Data & Research January 17, 2023

Fiduciary Concerns Continue to Stymie Annuities in 401(k)s

Employers have embraced 401(k) plan benefits changes for 2023, but are still shying away from annuities, according to Alight.

Reported by

Noah Zuss

Employers have not embraced adding in-plan annuities to defined contribution plans, which was one of the legislative provisions of the Setting Every Community Up for Retirement (SECURE) Act of 2019, according to new data from Alight.

“The SECURE Act did little to quell employer concerns about annuities,” the Alight report stated. “Even though the SECURE Act was designed to help relieve fiduciaries’ responsibilities for selecting an in-plan annuity provider, nearly half of employers say fiduciary concerns are a major reason they don’t have annuities in their plans.”

Alight’s data showed that among employers, 47% cite fiduciary concerns as a major reason for not adding annuities. The figure has remained stagnant since the 2018 report, Alight found. Most (44%) of employer respondents are waiting to see how the market evolves, and an equal percentage cite difficulty with participant communication. Fully 38% of respondents blame operational or administrative concerns, and 32% cite participant use concerns as major reasons for abstaining from annuities, the Alight research showed.

Alight data showed 12% of employers already have annuities in their defined contribution plan, 3% are very interested in annuities for the plan, 35% are moderately interested and 51% are not at all interested in annuities in their defined contribution plan.

Plan sponsors are, however, taking other actions intended to improve retirement outcomes for participants. Many were driven to make changes to their 401(k) and other defined contribution plans because of inflation, hammered stock markets and the lingering impact of the COVID-19 pandemic, the 2023 Alight Solutions Hot Topics in Retirement and Financial Wellbeing Report found.

The current economic environment has spurred five out of six plan sponsors to change their 401(k) plans in 2022 or plan to in 2023, the report found.

“Employers’ top initiatives are enhancing their financial wellbeing programs, measuring the competitiveness of their retirement plans and expanding inclusion and diversity efforts,” the report stated.

Employers are providing resources, including guidance on investing when inflation is high, and are likely to increase communication to workers about investing in the current environment, as 87% reported being very or moderately likely to expand their financial well-being program in 2023, the research showed.

The largest group of employers, 55% of those responding, said they have already or are expected to provide participants with access to advisers who offer guidance on investing, Alight Solutions found. Another 29% either added in 2022 or are expected to include in 2023 an inflation-protection specific investment such as Treasury inflation protected securities in the plan, 25% of employers said they provide tools than can model inflation scenarios and 13% said they focused on communicating to participants how to invest in high-inflation environments, the research showed.

In 2023, 61% of employers said they plan to offer budgeting assistance, compared to 35% that did in 2018, the research shows.

Among employers responding to the survey, 47% said they are very likely to focus on financial well-being of employees—with strengthened plan features, planning, resources communication, mobile apps or online tools—beyond retirement decisions, 40% are moderately likely and 13% not at all likely to do so, the research showed.

Alight also found that 38% of employers say they are very likely to expand inclusion and diversity efforts in retirement and financial well-being plans, 39% say they are moderately likely and 24% say they are not at all likely. Finally, 42% of employers reported they are very likely to measure the competitive position of the retirement program, with 35% moderately likely and 24% not at all likely.

“We did not ask how employers are increasing benefits,” says Rob Austin, director of research at Alight Solutions, in an email. “Anecdotally, some plan sponsors are providing richer matches or relaxing eligibility and vesting requirements.”

The Alight report was based on data acquired from 90 employer respondents employing more than 3 million workers. The survey was administered by Alight in September 2022.