Experts Predict Expansion of Retirement Income Solutions in 2024

A growing number of plan sponsors and industry stakeholders are expected to evaluate and adopt both guaranteed and non-guaranteed retirement income solutions for their defined contribution plans in 2024 to help workers with their financial well-being and retirement readiness, according to the Institutional Retirement Income Council. 

IRIC, a non-profit think tank for the retirement income community, announced its annual list of top retirement industry trends for plan sponsors, providers and advisers to watch out for in the new year. 

Michelle Richter-Gordon, executive director of IRIC, said in a press release that the industry might be at a “tipping point” when it comes to the adoption of retirement income solutions within a DC plan. 

“Traditional pension plans, which provide a guaranteed income stream in retirement, have become less common in the private sector,” Richter-Gordon said. “With the rise of DC plans such as 401(k)s, the responsibility for retirement savings and investment decisions has shifted from employers to employees. As a result, there’s an increasing recognition of the need to help participants convert their accumulated savings into a reliable income stream during retirement.” 

IRIC identified the following retirement industry trends to watch in 2024: 

• Increased focus on retirement readiness: IRIC predicts that more plan sponsors will offer in-plan retirement income solutions that align with the broader goal of helping participants achieve financial security in retirement, rather than just accumulating a lump sum.
• Market innovation: New retirement income products, including both guaranteed and non-guaranteed solutions, are expected to become more available, as there is an increased demand for solutions and investment strategies.
• Growing participant demand: Participants interest in solutions that provide more certainty about their financial future in retirement is expected to increase. Many employees appreciate the idea of having a reliable income stream, and plan sponsors are responding to the demand. 
• Customized investment solutions: Plan sponsors are exploring more personalized and customized investment solutions, such as target-date funds that take into account individual employee circumstances and risk tolerances, as well as retirement goals and retirement income needs. 
• Further consideration of automatic features: Plan sponsors will explore incorporating automatic features in their investment menu that include a retirement income program.  
• Increased employee education and communication: Plan participants seek help from their employers when it comes to saving and planning for retirement. Plan sponsors are expected to make education and employee communication about retirement plans a high priority in 2024. 

In addition to these anticipated retirement income trends, David Stinnett, a principle at the Vanguard Group and its head of strategic consulting, told PLANSPONSOR that he expects there to be increased focus on the idea of “total financial wellness,” largely because of the SECURE 2.0 Act of 2022 provisions set to go into effect. This includes the option for plan sponsors to offer matching 401(k) contributions for those making qualified student loan payments, as well as offer two types of emergency savings accounts.  

Similar to IRIC’s prediction, Stinnett said he expects increased personalization when it comes to plan design and the investment menu and predicts that the concept of a tiered investment structure will become more popular. This is when investments are organized into multiple tiers, and each tier represents a subset of investments from which a participant can choose.  For example, one tier could be a target-date fund for participants who do not want to self-direct investments, while a different tier could be a brokerage window for participants who prefer specialized fund choices beyond the core investment menu. 

Stinnett also said offering low-cost financial advice services to increase personalization is a trend he expects to continue in 2024.