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Investing June 2, 2025
Products Could Aid Decumulation Dilemma, but Plan Sponsors Remain Hesitant
‘Guaranteed income’ offerings are popular with retirees because they reduce the need for a do-it-yourself approach to retirement finance.
Reported by James Van Bramer
Art by James Yang
Workers spend their careers accumulating enough assets to retire. The catch: Tapping into that income after decades of investing is not a simple task.
In the defined benefit era, retirees could rely on pensions to offer a steady stream of income, alongside Social Security benefits. With pensions mostly in the rearview mirror and the current retirement system now built around defined contribution plans, retirees must figure out how to effectively spend the money they have accumulated so it lasts.
“It’s a do-it-yourself retirement world that we live in now,” says Christine Benz, director of personal finance and retirement planning at Morningstar.
One of the many risks retirees face is sequence-of-return risk: making retirement withdrawals during market downturns. For example, someone who retired in 2000 could have run out of money by now, while someone who retired in 2003 with the same initial asset total could have $4.5 million in assets today, says Michael Finke, a professor of wealth management at the American College of Financial Services.
“They don’t know how long they’re going to live, they don’t know what kind of investment returns they’re going to get, and they don’t know what their expenses are going to be,” Finke says. “Now retirees in the defined contribution era have to face both longevity and investment risks on their own.”
One solution that assists in decumulation—the spending of retirement assets—and puts less onus on retirees is a guaranteed income product.
In a recent study from Nuveen and the TIAA Institute of 2,153 401(k) participants, 93% of respondents surveyed said it is important their plans offer options to convert savings into guaranteed monthly income, with 87% of respondents believing that employers have a responsibility to help ensure retirement income security. In TIAA’s 2021 version of the study, only 60% of respondents shared this view on guaranteed retirement income. TIAA has been one of the most prominent providers of such products.
Plan Sponsors Slow to Adopt
However, despite the products’ popularity among participants, few plan sponsors currently offer them, although many acknowledge the products’ effectiveness.
In an MFS Investment Management study of 166 plan sponsors, conducted in September and October 2024, only 17% said they were “very” or “extremely” likely to implement a retirement income solution in the next 12 to 18 months.
Meanwhile, a Metlife survey of 255 plan sponsors, conducted in September 2024, found that 80% of respondents felt offering guaranteed retirement income solutions was important to protect their participants’ retirement savings, and more than half said they should consider repositioning their defined contribution plans as retirement income programs.
However, plan sponsors remain hesitant to offer guaranteed income products, in part because they are vulnerable to litigation, which has increasingly become a concern, says Kent Mason, a partner in law firm Davis & Harman LLP, who assists clients in retirement savings.
“There is really no question what the No. 1 issue is in our space, and that is the explosion of retirement plan litigation,” Mason says.
In the DC era, retirees shoulder greater responsibility for funding their own retirement—often with insufficient savings. Even those with sufficient savings face the complex challenge of stretching their funds over an uncertain lifespan and unpredictable economic events.
“If retirement lasts five years, none of the other risks really matter,” says David Blanchett, managing director, portfolio manager and head of retirement research at PGIM. “But the longer you live, the more those risks—like inflation, sequence risk, long-term care—start to show up.”
RTX’s Early Example
Despite plan sponsor hesitation, several guaranteed income products already have a track record. The RTX Corp., for example, was one of the earliest adopters, beginning work on its solution, “RTX Lifetime Income Strategy,” in 2006 and implementing it in 2012.
RTX’s Lifetime Income Strategy was designed to fill the void left by the closure of traditional pension plans and to ensure future retirees still have access to a predictable income stream, according to Ken Levine, RTX’s executive director of global retirement strategy.
The solution functions like a managed account, as well as an insurance policy, by providing each participant a set income amount that will last throughout their retirement, regardless of market or economic conditions—similar to monthly payments under a traditional pension plan.
The theory is that if a participant were to run through all their retirement savings not earmarked for guaranteed income, they would continue to receive the monthly payments. By only setting aside a portion of one’s assets to guaranteed income, a participant can continue to invest their savings while maintaining a regular source of income.
“It’s like insurance for running out of money in retirement—something that would be pretty catastrophic,” Levine says.
After RTX adjusted the offering in 2023, participants can choose their target retirement age anywhere from 60 to 70 and set their secure income level from anywhere between 0% and 100%, Levine says, noting that the strategy has been the plan’s default option since its 2012 release.
