Is this the year of in-plan retirement income solutions? 401(k) trends to watch in 2024
There's an increasing recognition of the need to help participants convert their accumulated savings into a reliable income stream during retirement, according to the new Institutional Retirement Income Council report.
The biggest trend for retirement savings programs in 2024 may be a new push for solutions that provide income for retirees, a new report said. The Institutional Retirement Income Council (IRIC), a non-profit think tank for the retirement income community, recently released its annual list of top retirement industry trends for plan sponsors, providers and advisors to watch in 2024, and retirement income solutions topped the list.
The report noted an increasing demand for such solutions, as well as these retirement trends:
- a general move toward customized and personalized investment plans,
- more automatic features such as auto-enrollment, and
- better employee education and communication.
But providing innovation in defined contribution (DC) offerings so that there are more options for retirement income is probably at the top of the list, according to Michelle Richter-Gordon, executive director of IRIC.
“We might be at the tipping point when it comes to the adoption of retirement income solutions within a DC plan,” she said. “Traditional pension plans, which provide a guaranteed income stream in retirement, have become less common in the private sector. With the rise of DC plans such as 401(k)s, the responsibility for retirement savings and investment decisions has shifted from employers to employees. As a result, there’s an increasing recognition of the need to help participants convert their accumulated savings into a reliable income stream during retirement.”
A range of new options
Richter-Gordon mentioned several new plans that aim to meet the demand for new retirement income solutions, including options from Fidelity Investments, TIAA, and Envestnet. These plans often focus on simplifying options and providing retirement income by using tools such as guaranteed annuities.
Another group that is offering services in this area is PensionPlus, founded by behavioral economist Shlomo Benartzi, a leader in the movement toward innovations such as automatic enrollment and escalation in retirement savings accounts. Those features were adapted in the recent SECURE 2.0 law, a law that encourages workers and employers to start retirement savings accounts earlier, therefore ensuring they have more resources upon retirement. The PensionPlus approach sets up a system that provides retirees with regular paychecks that can be personalized to account for differences in financial needs as people age.
It’s possible that some of the interest in guaranteed income during retirement is driven by current economic insecurity and a longing for the good old days of pension plans—even though the job market has changed, and those defined benefit (DB) approaches may not be as well-suited to current market realities as some of the new options.
“People are feeling a lack of job security,” Richter-Gordon noted. “But even older workers tend to move jobs, so a lot of people who might imagine they’d prefer the DB experience… it’s not a sure thing they would qualify.”
Communication and education are key components
The groups offering these new options agree that investment advice and guidance are very important in obtaining the best outcomes. The IRIC report pointed to research that also shows plan participants are looking for help from their employer in this area. “We expect plan sponsors will make education and employee communication about retirement plans a high priority in 2024 and beyond,” the report said.
Related: 2024 outlook for plan sponsors: Do your retirement offerings work for all employees?
Richter-Gordon added that a new approach to advising Americans about retirement options may evolve because industry groups will prefer to be seen as educating employees, rather than advising them, since the latter increasingly comes with fiduciary responsibilities.
She noted that the Department of Labor (DOL) has put forward a rule that would increase the fiduciary responsibilities of those involved in creating and promoting retirement products. “That includes wholesalers, insurance marketing organizations… this will result in more providers wanting their work to qualify as education only, which is not a fiduciary act,” she said. “I think it will result in more education of employees, that DOL’s proposal will result in a greater awareness of the difference between education and advice.”