Retirement Income Considerations: What DC Plan Investment Committees Need to Know

Defined contribution (DC) plan investment committees play a critical fiduciary role in ensuring that participants are well-positioned for retirement. Committees have historically focused on encouraging participants to save consistently, which has helped millions accumulate retirement balances. Yet, retirement savings is only half of the retirement equation. Equally important is ensuring that plan participants can convert their savings into retirement income.

Fiduciary Duty Under ERISA

Under the Employee Retirement Income Security Act (ERISA), investment committees are fiduciaries and must act solely in the interest of plan participants and beneficiaries. This includes the prudent selection and monitoring of retirement income solutions within the defined contribution plan. When evaluating retirement income options – whether annuities, managed payout funds or draw down strategies – committees must:

• Assess the financial strength and stability of providers
• Evaluate product features, such as guaranteed income, flexibility and portability
• Consider participant demographics and needs, ensuring that the option aligns with the plan’s goals and participant behavior

Governance and Process

Committees should follow a documented and disciplined process, which includes:

• Maintaining an Investment Policy Statement (IPS) with criteria for evaluating retirement income products
• Conducting regular reviews and training to remain current on regulatory changes and market trends
• Engaging independent experts such as ERISA counsel and investment consultants

SECURE Act Implications

The Setting Every Community Up for Retirement Enhancement (SECURE) Acts and related Internal Revenue Service (IRS) guidance have encouraged the inclusion of lifetime income options in DC plans. Committees must now consider:

• Safe harbor provisions for selecting annuity providers
• Disclosure requirements for lifetime income illustrations
• Integration strategies for embedding income options into the plan menu or offering them as a plan distribution option

SECURE Act at a Glance

SECURE Act of 2019

• Introduced lifetime income disclosures on participant statements
• Created an annuity safe harbor for selecting insurers, reducing fiduciary liability concerns

SECURE 2.0 Act of 2022

• Expanded access to Qualifying Longevity Annuity Contracts (QLACs) in DC plans
• Strengthened provisions that encourage the inclusion of lifetime income options

Why it matters for committees:

These provisions provide fiduciary protections and simplify the evaluation process, making it easier to add guaranteed income solutions that support participants in retirement.

Addressing Common Misconceptions

Despite recent regulatory relief and growing interest in institutional income annuities, misconceptions about retirement income solutions remain. Below, we highlight key objections and provide context to overcome them.

Misconception 1: Our company doesn’t have the fiduciary liability protections needed to select and offer a guaranteed lifetime income solution

While historically there had been some fiduciary liability concerns, which had resulted in plan sponsors in the private sector being reluctant to offer annuities in DC plans, that has changed considerably over the last handful of years.

The SECURE Act of 2019 removed regulatory obstacles and expanded access to savings and lifetime income. SECURE included two key provisions: lifetime income disclosures and an annuity safe harbor for the selection of an insurer.

The Annuity Safe Harbor utilizes state insurance regulators, and an annual certificate provided to the employer confirming an insurer’s solvency. This simplifies the insurer review process for employers, negating the need for them to conduct ongoing review of an insurer’s capital requirements, liquidity and solvency. Instead, in summary, the employer can rely on written representations from the insurer, which must confirm that the insurer has complied with certain regulatory, financial reporting and auditing requirements; undergoes an examination by the insurance commissioner in its state of domicile at least every five years; and, agrees to notify the employer of any changes in such circumstances.

Misconception 2: There is still a lack of participant interest – that’s why more companies are not yet offering guaranteed lifetime income solutions

There is growing interest among DC plan participants in having their employers offer these solutions. In fact, 90% of plan participants said they would be at least somewhat likely to invest in a guaranteed income solution if offered in their plan.¹

Institutional income annuities, offered as a distribution option to retiring defined contribution plan participants, have been available for many years. However, until the annuity safe harbor was issued, very few companies had offered them.

Today, however, according to MetLife’s 2025 Enduring Retirement Model Study, released earlier this year, nearly two-thirds of companies already offer or are predicted to offer guaranteed retirement income to their defined contribution participants in the next five years. This includes 35% of plan sponsors who say that their DC plan currently has an option that enables plan participants to convert some or all their money into guaranteed lifetime income in retirement.²

Misconception 3: These products are complicated and it’s too much work for the plan sponsor to add them to the plan

For a sponsor wishing to provide guaranteed lifetime income from a DC plan, there are many distinct products and solutions. When deciding which solution to offer, it is in the best interests of plan participants to keep it simple. While it may be tempting for plan sponsors to believe they should alleviate potential participant objections by offering products with many features, simplicity may be a more effective guiding principle for the decision-making process. This is important because participant behavior has consistently shown that complexity, such as too many choices and features, often leads to participant inertia (i.e., avoiding taking any action).

