New research released today from TIAA 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.”
“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.”
Kourtney Gibson, CEO of TIAA Retirement Solutions
TIAA’s first annual survey of defined contribution (DC) plan sponsors, “Building a Better Retirement 2024” takes a comprehensive look at the attitudes, needs, and goals of C-suite decision-makers across 401(k), 403(b) and 457 plans.
Overall, 76% of DC plan sponsors expect demand for annuities will grow over the next 5 years, similar to how target-date portfolios took off once policymakers paved the way for them to be the default. More than 40% of plan sponsors that don’t already offer an annuity say they plan to do so in the next 2 years. The SECURE Act, passed 5 years ago, made it easier for Americans to save for retirement through annuities.
“As pension plans began to wane, employers and policymakers were focused on getting people to save through defined contribution plans,” said Kourtney Gibson, CEO of TIAA Retirement Solutions. “Now with growing uncertainty around Social Security and people living longer lives, we need to help people manage their savings to last through retirement. 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.”
Eighty-five percent of sponsors say that employees need additional sources of guaranteed lifetime income beyond Social Security, and 59% cite Social Security’s uncertain future as the top external factor driving them to add or consider adding annuities to DC plans. They also note increased adoption by other employers (52%) and changing demographics, such as longer lifespans (48%).
The survey found that the adoption of annuities in DC plans may be slowed by a lack of understanding of annuities and how the products work, or “annuity fluency.” Only 37% of sponsors say they can articulate the value and importance of annuities. Among sponsors planning to offer annuities, the top two barriers are a lack of understanding among decision-makers (39%) and complexity (39%). For those not planning to offer annuities, lack of understanding (43%) is the No. 1 barrier.
On behalf of TIAA, Greenwald Research surveyed 500 C-suite decision-makers across the entire DC landscape. The survey was blind; respondents did not know TIAA—a leading provider of secure retirements and outcome-focused investment solutions—sponsored it.
An essential role for consultants
Most employers (88%) work with an external consultant or financial advisor to assist with fiduciary oversight, investment recommendations, strategy, and other guidance. But they want even more support.
“Plan sponsors told us that, as the lifetime income trend gains momentum, they will be looking for consultants to provide support especially on significant ideas and strategy,” said Jason Key, TIAA Retirement Solution’s head of consultant relations. “That support can include implementation of annuities in a DC plan—which could have a significant impact on employee retirement security and organizational reputation.”
The survey also found that 48% think guaranteed income is a top way to positively impact participants’ retirements and 38% are likely to be early adopters of in-plan annuities.
TIAA has a group of professionals solely dedicated to helping consultants deliver support to their plan sponsor clients, with expertise and guidance regarding key DC plan improvements including retirement income.
TIAA also reported that lifetime income solutions assets in TIAA and Nuveen’s suite of lifetime income target-date solutions across corporate, educational, governmental, and healthcare retirement plans have grown to $50 billion in AUM from $35 billion in May.
These solutions include TIAA RetirePlus, for non-profit institutional clients and The Nuveen Lifecycle Income, an off-the-shelf target-date CIT series for all eligible plan types. These solutions simplify plan administration and allow plan sponsors to deliver lifetime income to employees in a simple and low-cost manner.
SEE ALSO:
• Empower Beefs Up Retirement Income Product Suite
• 401(k) Participants Express Strong Interest in Guaranteed Lifetime Income
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