A significant portion of RTX’s savings plan participants use the strategy, and most stay invested through to retirement, according to Levine, who says about 13%—$7.5 billion of the plan’s $60 billion in assets—are held in RTX’s Lifetime Income Strategy.
Though several experts interviewed for this article say defaulting into guaranteed retirement income is an aggressive strategy, Levine argues that younger participants may not actively plan for retirement, but by defaulting them into the strategy, RTX ensures they accumulate protections passively.
Meanwhile, though Levine admits there are always litigation concerns, he says the 13 years of the RTX product’s success could offer hopeful plan sponsors a model for adopting similar products.
“You can never prevent lawsuits,” he says. “But if you follow a thorough process [and] document your decisions, you have a good defense.”
Similar Products
TIAA, a plan administrator for retirement plans, has offered guaranteed income products via its TIAA Traditional Annuity solution for 403(b) plans that has been in the market for more than a century. More recently, TIAA extended the approach to the 401(k) market with the Secure Income Account.
“We insure our homes, our cars, our health, the risk of dying too soon—why not our also insure our retirement income stream?” says Phil Maffei, TIAA’s head of corporate retirement strategic partnerships. “What we’re trying to do is prevent ruin. And in retirement, ruin means running out of money.”
The SIA is a fixed annuity embedded within default investment options such as target-date funds and model portfolios. Designed specifically for the 401(k) market—in which traditional pensions are rare—the SIA passively builds a base of guaranteed income as participants contribute to their retirement plans. As retirement approaches, the allocation to SIA increases, creating a foundation for a predictable income stream.
Once participants retire, they have the option to annuitize their SIA balance, converting it into regular payouts. The product includes a loyalty bonus feature, similar to TIAA’s offering for 403(b) plans, which can enhance payout efficiency. Notably, the SIA structure supports disengaged participants by embedding income-building mechanisms directly into the plan’s default investment path, requiring no active decisionmaking until retirement.
The SIA is available on both TIAA and third-party recordkeeping platforms and can be integrated within off-the-shelf target date funds (like the Nuveen Lifecycle Income Series) or custom-built target-date solutions. Its design supports wide adoption across different retirement plan structures.
“Guaranteed and variable Income vehicles need to be part of the defined contribution plan ecosystem, and Washington agrees,” says Tim Pitney, TIAA’s head of lifetime income distribution. “With [the Setting Every Community Up for Retirement Enhancement] Act 1.0 and [SECURE] 2.0 [Act], retirement security, with a focus on income, is a clear policy priority.”
In addition to the annuity products offered by RTX and TIAA, numerous other offerings currently exist, including BlackRock’s LifePath Paycheck, J.P. Morgan’s SmartRetirement Lifetime Income, AllianceBernstein’s AB Lifetime Income and State Street Global Advisors’ IncomeWise and SSGA Retirement Income Builder.
Since 2020, at least 10 target-date series with some form of annuity have been launched, according to an April 2024 Morningstar report.
Cornell Decision Opens Litigation Floodgates
In an unpublished paper prepared for presentation at the May 2025 Pension Research Council Symposium at the Wharton School, authored by Vanya Horneff, Raimond Maurer and Olivia Mitchell, “Defaulting 401(k) Assets into Payout Annuities,” the researchers highlighted the 2019 SECURE Act introduction of a fiduciary safe harbor, reducing employers’ liability if the annuity provider fails to make payments.
Meanwhile, the SECURE 2.0 Act of 2022 further eased restrictions, such as removing the 25% limit on qualified longevity annuity contract purchases, making lifetime income solutions more attractive and compliant.
The paper, which outlined approaches to commit to guaranteed income products that fall within compliance limits, also pointed out that the bipartisan “Lifetime Income for Employees” bill has been introduced several times in Congress by Representatives Donald Norcross, D-New Jersey, and Tim Walberg, R-Michigan.
Though this signals policy support for the products, the U.S. Supreme Court’s unanimous decision in Cunningham v. Cornell University has threatened the industry with a wave of litigation, as workers’ claim of a “prohibited transaction” was deemed sufficient to survive a motion to dismiss.
Davis & Harman’s Mason says that the decision, which he believes was incorrect, will open the floodgates for litigation that will highly influence plan sponsors’ willingness to offer products with high fees. Mason says the decision lowered the bar for plaintiffs so significantly that plan sponsors are more worried about facing a lawsuit than offering value to their participants.
“If you have a choice between adding a great new service that includes a fee versus not [adding one], you’re generally not adding that service,” he says.
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