TIAA’s Nuveen Launches TDF With Embedded Guaranteed Income Annuity

Nuveen, the investment manager of TIAA, launched on Tuesday a target-date solution for defined contribution retirement plans with a deferred fixed annuity option designed to provide steady income throughout retirement.

The Nuveen Lifecycle Income Series is structured as collective investment trusts only available to qualified retirement plans, Nuveen announced. The series include the TIAA Secure Income Account, a deferred fixed annuity, with participant contributions toward the investment increasing as they near retirement.

“Consultants can now go to their plan sponsors and educate them that they can provide their employees with the option of pension-like guaranteed income,” says Brendan McCarthy, head of retirement investing for Nuveen. “In fact, they can do it through a familiar QDIA [qualified default investment alternative] vehicle such as a target-date fund.”

TIAA and Nuveen come to market with the offering as surveying continues to show desire for guaranteed retirement income beyond Social Security in the 401(k) marketplace, along with challenges in implementation. Uptake by plan sponsors remains limited due to a variety of factors, ranging from fiduciary concerns to lack of availability from recordkeepers, even as retirement industry lobby groups push for continued legislative support for annuities being a default option in plans.

TIAA recently announced that its RetirePlus, which offers guaranteed income as a custom default on its own recordkeeping platform, has hit 250,000 participants and more than $22 billion in assets under administration. Those outcomes have partly driven the request from retirement plan advisers for a 401(k) TDF option with an embedded annuity, McCarthy says.

Another key driver for development of the Lifecycle series, he says, is “the retirement crisis in the U.S.” and lack of guaranteed income for workers even as people are living longer.

“There’s that need for guaranteed income in the 401(k) markets,” McCarthy says. “Being able to deliver it in a simple and familiar way—in particular through a target-date series—that’s the solution that we feel is needed.”

Fees for the target date funds are: two basis points for the Nuveen Lifecycle Income Index Series, 16 basis points for the Nuveen Lifecycle Income Blend Series and 27 basis points for the Nuveen Lifecycle Income Active Series, according to the company.

Potential Payout

A participant invested in the series has the option, but is not required, to turn some or all of their savings in the TDF into a monthly contribution, according to Nuveen’s announcement.

If a participant changes jobs, the solution is portable if their new recordkeeper makes it available, McCarthy says. Otherwise, they can liquidate it without penalty and, if they want, move it into an IRA.

The new series is an “extension” of the Nuveen Lifecycle target-date fund platform and will include three TDF strategies for investing: Nuveen Lifecycle Income Index (passive investments); Nuveen Lifecycle Income Blend (a blend of active and passive investments); and Nuveen Lifecycle Income Active (active investments).

The trustee for the new CITs is SEI Trust Co., the provider and fiduciary for investments made in the CIT, with Nuveen serving as adviser, according to the announcement.

The Path Ahead

The Nuveen Lifecycle Income series starts allocating a new participant’s savings at 2.5% and then increases the percentage—by replacing fixed-income investments—as they get closer to retirement, according to McCarthy.

“As you go through the glidepath and your assets shift from more aggressive equity allocations to more conservative fixed-income allocations, you are shifting a greater proportion into this underlying secure income account,” he says.

TIAA’s SIA investment also includes a “loyalty bonus” profit-sharing program. That setup makes it worthwhile for retirement savers to start in the TDF early, as opposed to being transferred into it when closer to retirement, according to McCarthy.

The Setting Every Community Up for Retirement Act of 2019 allowed for corporate retirement plans to include guaranteed life income annuities, a practice common in the nonprofit 403(b) market, of which TIAA is the largest plan provider by assets under administration, according to PLANSPONSOR’s latest recordkeeping survey.

McCarthy says adding an in-plan annuity has been an ongoing challenge for recordkeepers due to the required technology build, as well as the wide number of options coming to market.

That said, he notes that “we are starting to see the first recordkeepers start to incorporate third-party solutions.” He also notes that there have been several middleware providers connecting in-plan annuity providers and recordkeepers to get them onto their platforms.

At this point, he says, retirement plan consultants are “instrumental” in getting retirement income products in front of plan sponsors.

“They can help the redesign of the 401(k) plan so it’s not just a tax-preferential savings plan, but a comprehensive plan that provides the employees and participants with that option of guaranteed income that they can’t outlive in retirement,” McCarthy says.