Next 12 Months Could be Tipping Point for In-Plan Annuities

Almost half (49%) of private-sector retirement plan sponsors who do not currently offer an in-plan annuity say they’ve considered adding one, according to a new LIMRA survey.

Among plan sponsors interested in adding an in-plan annuity, 3 in 4 say they’ll decide whether to do so within the next 12 months, underscoring the intense focus on these options today. While very large, established employers were among the first wave of plan sponsors to adopt in-plan annuities–or frequently referred to as in-plan guaranteed income solutions–the research found the smaller side of the market is also showing interest.

According to the study, employers say there are many reasons they’re considering adding an in-plan guaranteed income solution to their DC plans. Many said they feel obligated to help employees generate income in retirement (43%) and they feel the best place to generate retirement income is from the plan (37%). Some employers had in-plan annuities recommended to them by a plan consultant or advisor (39%), and some were considering annuities to help manage workforce turnover or retirements (36%).

In-plan annuities have faced some adoption challenges. Among defined contribution plans, 9 in 10 have no in-plan option. Plans that do offer annuities are more likely to be newer plans—under 10 years—at employers who offer or used to offer a defined benefit pension. Sponsors of these plans are more likely to agree that guaranteed income options are necessary for retirement security and believe the company has some responsibility in helping individuals turn their balances into income streams.

Employers said their top reason for not offering an in-plan annuity was that it wasn’t a top priority, and they were focused on emphasizing other benefits. Some employers, especially older, smaller employers, don’t have access to in-plan annuities, as the LIMRA report noted not all recordkeepers offer them on their platforms.  

However, only 1 in 5 plan sponsors say fiduciary concerns are still a potential barrier to offering in-plan annuities, likely thanks to SECURE 2.0 and other recent regulatory changes. Other LIMRA research has also found workers are increasingly willing to consider converting assets into guaranteed income streams. Among respondents, 52% said they are willing in 2023 compared to 38% in 2017.

SEE ALSO:

• What to Consider When Contemplating an Annuity for a Defined Contribution Plan

• Guaranteed Lifetime Income Solutions May Grow Retirement Spending Power

• AmericanTCS, Allianz Life Partner to Offer In-Plan Guaranteed Income Option