Many plan sponsors recognize that Social Security alone is not enough guaranteed income for participants to retire on, and they understand the need to adopt lifetime income solutions into their retirement plans, according to results from TIAA’s “Building a Better Retirement” survey.

Yet at the same time, many plan sponsors lack “annuity fluency,” according to investment and annuity provider TIAA, as 43% of those not planning to offer annuities in their retirement plan cited a lack of understanding as their No. 1 barrier.

TIAA’s survey, the results of which were published Wednesday, included responses from 500 C-suite leaders in finance and human resources across 17 industries—including 225 plan sponsors that offer a 401(k) plan, 225 that offer a 403(b) plan and 50 that offer a 457 plan. The survey was conducted between June and August. When asked how to improve employees’ retirements, most employers ranked increasing the employer match first, followed closely by offering guaranteed income for life (such as an annuity) and providing financial education.

Of the employers that do not yet have an in-plan annuity option, 80% reported they are actively considering adding an annuity to the retirement plan, and about half of those (42% of those not offering an annuity option yet) said they plan to offer an annuity within the next two years.

TIAA is among an ever-increasing group of asset managers and insurers selling in-plan annuity solutions in the defined contribution marketplace. The firm, along with its Nuveen asset management arm, offers target-date funds that put some of a participant’s contribution into an annuity that can later be annuitized for a guaranteed paycheck in retirement. This week, the firm announced one such product would be offered on Empower’s recordkeeping platform in partnership with Franklin Templeton’s Putnam Investments.

Hard to Explain

The survey found that 63% of plan sponsors surveyed said they are unable to articulate the value and importance of annuities. According to TIAA, employers feel caught between momentum for change and the need for greater understanding of annuities. For example, even 58% of sponsors not planning to offer an in-plan annuity acknowledged annuities’ growing momentum.

TIAA argued in its survey that this lack of annuity fluency emphasizes the essential role of plan advisers and . While 88% of employers work with an external consultant or financial adviser to assist with fiduciary oversight, investment recommendations and more, TIAA concluded that employers are demanding more support.

Tim Pitney, TIAA’s head of lifetime income default sales, says plan sponsors should turn to their consultants first to learn more about in-plan annuities, as they would for advice on investments or fees.

“I would inquire what level of expertise the consultant has with annuities, [because] not all consultants may have that expertise,” Pitney says.

He adds that many other organizations also provide education about annuities, such as the International Retirement Income Council, among others.

Responding to TIAA’s survey, most employers—about 85%—said they understand the basics of how annuities work, but they need to better understand how to fit annuities into a plan and a portfolio. Some of the most common questions employers asked about annuities in responding to the survey included: “Are annuities portable?”, “How do different types of annuities compare?” and “What are best practices for adopting annuities?”

“The marketplace has historically [been] driven by retail annuities and the notion that they’re complex, high-cost and [involve] high commissions and high-pressure sales,” Pitney says. “I think the first point of education for any fiduciary is to understand that we’re really talking about are high-quality, low-cost, institutionally-priced annuities that are appropriate for corporate [and] not-for-profit plans.”

TIAA’s survey summary also emphasized that when the government makes implementing solutions easy, employers respond quickly. For example, the Pension Protection Act of 2006 authorized target-date portfolios as a qualified default investment alternative, and now nearly 90% of 401(k) and 403(b) plans offer TDF portfolios, almost always as the default option.

More recently, the Setting Every Community Up for Retirement Act of 2019 and the SECURE 2.0 Act of 2022 included provisions that allow plan fiduciaries to include insurance-backed income options into DC plans.

Meanwhile, more hybrid annuity TDFs have recently come to market, such as BlackRock’s LifePath Paycheck and J.P. Morgan Asset Management’s SmartRetirement Lifetime Income TDF.

“I think it’s going to take some time, but education and product development will eventually come together,” Pitney says. “There will be greater adoption, and ultimately, I do believe that we will see annuities and other lifetime income solutions become part of the overall ecosystem.”