CONSIDERATIONS FOR INCLUDING AN ANNUITY IN DEFINED CONTRIBUTION PLANS
By David Blanchett
While annuities are still relatively rare1 in 401(k) plans today, interest among the defined contribution (DC) plan community in strategies that provide protected lifetime income appears to be increasing. In this piece, I summarize the key points of a paper2 recently published through the Retirement Income Institute of the Alliance for Lifetime Income, which explore key considerations for plan sponsors who are deciding whether to include an annuity in a DC plan.
Overall, I find that the notably different product (and benefit) structures and varied preferences among plan sponsors make it unlikely that there is (or will be) a single product or strategy that is truly optimal for all DC plans. However, there can be significant benefits to participants who have access to institutionally-priced, high-quality annuities. Therefore, plan sponsors should actively consider strategies that work best given their objectives for the DC plan and their participants.
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David Blanchett, PhD, CFA, CFP®, is Managing Director and Head of Retirement Research, DC Solutions for PGIM, the global investment management business of Prudential Financial, Inc. In this role he develops research and innovative solutions to help improve retirement outcomes for investors. He is also an Adjunct Professor of Wealth Management at The American College of Financial Services.