Could in-plan annuities head up a new asset class?

Creating a new asset class could help more Americans access the in-plan guaranteed lifetime income options studies show are needed to help avert a mass retirement crisis.

Cheryl Evans, director of the Lifetime Financial Security program at the Milken Institute, endorsed the idea during the Retirement Symposium: The Forces Transforming Retirement, hosted Tuesday by Milken and the Employee Benefit Research Institute.

Asset classes evolve when products share similar characteristics, performance, liquidity and risk profiles, Evans noted, and fall under the same laws and regulations. Different asset classes perform different roles in a diverse investment portfolio.

"We feel like these products fall into that category" of deserving their own asset class, Evans said. "We're hoping for movement towards discussing and clarifying and regulating this as a separate investment product."

Evans gave a brief presentation of a new Milken research paper on moving forward with "in-plan lifetime income." Forty-seven percent of working households are in danger of not having enough retirement savings, according to analysis from the Center for Retirement Research at Boston College.

A growing trend

Thanks to legislation like the SECURE Act and SECURE 2.0 Act, which include provisions encouraging the adoption of annuities in retirement plans, annuity offerings are picking up steam. Creative offerings like LifePath Paycheck are bringing together firms like BlackRock with insurers like Equitable Financial and Brighthouse Financial to offer “guaranteed income” via a target date fund.

When a participant enters retirement, they will receive a guaranteed amount of funds in a paycheck-like manner that is meant to provide a stable source of income. By providing access to guaranteed income through a target date fund, LifePath Paycheck is meant to be more stable than a standard 401(k).

"Retirement is a universal concern," Evans said. "It affects all people of all ages, and just saving for the future. I still don't fully believe that in maybe 20 years, many people are going to retire in the traditional sense."

Surveys show that people are warming up to annuities, however. A consumer focus group run by Hearts & Wallets found increased interest for in-plan retirement income annuities.

There remain educational efforts that could further understanding and acceptance of lifetime income solutions, Evans said, such as educational materials that explain things like the fees involved, and sets of Frequently Asked Questions to head off objections.

"We believe that education efforts that reach out to workplace-sponsored retirement plan decision-makers would be impactful, coupled with educational outreach to plan participants," Evans explained. "Building an awareness and understanding of the solutions among the decision-makers, we think would be important."

Fear of lawsuits

Among plan sponsors there exists a specific fear of offering new lifetime income options in plans, Evans noted.

"Based on the information we've gathered, it seems clear to us that a substantial number of plan sponsors have been reluctant to offer these products due to concerns over triggering fiduciary breach lawsuits," she said.

Many such lawsuits are making their way through courts across the country, some filed against firms handling pension risk transfer deals. For example, In a Massachusetts lawsuit, nearly 100,000 AT&T retirees say plan administrators had a fiduciary duty to select "the safest annuity."

PRT deals have become big business in recent years, as companies look to offload hefty pension commitments. Meanwhile, insurers and private equity firms seek the chance to invest and reap fees from large pots of pension funds.

Plan sponsors rely on a safe harbor to rely on representations from annuity providers about their financial strength. This provision is part of the SECURE Act. But tighter, more specific language is needed, Evans said, to give plan sponsors more confidence in offering annuity options.

"We feel like it's not detailed enough," she said of the safe harbor language. "It's not giving people enough security to fully get into the product."

© Entire contents copyright 2025 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.