With all the DOGE changes to Social Security involving service and job cuts since President Trump took office, there’s plenty of uncertainty to go around when it comes to employees’ retirement security. That’s why employers might want to consider offering added benefits to allay those fears that their employees have, particularly those close to retirement, and offer them some extra financial security with lifetime income solutions within the 401(k) retirement plan.
There’s been plenty of discussion over the last year about these in-plan guaranteed lifetime income solutions, but it seems that many employers and plan sponsors are hesitant to include these new offerings. Two big in-plan income options that have launched in 2024 include:
- T. Rowe Price’s Managed Lifetime Income blends a managed payout for the first 15 years with a Qualifying Longevity Annuity Contract (QLAC) from Pacific Life for the remaining balance. T. Rowe Price accepts the fiduciary responsibility for the selection and monitoring of the QLAC provider.
- BlackRock’s LifePath Paycheck, which gives employees access to guaranteed income through a target date fund, allowing DC plans to switch some of an enrollee's investments into an annuity at age 55. The allocation can then grow to 30% of the portfolio by age 65.
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Most employers understand the basics of annuities but need help getting conversational about them with employees, similarly to when target-date portfolios were first offered in 1994, according to TIAA’s Building a Better Retirement report.
The research suggests more employers are primed to offer lifetime income, but adoption of these products may be hindered despite growing interest due to a lack of "annuity fluency."
Developing “annuity fluency” echoes the challenge of learning about target-date portfolios for employers. Target-date portfolios, first offered in 1994, languished until the 2006 Pension Protection Act allowed them as a qualified investment default alternative. Today, nearly 90% of 401(k) and 403(b) plans offer target-date portfolios, almost always as the default option.
Employers recognize retirees need help turning savings into reliable income, and 42% of sponsors who don’t offer an annuity expect to add one to their plans in the next two years, according to TIAA’s report.
Retirement experts explain about why income solutions should be a key component in 401(k) plans in 2025 and beyond.
Related: Retirement reset: Pre-retirees need help reevaluating lifetime income offerings
"Now with growing uncertainty around Social Security and people living longer lives, we need to help people manage their savings to last through retirement,” said Kourtney Gibson, CEO of TIAA Retirement Solutions. “Our research indicates that plan sponsors are open to offering lifetime income but need support to add it to their plans—and consultants have a huge role to play in delivering that help."
“[2025] will be the acceleration of plan sponsor adoption for in-plan retirement income options,” said Kevin Crain, executive director of the Institutional Retirement Income Council. “With traditional pensions becoming increasingly rare, ensuring retirement income security is a shared responsibility of employees and employers … Lifetime income solutions ensure that retirees do not outlive their savings, providing financial security throughout their retirement years.”
“There are a variety of potential lifetime income products an employer can make available to participants,” said David Blanchett, Head of Retirement Research at PGIM DC Solutions. “The simplest would likely be some kind of annuity supermarket that gives participants access to annuities like single premium immediate annuities and deferred income annuities … Adoption can be improved by integrating annuities into default investment options, like target date funds, and providing clear communication and professional guidance.”
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
