforce advantages

Adding retirement income to a plan has enormous workforce advantages. DB plans offered clarity about retirement income, whereas DC participants are uncertain how long their savings will last so they don’t retire when they want to, said Nikolich at AllianceBernstein.

“For a plan sponsor, this means they can’t hire, or promote as they like,” he pointed out. Worrying about retirement causes stress for participants and negatively impacts their productivity. “These are workforce management-related issues that can impact the bottom line for a plan sponsor,” which is another argument in favor of lifetime income and communicating its benefits, he said. “There is a cost to doing nothing.”

The solutions that resonate are those that leverage what has been proven to work [in the past] as well as those that are simplest from a technology, communications and record-keeping perspective.
Robert Crothers
Managing Director, Head of Product and Strategy for the Retirement Group

Reach out early

“It is best practice to initiate the retirement income conversation in advance of participants’ key decision dates,” said Sclafani at T. Rowe Price. In addition to focusing on timing, sponsors also need to consider the participant experience. “The quality of the participant experience is directly correlated to participant adoption,” she said.

“Technology can be helpful [with] improving the participant experience,” Sclafani said. T. Rowe Price offers new digital tools that translate savings into future income. Its record-keeping platform provides a retirement income planner that incorporates personalized data, which is fully integrated with the participant experience online and through an app. “We are leaning into technology to support how we engage with participants as they near retirement,” she said.

Technology is transforming the retirement transition for everyone, including those without financial advisers. “We’re using digital tools as part of our participant experience. These interactive experiences are designed to engage users with a combination of personalization and gamification, making their retirement experience both real and relatable,” said Curran at State Street.

Multiple channels

“Best practices in communications are to deliver content in multiple formats, and to educate participants how they want to consume information. This means using short videos or other media to communicate with participants,” said Nikolich. He said plan sponsors who work with AB have had great success in targeted-participant communications and one-on-one dialogues based on their age and life cycle.

In education, best practices revolve around a few core concepts, said Martel at PIMCO. “First, take a multichannel approach to communication. It’s unlikely a video will reach everyone the same as an email; different participants consume information in different ways.”

It’s critical that the communications come from the source the participant recognizes, namely, their employer rather than the solution provider. “Make sure the communication is branded from the employer, because that’s the source participants trust,” he said. Furthermore, sponsors should leverage specialist partners to develop the content to leverage their familiarity with retirement income’s many nuances.

Finally, the content needs to be relevant to the end user. “You may need different targeted campaigns within the same organizations. Participants at the beginning of their career don’t need the same messaging as those closer to retirement,” he said. And one final best practice: monitor communication effectiveness to allow evolution over time.

Embrace new thinking

“We need to think about retirement income education differently from the past,” said Crothers at BlackRock. Because DC plans have not historically offered income in retirement, education around it is a relatively new concept. “You have to help make sure that individuals have the tools they need to understand their investments and how to avail themselves of the income benefit,” he said. “Words matter. Orienting people around the benefit, [with] its optionality and flexibility, is an important factor to the solution itself.”

“Retirement income reestablishes a link between employee and employer that was lost when defined benefit plans went away. It’s important to workforce management, [human resources] and benefits,” Crothers said.

Toward Personalization

Providing employees with pension-like retirement income supports the three R’s: recruitment, retention and retiring on time.
Brendan McCarthy
Head of Retirement Investing

As the retirement industry looks ahead, the clear theme is increased personalization that takes a more holistic view of participants’ individual circumstances to deliver more tailored solutions.

Participants’ varying needs at retirement can be solved through personalization, which can include access to income solutions, said Martel at PIMCO. “Personalized target-date funds will be a game-changer and ideal for that segment of the population that is not ready for the type of engagement that managed accounts require.”

This type of customization will require innovation in record keepers’ capabilities. “In the last mile to the participant, there are still hurdles on the record-keeping side. If we’re able to solve that problem, current solutions can be made even more effective, and it will open the door for new ones,” Martel said.

The retirement income market is progressing in various ways, according to Crothers at BlackRock. “Alongside retirement income solutions, there is an enhanced need to rethink financial planning for retirees. We are just scratching the surface of the potential for income generation from plan assets.” In addition, he said, “Progress towards personalization and flexibility is already underway.”

Read: The next evolution of retirement plans: securing lifetime income

Regulatory support

Providing income solutions in DC plans has historically been held back by regulatory concerns, but the passage of the SECURE Act in 2019 and the passage of SECURE 2.0 in December 2022 are changing things for the better. “We expect that there will be more [legislation] in the coming years as policymakers continue to focus on making Americans’ lives better in retirement,” Crothers said.

Another area of greater focus by plan sponsors that are considering the addition of guaranteed lifetime income is to review and update their investment policy statement to incorporate their approach to retirement income. “Their plans are most likely not designed to accommodate an annuity,” said McCarthy at Nuveen. Sponsors may need to update accordingly, resulting in an IPS that is “not only cognitive of the regulatory and legislative issues, but also accommodates an annuity solution.”

The future of retirement itself is another key theme being reimagined by all stakeholders in the DC industry. “Increasingly, the line between working and retirement is going to blend,” said Curran at State Street. This has implications for structuring retirement income, including the need for flexibility and liquidity while still providing longevity protection. “Retirement income should allow participants to meet their spending needs through a phased or full retirement while ensuring against the risk of outliving one’s savings,” he said.