The bloom is off the rose when it comes to traditional target-date funds (TDFs) as employers’ retirement plan of choice for millions of American workers, according to a new study by TIAA.

The 2022 TIAA Retirement Insights Survey, conducted online iun December and January, surveyed 1,008 retirement plan participants, ages 25 to 70 years old, who said they were employed full-time at a company with 50 or more employees, and who participated in either their employer’s 401(k) or 403(b) plans. 

The survey also included 500 benefit plan decision makers employed full-time at a company with 50 or more employees, offering employees either 401(k) or 403(b) plan participation.

While 66% of employers said they still felt that standard TDFs will help employees meet their retirement income needs, that percentage is down from 78% of respondents surveyed in 2020. Employers also expressed concern about their employees “not saving enough for retirement” (66% in 2022 compared with 58% in 2020). Nearly three-quarters of employers (72%) said they were highly interested in a new generation of TDFs designed for lifetime income.

While three-quarters of employees (77%) maintain that saving for retirement is their top priority, 51% said that the pandemic has increased their anxiety about funding retirement when they are ready to do so. Slightly more than half of respondents (54%) said they were very or extremely interested in guaranteed lifetime income (GLI) compared with 51% in 2020, with 48% asserting that their interest in GLI had increased during the pandemic.

Despite increased employee interest in the retirement funding vehicle, only a third of employers (34%) currently offer GLI options, and less than two-fifths (38%) said they are familiar with provisions in the SECURE Act, legislation that would improve access to in-plan GLI.

The vast majority of employers (85%) who are familiar with and already offering in-plan GLI options said they are a valuable means of ensuring sufficient funds for employee retirement. Among those employers not currently offering GLI, 43% said they were extremely or very interested in them.

Among employees, cost is still perceived as a barrier for nearly half (48%) of respondents. TIAA said that employers need to emphasize the lower costs of GLI in plans versus outside of plans to interest their employees in participating in them, particularly women, whom TIAA said typically retire earlier than men, and with about 30% less retirement savings. When study participants were asked if they would be interested in investing in a GLI annuity if it were offered at a lower cost through their company’s retirement plan, 73% said yes.

According to TIAA, less than half of plans (41%) are offering auto-enrollment or auto-escalation. Another element plan sponsors can consider including is income projections, which most employees surveyed (72%) perceived as helpful in funding their retirement.

“Employers are beginning to recognize several critical shortcomings of traditional target-date funds and now seek retirement offerings that safeguard their employees’ savings and provide options for guaranteed monthly income for life,” Colbert Narcisse, chief product and business development officer at TIAA, said in a news release. “Plan sponsors can better help participants by providing new customized target-date solutions that offer greater personalization and include access to guaranteed income in retirement that cannot be outlived. These solutions can also help dampen portfolio volatility in a rising interest rate environment.”