Vestwell adds first annuity option for 401(k)s, from TIAA

Vestwell adds first annuity option for 401(k)s, from TIAA
Vestwell CEO Aaron Schumm
Next year, the firm will add a lifetime income feature paired with a target-date series that lets customers buy annuities or take distributions at retirement.
SEP 05, 2024

Vestwell is adding its first lifetime income option for 401(k) and 403(b) clients next year, a TIAA product that pairs annuities with a target-date series, the companies announced today.

The arrangement not only gives Vestwell an income option for its plan clients, but it provides TIAA with exposure to the small- and mid-size plan market, Vestwell CEO Aaron Schumm said.

“There is a great opportunity for us to go and try to takle the mid and small size of the market together,” he said. “It’s not a market they had really focused on before.”

Vestwell is an open-architecture firm, and it could add other lifetime income products in the future, he said.

The addition of TIAA’s Secure Income Account comes after that firm participated in Series D funding for Vestwell. The company’s investment in Vestwell isn’t the reason for the addition, but the two firms began working together strategically afterward, Schumm said.

“When the top of the house is aligned and they are invested in the business as a shareholder there is further alignment, as we strategically work together on a commercial relationship,” he said.

The product, called SIA for short, will available through target dates for private clients in Vestwell’s 401(k) and 403(b) businesses. Assets allocated to SIA have guaranteed interest rates, though the accounts are fully liquid, and customers have the option of getting single or joint life annuities or taking withdrawals.

Vestwell’s government clients, including state auto IRAs, could include the TIAA SIA option in the future, but the addition would require their approval, Schumm said.

While annuities are not a main component of most 401(k) plans, the industry has been seeking ways of incorporating them for years. The Secure and Secure 2.0 helped clear the way, clarifying fiduciary obligations for plan sponsors.

Surveys commissioned by the industry have generally shown that people like the idea of annuities, even if they don’t like products called annuities. There has also been some evidence that people need to learn more about how to allocate assets in their 401(k) accounts if they have a target-date series with a lifetime income feature.

And a recent series of focus groups by consumer-research firm Hearts & Wallets hinted that investors with significant retirement assets like the idea of annuities in 401(k)s, but mostly as an option that they say should be available to other people.

In June, Vestwell announced that it would offer advisors access to J.P. Morgan’s Everyday 401(k).

The company has also quickly been building up its business with states, including auto IRAs, 529s, and ABLE programs. Through its programs and relationships, it works with about 350,000 businesses and over one million people, representing more than $30 billion in assets, according to figures today from the firm.

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