Employers that are seeking to hire workers in a competitive market for talent might benefit from juicing up their 401(k) with retirement income, a recent report suggests.
TIAA, which has long provided in-plan annuities, commissioned a survey in May among about 1,000 people age 27 to 75, finding that 70% said they would opt for a job that includes a lifetime income option over a similar role that does not. Similarly, about three quarters of people said having such a feature available would encourage them to stay at an employer, or conversely make them considering leaving a job, if that existing option were removed.
Despite that, retirement income options, especially annuities, have not overwhelmingly made their way into 401(k)s. Although some employers have been interested in having those products as an option, few have added them as part of the default investment used within their plans. That hesitancy for years was attributed to a lack of regulatory certainty from the Department of Labor about the fiduciary responsibilities in selecting annuities and providers, although the regulator in recent years has provided more guidance, and the SECURE Act further clarified what steps plan sponsors should take.
Insurers, investment providers and retirement plan service companies have been watching the space closely, and many are now anticipating demand.
Several years ago, plan providers began trying to fill that product gap by pairing target-date funds with managed accounts. In 2016, Empower Retirement added an option that allows plans to automatically shift participants’ assets from target-date funds into managed accounts at a predetermined milestone, such as age. The following year, Fidelity announced a similar option for its plan clients.
Last month, J.P. Morgan announced a forthcoming option for 401(k) plans to pair the company’s target-date funds with an annuity feature from AIG, with products from other insurers potentially being added in the future.
That followed an announcement last year by BlackRock that the company would pair its target-date funds with fixed annuities from Equitable and Brighthouse Financial. BlackRock had explored a similar concept in 2008 that would have included an allocation to deferred income annuities.
And earlier this year, a group of financial services companies launched a collaboration to provide a guaranteed lifetime withdrawal benefit alongside a target-date series. That initiative, Income America, includes a target-date CIT with a glidepath designed by American Century and built with underlying investments from that manager and others, including Vanguard, Fidelity and Prudential. Prime Capital Investment Advisors serves as the RIA responsible for the product’s design, and two insurers — Lincoln Financial Group and Nationwide — provide the guarantee.
A survey last year by Cerulli Associates found that most investment providers expected annuities to be incorporated with their products in the future.
According to TIAA’s recent survey, about 60% of workers said that employers should have a duty to help them with retirement income options, and as many said they were interested in annuities provided within their plans. Less than half of people said they were confident their retirement savings would last more than 20 years, although those who had lifetime income annuities or pensions showed a higher level of confidence, according to that report.
Just under 40% of people said that Social Security alone would be enough to cover necessities during retirement, and about two-thirds said they would value assurance that their health care costs would be covered by a guaranteed income source.
Today, the Institutional Retirement Income Council, which describes itself as a non-profit thinktank for retirement income planning, announced a series of white papers for plan sponsors thinking about adding such features to their 401(k)s, including annuities that are part of a qualified default investment option.
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