Get more! Sign up for PLANSPONSOR newsletters.
Opinions October 7, 2025
The Retirement Income Strategy Hiding in Plain Sight
An effective way to turn savings into lifetime income is enabling retiring participants to roll DC assets into an existing DB plan, writes a Goldman Sachs Asset Management managing director.
Reported by Ernie Caballero
Art by Davide Comai
For decades, plan sponsors have tried to help American workers live comfortably after retiring from the workforce. Along the way, to improve outcomes for participants, defined benefit pension plans were largely replaced by defined contribution plans offering innovative features like automatic enrollment, target-date funds and managed accounts.
Ernie Caballero
During this transition, DB and DC plans were increasingly viewed as entirely separate, even competing, frameworks. In other words: A retirement plan is either DB or DC. But what if a solution existed that could leverage the benefits of both DB and DC plans to deliver favorable lifetime income outcomes?
Spoiler alert: It does.
One of the most effective ways to turn savings into lifetime income is not a new product or innovation, nor a complicated investment vehicle. It is a largely underutilized and overlooked mechanism: Enabling retiring participants to roll their DC assets into an existing DB plan and receive a pension income stream for life.
This approach has existed quietly for more than a decade. With a record number of Americans reaching retirement age, the growing focus on optimal lifetime decumulation solutions and many DB plans in strong financial health, we believe now may be a good time to revisit the strategy.
How It Works
Many companies with DB plans may be interested in the potential benefits of this mechanism for plan participants. It works like this: When participants retire, they have the option to roll over either a portion or all of their DC balance into their employer’s DB plan. The DB plan then annuitizes that lump sum, converting it into a monthly income stream paid for life. Any balance of the DC assets not transferred can remain in the DC plan, where they are available for investment or distribution to the participant.
The Internal Revenue Service and the Pension Benefit Guaranty Corporation issued guidance relevant to this approach in 2012 and 2014, respectively.
We believe what makes this strategy potentially powerful is that it can use the scale and efficiency of the DB plan to deliver participants more income per dollar than a typical DC drawdown or a retail annuity, without requiring additional funding from the sponsor.
At the time this feature was introduced, most DB plans were underfunded. Interest rates were historically low, asset volatility was high and sponsors were heavily allocated to risk- seeking assets, including equities and other more volatile investments, with limited capacity to take on new liabilities, even if fully funded by participants.
The landscape looks materially different today, with many DB plans fully funded or even overfunded with a surplus. Higher interest rates and improved asset-liability matching have driven this shift, and many plan asset allocations are now focused on aligning with liabilities and preserving funded status gains.
Demand for Predictable Income Streams
With more Americans turning 65 than ever before, demand for predictable retirement income is surging. The 2024 Goldman Sachs Retirement Survey found that 40% of current retirees receive less than half of their pre-retirement annual pay in retirement income, yet only 27% of current workers expect that outcome when they retire. This disconnect between expectations and reality underscores why this long-overlooked structural solution may be well positioned to help close the gap.
To understand the potential impact, consider a retiree with $1 million in savings. How much annual income could that generate in retirement? The difference could be substantial:
- $40,000 from an investment portfolio using the “4% rule”;
- $70,000 through a retail annuity; or
- $84,000 through a rollover into a DB plan.
Unlike the “4% rule,” income from the DB plan is intended to be for life, backed by plan funding and not tied to market performance. The difference comes down to cost structure and efficiency.
DB plans rely on IRS-regulated discount rates and group mortality assumptions, allowing for more efficient pricing. Payments are delivered through the plan structure, resulting in a more cost-effective, efficient and higher payout-per-dollar solution.
A Complementary Option
For plan sponsors, the appeal is clear: Their participants can receive more income at no additional cost. By leveraging the scale and synergies already built into the DB plan’s existing asset-liability framework, sponsors can deliver greater value without the plan having to rely on increasing contributions.
This strategy works alongside in-plan annuities and drawdown tools as a complementary feature, not a replacement. It is not mutually exclusive with managed accounts, nor does it limit other retirement income options. Instead, it could offer a path that might be especially valuable for participants who prioritize certainty and simplicity over managing investments later in life.
Some plans already have this feature, but for those that do not, setup may require some changes, such as a plan amendment and administrative updates. Liabilities are fully funded by the amounts contributed into the plan, when a participant rolls in assets, and can add to plan stability. This can also potentially support future risk transfers by the plan sponsor by creating fully funded, easy-to-separate liabilities that may be transferred to an insurer through a pension risk transfer.
This approach might be attractive, even for employers with frozen or closed DB plans, provided those plans remain operational. Sponsors with cash balance plans can also consider the strategy, since these plans are legally DB plans.
Meaningful Step Toward Retirement Security
This option, available for more than a decade, can offer surprising value in today’s retirement environment. It draws on the institutional strength of the DB system to deliver what participants increasingly want: dependable, guaranteed income for life.
This mechanism may help balance the best features of both DC and DB plans. It offers the potential to deliver meaningful decumulation income to participants at a cost-effective and efficient price point for sponsors compared to other products in the market. It allows plan sponsors to extract more value for participants by optimizing how DC and DB plans work together.
We believe this often-overlooked option may warrant consideration as a potential alternative to the current binary approach of relying solely on one plan type to solve the retirement income challenge.
It may not be flashy, but we believe it could be one of the most meaningful steps a sponsor could take to help retirees turn their savings into lasting financial security.
Chart Methodology
- The investment portfolio rate is simply based on the 4% rule, which calculates an initial 4% withdrawal amount and then increases that amount by inflation to pay out for 30 years. So, starting at age 65, this portfolio is designed to assume payout until age 95.
- Retail annuity payout is calculated by using major retail annuity providers’ offerings at May 2025 rates. The payout percentage of 7.00% is the average of the top 5 highest paying single premiums immediate annuity starting at age 65. This is also the average between male and female rates.
- Pension payout rate of 8.40% is calculated by effectively reversing a lump sum calculation through a DB plan using 2025 lump sum mortality table, and IRC 417(e) rates as of April 2025, latest available.
Ernie Caballero is a managing director in the outsourced chief investment officer business at Goldman Sachs Asset Management.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.
« Judge Dismisses AT&T PRT Case, Says Plaintiffs Have Standing