When it comes to which plan designs are working best, an income annuity is arguably the single best way for plan sponsors to help enable their DC plan participants to secure a basic layer of retirement income. For help with evaluating the retirement income approaches for DC plans, consider reading Plan Design: Facilitating Income Replacement in Retirement.

Misconception 4: Guaranteed retirement income solutions are too costly for the plan and its participants since annuities have high fees and commissions.

For plan participants, institutional pricing is offered at no additional cost to the plan sponsor. And, since institutional income annuity products are purchased at the point of retirement, this helps allow assets to accumulate faster during a participant’s working years without the additional drag from fees. In other words, participants are not defaulted into a solution, paying fees for a product that they may never use if they don’t annuitize.

Institutional income annuities are designed to be cost-efficient and transparent. Here’s how they differ from retail annuities:

1. No Sales Commissions: Retail annuities are typically sold by insurance agents or brokers who earn commissions (often 5–10% of the premium). Institutional income annuities are offered through platforms like retirement plans (e.g., 401(k)s) or fiduciary-managed solutions, where no commissions are paid. This removes the incentive to sell products that may not be in the purchaser’s best interest.
2. Lower Administrative and Rider Fees: Retail annuities often include optional riders (e.g., income guarantees, death benefits) that come with extra fees. Institutional income annuities are usually streamlined for income generation and don’t include costly add-ons. Their pricing reflects group-negotiated rates, which are typically much lower than retail equivalents.
3. Transparent Pricing: Retail annuities can have opaque fee structures, making it hard to understand total costs. Institutional income annuities are priced clearly and upfront, often with no hidden charges, because they’re designed for fiduciary environments that require transparency.
4. Economies of Scale: Institutional income annuities benefit from group purchasing power, which allows providers to offer better payout rates and lower costs than what an individual could get on their own.

Misconception 5: Income annuities lack liquidity, so participants won’t have access to their retirement savings when they need it.

It is important to keep in mind that annuitization is not an all-or-nothing proposition: individuals should consider purchasing an income annuity with only a portion of their retirement savings, creating a basic level of protection for their income needs.

Since an income annuity is an insurance product, it should not be considered an investment alternative but a complement to other sources of retirement funding. Mutual funds and other investments play an essential role in retirement as they provide liquidity and possible asset growth that can help offset inflation. However, as well as being vulnerable to market volatility, the income they provide may run out if one lives longer in retirement than anticipated.

By allowing plan participants to place part of their retirement savings in a fixed income annuity, they will be able to generate income that lasts a lifetime, manage their remaining assets more efficiently, and maximize and protect their future income.

Misconception 6: Annuities offer potentially lower returns

When considering whether to make institutional income annuities available to your plan participants, you should consider purpose over performance. Institutional income annuities are designed primarily for guaranteed lifetime income, not for maximizing investment returns. Comparing them to a growth-oriented portfolio is a mismatch of objectives:

• Annuities = Income security
• Portfolios = Market exposure and growth potential

If the goal is income stability in retirement, annuities can outperform portfolios in terms of reliability and predictability, especially in volatile markets or long lifespans.

Annuities uniquely address longevity risk—the possibility of outliving your assets. Even a well-managed portfolio can be depleted if: withdrawals exceed returns, markets underperform and the retiree lives longer than expected. Institutional income annuities guarantee income for life, regardless of market conditions or lifespan, which no portfolio can promise without significant trade-offs.

Rather than replacing a portfolio, institutional income annuities can help complement it by covering essential expenses with guaranteed income and allowing the remaining portfolio to be invested for growth and discretionary spending.

Misconception 7: Income annuities lack portability

Portability is not an issue with immediate income annuities and QLACs. Once a retiring plan participant purchases an immediate income annuity, generally, the assets leave the plan and the contract is locked in with the issuing insurance company. While they begin receiving income almost immediately, they cannot transfer the annuity to another provider, withdraw the principal or change the terms of the annuity once it’s in place.

Conclusion

With more Americans reaching traditional retirement age than any other time in history,⁴ DC plan investment committees should consider whether institutional income annuities may be right for their plan participants.

Immediate income annuities and qualifying longevity annuity contracts help plan participants address the greatest risk they will face in retirement: market, inflation and longevity risk. They can also help protect from cognitive decline by reducing the decision-making burden and protecting against financial exploitation.

MetLife is the leading provider of institutional income annuities to DC plans, with 50 years in the industry. MetLife’s Institutional Income Annuities business enables DC plan sponsors to provide guaranteed retirement income to their plan participants to help them achieve successful retirement outcomes.