TDFs With Annuity Options Set to Proliferate

2025 will likely see new entrants offering hybrid annuity TDFs, while existing players will announce more recordkeeper partnerships and asset allocation updates.
TDFs With Annuity Options Set to Proliferate

The market for target-date funds with a guaranteed income annuity component saw several new entrants in 2024, and this year is likely to be similar, says Kelby Meyers, CEO and founder of Nestimate Inc., which tracks the in-plan retirement income market.

“What I anticipate in 2025 is more product proliferation,” says Meyers. “Traditional folks that you didn’t think would get involved with this are partnering, and there will be new entrants as well—I think it’s going to be pretty wild to see.”

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Meyers recently released an infographic framing up the hybrid annuity TDF investment options, from which his startup firm garnered a slew of inbound inquiries. Part of the interest, he says, comes from the progression of plan advisers and sponsors beyond the education and information stage of retirement income options to more seriously evaluation of the market.

“The retirement income solution has different pieces that need to be evaluated,” Meyers says. “There is the guaranteed income component, which is now part of the glide path, but there is also this question of whether it should come via a target-date fund or managed account—what we can call the ‘delivery vehicle’—and [plan fiduciaries] need to recognize that you need to evaluate both.”

The TDF vehicle is  the most dominant default option in DC plans. But Nestimate Chief Operating Officer Joshua Anderson notes that retirement income often requires more customization to work well, which makes managed accounts a more attractive option.

“With that type of personalization, you can synthetically replicate the experience of a pension while still retaining the benefits of the DC for the employer,” Anderson says.

Market Inroads

Plan advisers who attend conferences or read industry publications will be familiar with the names that populate Nestimate’s retirement income map—ARS, BlackRock, Income America, State Street, TIAA/Nuveen and, more recently J.P. Morgan. While there may be more names to come, the existing players are also starting to highlight progress.

BlackRock Inc., already in market with its LifePath Paycheck, announced Monday that the investment product launched in April 2024 currently has $16 billion in assets under management among six plan sponsors. Part of that success has come because the country’s largest recordkeeper, Fidelity Investments, and another sizable one, Bank of America, offer it on their platforms. The release also noted that Voya Financial, among other recordkeepers, will make LifePath Paycheck available in the near future.

A frontrunner in the in-plan annuity target-date space, TIAA, announced late last year that it had $50 billion in assets within in-plan annuity target-date offerings, up from $30 billion at the beginning of 2024. These include RetirePlus, a version of which has been available since 2014, and The Nuveen Lifecycle Income Series, launched in mid-2023. Both provide the option of access to a guaranteed income annuity; the firm does not disclose the assets in the offerings individually.

Brendan McCarthy, head of retirement investing at TIAA’s Nuveen, gave PLANADVISER an update on that product while walking to his airport departure gate after yet another industry gathering. McCarthy has been crisscrossing the country discussing the target-date fund that includes the TIAA Secure Income Account, a deferred fixed annuity that gives participants the option to annuitize.

In his view, the conversation with many advisers has turned, over the last year, from, “Why would we do this?” and “What are the fiduciary concerns?” to, “We want this, so how do I bring it to my plan sponsor client and get it working?”

“We spent a lot of time walking them through the solution—the costs, the participant experience, as well as discussing how advisers might discuss it with their existing plan sponsor clients or prospective clients,” he says. “There are a number of advisers that are taking the lead on these solutions and are embracing it as a way to make the 401(k) plan better for their clients.”

McCarthy sees more asset growth for the vehicle in 2025 for a couple of reasons. One: TIAA and Nuveen already have commitments from  plan sponsors in the pipeline; and two: The firm will announce more recordkeeper partnerships after announcing it will be on Empower’s platform last year.

Getting the TDF with annuities onto recordkeeper platforms “has been an industry challenge,” McCarthy says. “The technology does not exist for a recordkeeper to offer third-party annuities, and the products, unfortunately, are all different and have different requirements, so it is a little bit difficult and costly for recordkeepers.”

Rising Tide

Matthew Wolniewicz, president of Income America LLC, was also on the retirement income circuit to the tune of 70 events last year to discuss his firm’s Income America 5ForLife guaranteed income solution via a partnership with American Century, Nationwide and Lincoln Financial Group. Wolniewicz says he saw a shift in his conversations with plan advisers and sponsors from education about the products to “Where are you available?”

“The questions don’t fade, but the narrative has changed,” Wolniewicz says.

The biggest barrier to success, he says, is availability on recordkeeping platforms, which has been his other area of focus. In 2025, Income America expects to make four announcements within the first half of the year regarding recordkeeper availability.

Another important factor in having widespread recordkeeper uptake is portability, Wolniewicz says. While some investment products will put the annuity in the hands of the participant if they leave, Income America allows for portability even if the participant changes jobs—a setup, to the prior point, that will only thrive if available across recordkeepers.

Give It a Spin

As Nestimate’s chart shows, State Street Global Advisors is the investment management partner on many different product offerings. Brendan Curran, State Street’s head of defined contribution for the Americas, says the firm’s IncomeWise, which combines a nonguaranteed drawdown investment with a deferred annuity, has been the “tip of the spear” for its in-plan income efforts.

That offering has $20 billion in commitments, Curran says, partly through plan sponsor University of California, which implemented IncomeWise more than three years ago.

In 2024, State Street announced a collective investment trust version, offering a low-cost vehicle for plan sponsors that the firm expects to gain traction in 2025.

“Five years ago, showing people retirement income was like being at a car dealership where they were looking at the cars and doing test drives, but no one was really walking out with the keys,” Curran says. “Now people are doing their due diligence, they’re putting out RFPs: There is demand from the plan sponsors, and that demand is being backed up from the participants, given the decline in defined benefit plans.”

