Building a better retirement
with guaranteed income

Defined contribution plan sponsors are primed to change, and plan to add a host of retirement plan features in the near term. Many see an in-plan annuity as a top way to positively impact employees’ retirements.

A recent TIAA survey of 500 DC plan sponsors highlights the drivers of adoption, the potential barriers holding up sponsors and the role that consultants can have in helping sponsors overcome these obstacles.

Fortunately, many plan sponsors recognize the need for change and are open to plan enhancements — including guaranteed1 income solutions — to help ensure better outcomes for retirees.

This survey specifically focused on DC plan sponsors’ views on:

• What’s driving interest in guaranteed income solutions, such as annuities
• The obstacles to implementing these solutions — and how plan sponsors can overcome them
• How retirement consultants can help
• The need for “annuity fluency

Momentum in guaranteed income

Plan sponsors agree that offering guaranteed lifetime income, such as an annuity, can positively impact their employees’ retirement. In fact, nearly half (48%) believe it is one of the best ways to have a positive impact, second only to increasing the employer match benefit (57%).

However, at the moment only about one-in-four sponsors offer an annuity in their DC plan. But there is strong momentum driving further adoption, as more than 30% of plans are looking to offer annuities in the next two years, and an additional 30% are exploring or considering adding them.

And the future for annuities appears bright, as plan sponsors view them as increasingly important and expect usage to grow. About three-in-four (76%) of survey respondents agreed that inclusion of annuities in DC plans is likely to gain momentum in the next five years. Interestingly, even 58% of those with no plans to offer an annuity agreed with this statement.

Employee need is the primary driver of change

The top motivating factors for plan sponsors to add annuities focus on what’s best for employees. Specifically, plans that currently or are planning to offer annuities, cite employee need and the belief that these are valuable employee benefits as among their top two drivers.

This is heartening, because when it comes to employee benefits, employee need should be the top consideration. But plan sponsors also know they need to make annuities work logistically — and many turn to consultants for help. 58% of employers who currently offer an annuity ranked addressing employees needs and offering a valuable benefit as top motivators. Advice from a consultant, however, was ranked the number one motivator by plan sponsors who current offer an annuity and those who plan to add one.

The survey also uncovered another interesting consideration: the status of Social Security. 85% of respondents agreed that employees need additional sources of guaranteed income beyond Social Security. And most respondents cited it as the top external factor motivating employers to add or consider adding annuities, outpacing competitors’ offerings and longer lifespans.

Barriers include competing priorities, complexity and cost

Survey respondents noted several obstacles to instigating change in their retirement plans. Competing priorities was most cited, as teams that are often resource-constrained recognize the challenge in researching and implementing new plan features. Other reasons involved complexity, technology, and firm-level factors like organization decision making and strategic direction.

Digging deeper, 29% of respondents cited competing priorities as a “major barrier,” with the second most-cited major barrier, complexity, only mentioned by 7%.

When asked specifically about adding guaranteed lifetime income to their plans, sponsors currently considering annuities cited cost, complexity and lack of understanding among decision-makers as sticking points to progress. Sponsors who currently have annuities in their plans cite cost sensitivity as first among a variety of barriers they managed.

How sponsors can overcome barriers to implementing annuities

Getting past the obstacles starts with understanding them. In many cases, organizations turn to benefits or retirement committees and, in fact, six-of-10 sponsors ranked committees as the top influencers of change at their organizations. Organizations can turn to retirement plan consultants and providers to help their busy benefits teams by providing access to research and best practices on potential solutions.

When asked what they need to move their retirement plans forward, sponsors shared a number strategies that would help them overcome obstacles to change:

1. Improving internal alignment on planning and strategy
2. More support from providers such as record keepers and asset managers
3. Elevating priority of retirement plan among key stakeholders
4. Peer-led collaborations to lead collective change
5. Securing more resources, such as people, budget, etc.
6. Support and action from policy makers

Consultants can help, particularly with the big picture

While the majority of plan sponsors work with an external consultant in areas like fiduciary oversight, investment recommendations and strategy guidance, there is a desire for more support in other areas. Sponsors indicated generating “big ideas” for innovation and guiding the follow-through on strategy decisions as the two biggest needs for additional consultant support.

But beyond the big picture, sponsors recognize they have a knowledge gap about annuities. In fact, a lack of understanding and need for education is the #1 obstacle for those who don’t yet offer annuities.

Consultants and providers can play a role in educating sponsors by sharing their expertise in many areas related to financial wellness. But they must go beyond the basics, as sponsors identified a host of topics where they lack understanding. Nearly two-thirds of respondents said they need to know more about portability, risks and benefits to the employer, as well as how in-plan annuities differ from retail annuities.

The impact on talent strategy

Nearly all of those surveyed generally agree that it’s an employer’s responsibility to make it easy for employees to prepare for retirement by helping them save and invest. Most also felt doing so helps manage their workforce by ensuring workers can retire at the appropriate ages.

But a retirement plan can also impact a company’s talent strategy by influencing how it attracts and retains employees. In fact, about three-quarters of plan sponsors believe their DC plans are somewhat to very effective in helping them hire and retain employees. The flipside, however, is that only two-in-five view their DC plans as true differentiators when it comes to talent management.

Among the 60% of respondents who said they are open to new ideas, over half believe their DC plans can be “very effective” in impacting talent strategy. This creates opportunity to pair plan sponsors who are seeking new solutions with innovative and in-demand guaranteed income solutions.

Looking forward, plan sponsors expect the momentum to continue as more companies add annuities to their DC lineups, in turn giving more workers access to a more financially secure retirement. As employees benefit from the advantages of guaranteed income, employers who offer it can often gain a competitive edge in their pursuit of talent in a competitive labor market. The role of consultants in educating plan sponsors, and the ways in which plan sponsors need to listen to the desires of their participants are areas that we will explore in future editions of next. The release of a participant survey in 2025 will allow us to examine the relationship between participants, plan sponsors, asset manager and record keepers further.

The power that an asset manager can have to examine and drive retirement outcomes through the management of the default investment vehicle is significant, with different asset classes, timelines and the addition of annuities within target dates changing how asset managers help plan sponsors think about retirement planning. The underlying annuity being part of a larger insurance firm allows for a separation of responsibilities in a way that can help support plan sponsors with education and resources from the most authoritative stakeholder.

About the survey / methodology

The 2024 Building a Better Retirement study was conducted for TIAA by Greenwald Research and IM Consulting. Information for this study was gathered through a 15-minute online survey with a total of 500 plan decision-makers (CHROs, senior benefits leaders, CFOs, ClOs, senior investments or treasury leaders, etc.).

Decision-makers were required to be U.S.-based, working at companies with 250+ employees, and overseeing defined contribution retirement plans valued at $20m or more. Respondents for the survey were recruited and fielded by CoreData Research from June 27 to August 10, 2024.

Quotas were established to ensure a minimum sample size of 225 for 401(k) plans and 403(b) plans and 50 for 457 plans. The data are weighted by DC plan type to reflect the total population of plan sponsors. If this study were a random sample, it would have a margin of error (at the 95% confidence level) of plus or minus about 4 percentage points.

Explore the full survey here.