PIMCO’s 2024 Defined Contribution (DC) Consulting Study has uncovered a significant trend: nearly 90% of institutional clients are demanding retirement income solutions for their participants. This marks a 21% increase from 2023, highlighting the growing importance of post-retirement financial security in the DC plan landscape.
Rene Martel, Managing Director and Head of Retirement at PIMCO, emphasized the ongoing shift towards income-generating investments and services for those transitioning from saving to retirement, according to planadviser. This trend is expected to continue as more workers enter retirement after decades of participation in DC plans like 401(k)s.
The study, conducted in early 2024, revealed that retirement income solutions are being considered in both guaranteed and non-guaranteed forms. Target-date funds (TDFs) emerged as the preferred vehicle for delivering non-guaranteed options, while out-of-plan annuities were favored for guaranteed solutions.
Two-thirds of DC advisers reported that their clients either prefer or are actively seeking to retain retired workers’ assets within the plan. This preference is driving the expansion of core retirement plan menus to include options such as multi-sector fixed income and annuities.
Despite the growing interest, the adoption of in-plan retirement income solutions backed by annuities remains relatively low. According to the 2024 PLANSPONSOR DC Benchmarking survey, only 6.7% of plan sponsors currently offer an in-plan annuity option, with an additional 26% providing them through managed account services.
The study also highlighted differences between aggregators and institutional consultants in their approach to retirement services. While institutional consultants prioritized retirement income solutions, aggregators identified financial wellness as their top growing service. This disparity may be attributed to aggregators’ tendency to provide more personalized participant services, including one-on-one advice.
Looking ahead, aggregators expressed optimism about the use of personalized managed accounts with income guarantees as qualified default investment alternatives (QDIAs). In contrast, institutional consultants anticipated that TDFs with guarantees would become the most widely used option.
When evaluating TDF managers, consultants reported that clients prioritize the glide path’s suitability for their participants (89%) over low fees (71%). Factors such as historical performance (36%), brand comfort (21%), and return expectations (21%) were considered less critical by most respondents.
As the retirement landscape continues to evolve, the focus on comprehensive income solutions is likely to intensify. Plan sponsors and advisers will need to adapt their strategies to meet the growing demand for retirement income options, balancing the need for guaranteed income with the flexibility of non-guaranteed solutions.
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