TIAA In-Plan Retirement Income Option Reaches $30B

TIAA’s default in-plan retirement income offering that provides participants access to a guaranteed-interest annuity grew to $30 billion from $10 billion in assets in about two years, the firm announced Wednesday. 

TIAA’s RetirePlus is now being used by more than 400,000 participants across 500 plan sponsors, up from 250,000 participants as of 24 months ago, the retirement income provider and recordkeeper announced. The New York-based firm attributes the growth to demand for a default solution that offers a pension-like income option for participants. 

TIAA has a long history of providing annuity-backed retirement income products to participants when it started doing so for 403(b) plans about 100 years ago. It introduced a custom default product for defined contribution plans generally in 2014, and then launched RetirePlus in 2018, according to company statements. 

RetirePlus can be offered as a qualified default investment alternative that puts participants into an investment portfolio including its TIAA Traditional annuity, which then allows participants to convert some or all their savings into a “personal pension” in retirement. 

“TIAA’s view has always been that annuity products, like our flagship fixed-annuity products, should be part of the accumulation phase and the best way to do that is to embed it inside the plan’s default investment whether that’s a target-date fund or a model portfolio or a managed account,” says Philip Maffei, managing director of corporate retirement income products at TIAA. “Our belief is that if you put [annuities] in the default, people have exposure to them through their entire working career.”  

Through the offering, plan sponsors can “create built-in guarantees during asset accumulation and distribution, reduce default option costs, tailor default options based on its participant’s demographics, and allow participants to create guaranteed lifetime income in retirement,” according to TIAA.  

RetirePlus also allows plan sponsors to work with a 3(21) fiduciary adviser or a 3(38) investment manager who can customize all aspects of model attributes for the unique needs of their participants.  

Maffei argues that if participants are educated about guaranteed lifetime income early on in their careers and begin to think about converting a portion of their savings into lifetime income, take rates on in-plan annuity products will increase. 

“I also think the idea of lifetime income for individuals is going to resonate more as lifespans continue to get longer,” Maffei says. “40% of Americans are at risk of running out of money in retirement. That’s a really big number. As that continues to come to fruition with each year in the future, I think there will be a lot more interest in ensuring an income stream in retirement with an annuity.” 

According to the TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington School of Business, a “staggering” number of Americans lack of understanding regarding how long people tend to live in retirement, which ultimately hinders their retirement planning and savings.  

Maffei adds that he is noticing that the consulting and adviser community are beginning to “get more comfortable with annuities.” 

“It’s one thing to be a consultant and be able to judge a particular investment strategy and compare it to other investment strategies,” Maffei says. “But annuities are different. You’ve got the lifetime income component, there’s insurance in there… it’s a little more complex to analyze. But I think the consulting community is getting more astute as to how to analyze these products and the different categories of products.” 

However, PLANSPONSOR research shows that systematic withdrawal programs are still more widely offered than in-plan annuity options. About 41% of plan sponsors offer systematic withdrawals in a 2023 survey of 2,128 plan sponsors. That compares to 26% who said they are offering in-plan managed account services offering annuities, 6.7% offering in-plan insurance-based products, and 3.5% offering an out-of-plan annuity for purchase by participants. Another 51.3% said they offer no income-oriented product to participants. 

A recent survey by Greenwald Research noted that many plan sponsors are hesitant to offer participants retirement income options due to the “three Cs” of complexity, cost, and choice. The firm reported that 59% of plan sponsors view in-plan income as “too complex”; the surveying included 503 companies with at least 50 employees.