Employees are showing interest in the topic: A survey this year by the LIMRA Secure Retirement Institute found 80 percent would like their plans to offer retirement income options.
The big trend has been adding financial advice and managed account options, some of which allow workers to shift their portfolios to income-oriented investments at retirement, such as bonds and high-dividend stocks. Fifty-two percent of workplace plans offered managed accounts last year, up from 29 percent in 2011, Aon Hewitt reports.
“The big difference is the guarantee,” says Austin. “With the annuity, you know for sure what you are going to get paid. With a managed account, the idea is, 'Let’s plan for you to live to the 80th percentile of mortality, but there's no guarantee you'll get there.'"
Outside 401(k)s, the story is different. Some forms of DIAs have seen sharp growth lately as more baby boomers retire. DIA sales hit $2.2 billion in 2013, more than double the $1 billion pace set in 2012, according to LIMRA, an insurance industry research and consulting organization. Sales in the first quarter this year hit $620 billion, 55 percent ahead of the same period of 2013.
Three-quarters of those sales are inside IRAs, LIMRA says, since taking a distribution to buy an annuity triggers a large, unwanted income tax liability. But the action so far has been limited to DIAs that start payment by the time RMDs begin. The new Treasury rules could accelerate growth as retirees roll over funds from 401(k)s to IRAs.
“For some financial advisors, this will be an appealing way to do retirement income planning with a product that lets them go out past age 70 1/2 using qualified dollars,” says Joe Montminy, assistant vice president of the LIMRA Security Retirement Institute. “For wealthier investors, [shifting dollars to an annuity] is also a way to reduce overall RMD exposure.”
Could the trend spill over into workplace plans? Austin doubts it. “I just don’t hear a major thirst from plan sponsors saying this is something we should have in our plan.”