The target participants for the product, Curran says, are not the wealthy, but more average savers who may have about $300,000 in retirement savings and who need a guaranteed income supplement. This group, he says, may benefit most—but how best to reach those masses is still in discussion.

Curran says there is a “strong argument” for the hybrid annuity TDF to be offered through a qualified default investment alternative, but that retirement income is also “more personalized,” meaning it may call for more engagement and decisionmaking by the participants. Achieving that, he says, will take continued partnership and innovation.

“We’re a partnership-led organization,” Curran says. “In the DC, DB and ETF spaces, our door is open to other conversations that better improve investor needs.”

Meanwhile, Wolniewicz and others will still be on the road touting the future of a pension-like option for the DC system. He says part of what drives him to keep at it is personal. His father retired in the midst of the financial crisis of 2008, leaving his workplace savings depleted with no guaranteed income element—something that Wolniewicz fears will happen to many more people when the next market correction hits.

With that mindset, he is a champion of the TDF with retirement income succeeding across all providers, and he advocates for a shared, simple language to describe the products for clients.

“We’re not fighting for market share so much,” he says. “We’re fighting for share of the adviser’s mind through education and awareness.”

More on this topic:

How TDFs Are Evolving
Beyond TDFs
Nuts & Bolts: Best Practices in Target-Date-Fund Selection
Catching Up With PIMCO’s Personalized Target-Date Funds
Q&A: Seeking a More Perfect TDF

Catching Up With PIMCO’s Personalized Target-Date Funds

The firm continues to pitch its myTDF, a personalized target-date-fund solution in market since 2023, as a way for plan advisers to bring clients a more personalized glide path.
Catching Up With PIMCO’s Personalized Target-Date Funds

Target-date funds have long been a staple of retirement planning, offering employees an age-based glide path to guide their asset allocation. However, a growing demand for personalization has led to discussion of more personalized TDFs that can cater to client needs.

PIMCO’s myTDF, launched in 2021 and offered in market in 2023, has been a prominent offering of a TDF that incorporates more participant-specific data and promises to better align investment strategies with individual goals.

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“The objective of a savings or income program, like a glide path, is to get to a certain replacement ratio,” says Rene Martel, PIMCO’s head of retirement. “We want people to be able to ultimately replace, hypothetically, say, 70% of their salary in retirement.”

He explains there are several factors that can impact the glide path, including current balance, salary, contributions, employer matches and age. Traditional TDFs typically tailor the glide path only to age. All other considerations are based on broad averages or plan-wide demographics.

Martel notes that myTDF, and similar personalized options, integrate data from recordkeepers to account for each participant’s unique financial profile, such as their contribution rate and salary history. This results in an individualized glide path for every plan member, rather than a one-size-fits-all solution.

As the retirement landscape shifts toward increased customization, personalized TDFs are seeking position among more prevalent managed accounts, either as a sole solution or a bridge to MAs. As of recent reporting by lead MA provider Edelman Financial Engines, the market for MAs in defined contribution plans is about $500 billion; other providers include a third-party offering from Morningstar Inc. and recordkeepers including Fidelity Investments and Empower.

PIMCO is also partnered with Nexus338’s iGPS, a TDF solution that includes age, salary, assets, deferral rate and match rate. Nexus338 is the 3(38) provider, PIMCO is the investment manager and iJoin is the technology provider.

Early Rollout and Adoption

The journey to create myTDF began in earnest in about 2019, Martel says, with significant progress made by mid-2022 and broader market availability by 2023. Since its launch, the product has been used by more than 300 plan sponsors. Combined, these plans manage approximately $470 million in assets.

To accommodate varying client needs, myTDF is offered in two versions. The difference between the two lies in who acts as the fiduciary under ERISA Section 3(38): the asset manager or a third party.

The product is now live on four recordkeeping platforms, with plans for further expansion. Martel acknowledged the challenges of integrating with additional platforms, noting that each connection requires time, resources and coordination with recordkeepers. However, he expects the process to accelerate as familiarity with the systems improves.

Addressing Challenges and Future Growth

While personalized TDFs represent a significant step forward, there are hurdles to overcome. Data quality is a key concern. Although factors like age, salary and contributions are readily available, other variables, such as defined benefit plan details, are harder to capture, Martel says. These nuances could further enhance the customization of glide paths but require more robust data integration.

Martel emphasizes the importance of accurate data, stating, “What we’re delivering hinges on the data being correct. As we add more factors, ensuring accuracy and consistency will be critical.”

Looking ahead, Martel expects myTDF to incorporate lifetime income solutions, such as annuities, into its offerings. This would allow participants to allocate a portion of their savings to guaranteed income products based on their personal circumstances.

Another area PIMCO hopes to explore is a dual-QDIA model, in which participants initially invest in traditional TDFs and then transition to personalized options as they near retirement. This approach could address cost concerns while maximizing the benefits of personalization when participants’ balances are larger and their circumstances more complex.

Positive Reception, But Room for Improvement

Feedback from plan advisers has been largely positive, Martel shares, particularly for plans with diverse participant demographics. He says advisers are interested in how personalized TDFs offer tailored solutions without requiring participants to actively engage with investment platforms, a common barrier to adoption.

He says advisers have also offered areas for improvement, such as implementing the dual-QDIA model to balance cost and value. Martel notes that while the focus has been on simplicity, these ideas are under consideration as the product evolves.

More on this topic:

How TDFs Are Evolving
Beyond TDFs
Nuts & Bolts: Best Practices in Target-Date-Fund Selection
Q&A: Seeking a More Perfect TDF
TDFs With Annuity Options Set to Proliferate

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