The 2024 Game Plan for In-Plan Annuities
Providers say working strategies now in place for guaranteed income solutions to start winning over meaningful numbers of 401(k) participants
We’ve heard it before. Annuities within workplace retirement plans are poised for explosive growth, with doors opened by friendly provisions within the SECURE Act and SECURE 2.0 and ramped-up demand from a wave of “Peak 65” 401(k) participants looking to turn a part of their account balance into a guaranteed stream of lifetime income.
But the long road to winning over plan sponsors and participants has been an uphill one filled with roadblocks that has kept most players on the sideline to date.
With a lot of hard work and lessons learned, components for a successful annuities-within-401(k) plans game plan now appear to be in place. Will 2024 finally be the year in-plan annuities turn the corner and win over the workplace retirement plan market?
While many industry observers remain skeptical about the immediate prospects for serious growth in the uptake of annuities within 401(k) plans, it’s hard to deny that interest has indeed been ramping up since the SECURE Act was passed at the end of 2019.
One key reason? Americans are still very concerned about running out of money in retirement. Many (61%!) admit it scares them more than death itself, as a 2023 Allianz Life survey found.
Another 2023 study from the Minneapolis-based annuity provider found that two-thirds of Americans (66%) worry they will run out of money during retirement.
“We have seen that fear about an underfunded retirement is widespread. While many Americans use their employer sponsored retirement plan like a 401(k) as their main retirement account, most worry it will not be enough,” said Matt Gray, assistant vice president of worksite and middle markets at Allianz Life.
With that, he says interest in lifetime income options as part of a 401(k) is growing. “That same survey found that 67% said they would consider adding an annuity to their plan if it was available,” which is up from 59% in 2021. “These products are addressing the real risks to a retirement strategy that Americans worry about.”
In its 2024 forecast of coming trends in the retirement industry, the Institutional Retirement Income Council (IRIC), a non-profit think tank for the retirement income industry, said it anticipates more plan sponsors and industry stakeholders evaluating and adopting retirement income solutions and de-accumulation strategies for defined contribution (DC) plans, in an effort to increase retirement readiness and security.
“We might be at the tipping point when it comes to the adoption of retirement income solutions within a DC plan,” said Michelle Richter-Gordon, executive director of IRIC, noting how traditional pensions have become much 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 Nov. 2023 LIMRA survey said that while the vast majority of DC plans—an estimated 9 in 10—still had no in-plan option for generating lifetime-guaranteed income for retiring employees, that math appears to be changing.
The survey of private-sector plan sponsors with at least 10 full-time employees found that almost half (49%) of those that did not currently offer an in-plan annuity in their DC plan said that they have considered adding one at some point. About 3 in 4 claim that they will make this decision within the next 12 months, underscoring the intense current focus on these options.
Meanwhile, other LIMRA research shows there has been an increase in workers’ willingness to convert assets into lifetime-guaranteed income, which has increased 14 percentage points from 38% in 2017 to 52% in 2023.
“We are starting to see various providers share anecdotal insights and real-world examples,” Allianz Life’s Gray said. “Like other providers, we’ve participated in an increasing number of RFPs and have gone live with our product on multiple platforms. We are starting to see participant dollars flowing into these solutions across these plans and platforms and that is happening at an accelerating rate.”
Speaking of multiple platforms, Income America’s pioneering 5ForLife series of target date portfolios that provide guaranteed lifetime income is now live on over 5,000 retirement plans.
“We are portable on two national recordkeepers and will be live on two more, adding two of the largest recordkeepers in the country,” said Scott Colangelo, chairman and managing partner of Prime Capital Investment Advisors, who in 2021 brought Lincoln Financial, Nationwide, American Century funds, Vanguard, Fidelity and others together to create Income America 5ForLife.
“Most importantly,” Colangelo said, “interest from advisors in our product is reflective of what we thought would happen—they are seeking solutions like ours because we innovated around the things they were seeking—a fiduciary-friendly product, that discloses all fees, that is portable, is multi-insured and is very simple for employees to understand.”
EDITOR’S NOTE: This is the cover story from 401(k) Specialist Magazine Issue 1 2024. To read the digital issue, CLICK HERE.
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