Nuveen and TIAA roll out target-date series with annuity feature

Few 401(k) plans have such features, but product providers expect that to change.

Nuveen and its parent company TIAA are the latest to bring a target-date series with an annuity component to the market, a pairing that they say can make 401(k)s perform more like traditional pensions.

On Tuesday the companies announced that product, a target-date collective investment trust series managed by Nuveen and a deferred fixed annuity from TIAA. The target-date series includes three varieties: an all-passive option; an all-active one; and another that blends active and passive.

The firms are not the only ones with ambitions for a segment of the market — BlackRock for example added a product, LifePath Paycheck, in 2020, with several retirement plan clients signing up for that TDF the following year.

A study published earlier this year by the National Bureau of Economic Research found that allocating a portion of target-date assets to deferred life annuities is financially beneficial compared with leaving all assets in a target-date and buying an immediate annuity at retirement. Looking at 1,000 scenarios across 30 years for stock returns, bond returns and Treasury interest rates, the accumulation of deferred life annuities was more often advantageous than waiting to buy an immediate annuity, that report found.

While plan sponsors generally are not asking for target-date funds paired with annuities, they are interested in helping employees prepare for a successful retirement, Jania Stout, senior vice president at OneDigital, said in an email.

“There are only so many ways to do that and Nuveen and TIAA’s solution is a great step in providing this type of an option,” Stout said.

As of late 2022, about one in 20 large retirement plans included a target-date series with an annuity component, according to results of a survey published earlier this year by the Callan Institute. Of the 99 plan sponsors in that report, none that didn’t already have such an option indicated that they planned to add one.

However, a recent report from Cerulli Associates found that about a quarter of target-date managers include annuitization components in their product lines. Further, most investment providers to defined-contribution plans told Cerulli that conversations with plan sponsors about retirement income have increased.

That is partly a result of the 2019 Secure Act, which outlined a fiduciary safe harbor for plan sponsors that opt for annuities.

Following that legislation, “we thought we would be bringing up income solutions more and more at our committee meetings,” Stout said. “However, Covid hit, and we all got sidetracked on other matters.”

That has changed, and the topic is coming up more often with plan committees, which also likely means that more products could soon be developed, she said.

The trustee for the Nuveen CIT series is SEI Trust Co., which serves as the fiduciary for management and investments, with Nuveen acting as the advisor, according to the announcement.

The series gradually allocates assets to the guaranteed income component, with plan participants having the option at retirement of turning some or all of their assets in the target-date product into the annuity, Nuveen stated.

“We’re making it easier for plan consultants to provide improved retirement outcomes, because they can now deploy lifetime income in a simple, affordable target-date fund structure that they and their clients are familiar and comfortable with,” Mike Perry, head of the global client group and global product at Nuveen, said in the announcement.