As an average of more than 11,200 Americans workers will turn 65 for each day between 2024 and 2027, addressing the retirement income needs of millions of employees has “never been more urgent,” according to the Milken Institute.

In a new paper, “Enhancing Retirement: Advancing Lifetime Income For All,” the Milken Institute argued that the next steps in increasing the availability of in-plan lifetime income solutions include labeling in-plan lifetime income solutions as distinct asset classes, refining safe harbor language and expanding educational outreach.

Asset Class Distinction

The Milken Institute argued that it is important for the retirement plan industry to distinguish in-plan lifetime income solutions from other financial products, such as retail annuities.

As a result, the think tank advocated for creating a “new asset class” for in-plan lifetime income products to better support comparisons and evaluations. Typically, financial experts outline new asset classes as categories of financial products that exhibit similar characteristics, performance, liquidity and risk profiles. Because asset classes tend to be driven by innovation and the markets, securities regulators have no formal process to define an asset class.

One of the most recent asset classes to emerge was digital assets, as securities regulators have created working groups to understand these products and determine how to regulate them.

When plan sponsors consider asset classes to include in their investment lineups, in-plan lifetime income solutions have no clear comparison, which often result in an “apples-to-oranges” comparison to other investments with fundamentally different investment goals, according to the Milken Institute.

“Placing these solutions in their own asset class provides a more realistic comparison, and when combined with an expanded, clearer safe harbor, plan sponsors would be more easily able to assess their suitability while meeting fiduciary obligations,” the paper stated.

Refining Safe Harbor Language

Many defined contribution plan sponsors continue to be hesitant about adding in-plan retirement income solutions due to concerns of triggering fiduciary breach lawsuits or other legal issues. The Milken Institute argued that policymakers need to develop a more expansive and detailed safe harbor that considers varied and innovative designs, as well as specifies how plan sponsors can satisfy their fiduciary obligations when adding lifetime income solutions.

The SECURE 2.0 Act of 2022 already made some progress, by providing a safe harbor by which plan sponsors can meet their fiduciary obligations when selecting an insurer through which to offer a guaranteed retirement income contract. However, the Milken Institute stated that the current language needs further clarification to make plan sponsors more comfortable with implementing these solutions.

For example, the think tank argued it is currently unclear how or whether plan sponsors can rely on the safe harbor for lifetime income solutions that are not structured as traditional annuity contracts. A traditional annuity contract may not be the best fit for all employees, as some participants may need more liquidity and greater opportunities for growth, which are available in different types of solutions.

In addition, the Milken Institute stated that the safe harbor should specify that if a plan sponsor fulfills the requirements, it generally cannot be held liable for its decisions regarding the choice of products and plan implementation. Without this language, plan sponsors may struggle to select lifetime income products for fear of assuming liability, the paper argued.

Expanding Education

Lastly, the think tank advocated for broader educational efforts for workplace-sponsored retirement plan decisionmakers, coupled with educational outreach to plan participants.

Plan providers also have an opportunity to increase the informational resources available to plan sponsors, such as by providing educational materials that explain the products and fees and by producing FAQs that differentiate in-plan income products from traditional annuities and other investment options.

Because most participants are not proactively seeking these products, many do not realize that they exist or understand their importance to retirement planning. As a result, the Milken Institute suggested that a broader public education campaign would be beneficial.

The full paper can be found here.