Is Automatic Retirement Income the Next Evolution for 401(k) Plans?
Is offering 401(k) plan participants an option for automatic retirement income “the next natural step?” Some industry insiders think so.
By John Lekel
This article was originally published by NAPA.
Is offering 401(k) plan participants an option for automatic retirement income “the next natural step?” Some industry insiders think so.
Making it possible for participants to choose an option that will give them a source of guaranteed income during retirement through a defined contribution plan is something that resonates, according to Mark Tavares, Partner and Corporate Benefit Solutions Leader at Aon.
Speaking as a panelist in their Nov. 20 webinar “2025 Year End Retirement Plans,” he termed offering retirement income options in DC a “key topic” his firm is “constantly” talking to clients about.
“We’re seeing the landscape evolve, every year,” Tavares said. “There is a wide and growing breadth of solutions with different utility for participants,” he continued, and “all are valuable in providing peace of mind in spending during volatile markets.”
Peace of mind is one thing that is in short supply, according to Rebecca Tadikonda, CEO of Vitera and Head of Strategy and Innovation at Athene. She remarked in “Auto Income: The Next Evolution,” a Nov. 24 webinar held by Pensions & Investments, that a lot of participants are “struggling” to get deaccumulation right and that the lack of retirement income is a “major cause of stress” for retirees and even pre-retirees.
There is a “pretty dramatic difference” between those who have a guaranteed income option and those who proceed on their own, said Tadikonda. She cited research by Greenwald and Associates, the Alliance for Lifetime Income, and the Retirement Income Institute that says that 50% of workers said they would have more confidence in their retirement plan and investments if they had guaranteed income in retirement. Further, an “overwhelming majority” of workers who participate in an employer-sponsored retirement plan said they want their employer to offer a retirement income option.
Automatic retirement income is the “next natural step,” said Tadikonda. She said that there is strong support for automatic retirement income, but there is a disconnect between employees’ strong desire for automatic retirement income and their availability. To wit: Just 25% of plan sponsors currently make one or more retirement income options available to their employees, while almost three times as high a percentage of workers in the research said they want the plan in which they participate to include an automatic way to convert assets to retirement income.
But it’s not as simple as just offering an automatic income option and calling it a day, Tadikonda indicated. If one is going to add such a feature, she said, it is essential that the option provides flexibility and liquidity, so individuals remain in control of their retirement assets.
Education and communication also are essential, Tadikonda suggested. She emphasized the importance of communication, arguing, “we need to make sure people understand the market they’re in.” Not doing so, she suggested, would not serve participants well. “It’s a hard bar for someone who’s been in an auto system to then have to take action,” she said, warning of the consequences of not educating participants. Still, Tadikonda cautioned, simply providing education is not enough — she asserted that education is a means to an end, but not the end itself.
The Crystal Ball
When asked what she expects regarding adoption of automatic retirement income options in the next 5 to 10 years, she responded that guaranteed income is at the top of the priority list in industry surveys. Even so, she said she considered it hard to tell how fast adoption will expand. She added, however, that the recent executive order concerning private assets and retirement accounts could reinforce the importance and expansion of automatic income.
Time for Introspection
Tadikonda called on employers and plan sponsors to seize the opportunity to engage in some introspection and close thought when considering the retirement plans and options they offer. “People talk about a retirement crisis,” she said, but an employer should ask itself what that means on a human scale. And, she added, employers should ask themselves how they can deliver to people what they are asking for.