Lifetime-Guaranteed Income: Where Does It Belong?
By: Matthew Drinkwater, Ph.D., FSRI, FLMI, AFSI, PCS, Corporate Vice President, Annuity and Retirement Income Research, LIMRA and LOMA
November 2023
An in-plan annuity (IPA) is a feature within a defined contribution (DC) retirement savings plan that allows participants to generate guaranteed-income payments during retirement. Annuities have long been embedded in DC plans, such as 403(b)(1) plans, and group annuities have been used as the funding mechanism for 401(k) plans. However, within the past several years, the industry has focused on bringing IPAs to the $6.9 trillion 401(k) market. Most — as many as 9 in 10 — 401(k) plans have no in-plan option for generating lifetime-guaranteed income for retiring employees.
Evolving Market
Despite the historically low adoption of IPAs to date in 401(k) plans — in 2019, just 14 percent of savings and thrift plan participants in private-sector jobs worked for employers who offer this option — the market is evolving. Some stakeholders are seeing an uptick in adoption, and others have recently introduced new products, according to a National Compensation Survey by the U.S. Department of Labor. These developments have in part been spurred by the enactment of the SECURE Act of 2019 and the SECURE 2.0 Act of 2022, which provided plan sponsors with a safe harbor to select an insurance company’s in-plan product. Combined with advances in technology and product design innovations, LIMRA expects the in-plan annuity opportunity to grow rapidly over the next few years.
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Much of the discussion and speculation on how this nascent market will expand has centered on the IPA products themselves — how to make them less expensive, less complicated, more portable and more flexible — among other factors. There is certainly room for further product innovation, and more entrants into the market will increase competitive pressures to further improve these products. But the success of IPAs also depends on the attitudes and beliefs of stakeholders, including employers, advisors and participants, about the best ways to produce retirement income. The critical questions revolve around determining who should take responsibility for helping participants convert their balances into a reliable retirement income stream ...
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