Retirement Income in DC Plans: The Way Forward

The retirement income conversation within defined contribution plans is reaching a new level. Fueled by legislative tailwinds, technological advances and shifting participant needs, the last five years have seen a surge of new ideas, tools and products.

Mikaylee O’Connor

Bill Ryan

While innovation is a welcome sign of progress, it has also created a fragmented marketplace. As plan sponsors and advisers navigate this space, they will need a thoughtful approach to setting goals, understanding participant needs and plan sponsor limitations, evaluating solutions, and managing implementations.
This piece offers NEPC’s perspective on the retirement income landscape—and practical tips to guide your journey.

A Marketplace in Motion

Recordkeepers are expanding their platforms to support more retirement income solutions. From integrating insurance-based solutions to improving education and advice, their capabilities are evolving to meet the changing demands of the DC system. This shift is not just about enabling income payments—it is about building the infrastructure to support decumulation.

In insurance, we have seen an influx of solutions—both embedded in qualified default investment alternatives and offered as stand-alone products that can be implemented both in-plan and out of plan. The use of middleware solutions, which reduce friction and expand access by connecting insurers to recordkeepers, has been a game changer. These connectors also have the potential to enable systematic payments from existing non-guaranteed strategies like target-date funds and managed accounts.

Sponsor Interest Grows—But So Does the Noise

Plan sponsor interest in retirement income has been steady, with a notable uptick in recent years. Conversations are now making their way onto plan committee agendas, with many plan sponsors holding education sessions, exploring solutions and asking how to best support retirees.

Still, the path forward for many is not clear. While industry innovation is necessary and healthy, the current environment feels like “throwing spaghetti at the wall.” There is a lack of consistency and little agreement. With so many new products across both guaranteed and nonguaranteed income—plan sponsors must navigate a maze of features, trade-offs and implementation considerations.

Retirement Income—the “Journey”

For plan sponsors considering retirement income, it is important to recognize that this is a journey, not solely a product decision. It requires thoughtful planning, cross-functional coordination and an understanding of participant needs.

Start by defining the problem: Who are you targeting?

For example, only about 14% of all participants in DC plans tend to be retirement eligible. What risks are you trying to address? Spending behavior, volatility, longevity? Are you prioritizing guarantees, flexibility or simplicity? Once these questions are answered, you can begin to evaluate solutions and determine your commitment level as a plan sponsor.

Remember, a solid foundation for retirement income starts with assets. If participants do not have sufficient savings, even the best-designed retirement income solution will fall short. Plan sponsors should continue to push for improving access, participation, saving rates and asset allocation. No retirement income solution can overcome insufficient savings.

Building a ‘Retiree-Friendly’ DC Plan

Investments, plan design and administration must work in concert.

Most DC plans already offer solutions for the savings and decumulation phases—target-date and stable value funds are the most-offered solutions in DC plans. Certain plan sponsors may also want to consider solutions tailored to retirement spending—such as managed payout funds, inflation-sensitive options and insurance-based solutions.

Plan sponsors must also ensure their plan design, recordkeeping and administrative operations are retiree friendly. Review questions about the flexibility of available distribution options and the types and amount of related fees and paperwork. While 93% of plan sponsors offer systematic distributions, we see 18% of older participants (at least 65 years olds) using them. Retirement income is not just about what is in the plan—it is also about how easy it is to get money out in a way that aligns with participants’ real-life needs.

Finally, do not underestimate the importance of education and advice. As participants age, their financial situations become more unique and complex. Personalized guidance, financial planning resources and simple, effective educational resources and tools can make the difference between confident transitions and poor decisions.

Plan sponsors can start with the “low-hanging fruit.” For example, consider adding a Social Security optimization tool, which are only offered by a small percentage of DC plans. From there, plan sponsors can explore more complex solutions, such as insurance-based products. The table below identifies areas to consider, the level of plan sponsor commitment typically required and how widely each feature is offered across DC plans today.

Components of a “Retiree-Friendly” Plan

^*Commitment levels focus on required resources, cost, flexibility and implementation
^†NEPC’s 2024 DC Plan Trends & Fees Report, PSCA’s 2024 67th Annual Survey of Profit Sharing and 401(k) Plans, JP Morgan’s 2024 DC Plan Participant Survey, and PGIM’s 2023 Evolving DC Landscape Survey. NEI is “Not Enough Information”. Capital Preservation includes stable value, money market or both.

Honing in on Potential Solutions

With so many new products becoming available, it is crucial for plan sponsors to focus on what matters most. Define the criteria that mostly align with your participant needs and behaviors. For example, the prevalence of different investor types (e.g., do-it-yourself vs. do-it-for-me) within the cohort of participants and their connections to the DC plan after retirement can have an impact on the type, number and selection of products, including the plan’s QDIA.

The table below provides a high-level overview of various types of retirement income solutions, including investment and insurance-based solutions, and key differentiators.

Type of Option

^‡Deferred fixed annuities typically have liquidity before going into income

The Path Ahead

As the DC industry continues to evolve, the opportunity is clear: We can help participants convert their savings into income with confidence. That journey will look different for each plan and participant, but the direction is the same. The question is whether we can bring clarity and cohesion to a space still finding its footing.

Bill Ryan is a partner in and the defined contribution team leader at NEPC. Mikaylee O’Connor is a principal in and head of defined contribution solutions at NEPC.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.

More on this topic:

	Plan Sponsors, Providers Face Challenges Creating Retirement Income
	Products Could Aid Decumulation Dilemma, but Plan Sponsors Remain Hesitant
	How AI, Digital Tools Drive Potential for Decumulation Innovation
	Cracking Open the Annuity Dilemma