The Promise, Potential and Progress of Defined Contribution Plans

Defined contribution (DC) plans have become the dominant retirement savings vehicle for American workers, amassing more than $7 trillion in assets and covering more than 70 million participants. Unlike traditional defined benefit (DB) plans that provide guaranteed lifetime income, DC plans place the onus on individuals to manage their savings, creating uncertainty around retirement income sustainability. This shift underscores the urgent need for structured retirement income solutions within DC plans to ensure financial security in retirement.

As life expectancy rises, the risk of outliving savings increases, posing significant economic and social challenges. Many retirees may struggle to generate sustainable income, increasing reliance on public assistance programs and negatively impacting overall well-being. Recognizing this, plan sponsors, consultants and financial institutions are exploring innovative strategies to integrate effective income solutions into DC plans.

This article outlines some of the promise and progress in this area.

The Growing Demand for Retirement Income Solutions

Recent industry surveys highlight a strong demand for structured retirement income solutions. The 2024 JP Morgan Defined Contribution Plan Participant survey found that 59% of polled employees believe employers should support their retirement planning. Similarly, 80% of surveyed plan sponsors acknowledge their responsibility in helping participants generate income in retirement.

Additionally, the 2024 recordkeepers study from the Defined Contribution Institutional Investment Association (DCIIA) indicated that 56% of recordkeepers prioritize retirement income solutions, while consultants advising plan sponsors also rank these solutions as top priorities. This growing demand has fueled the development of hybrid products, enhanced target-date funds, annuity-based solutions and artificial intelligence-driven personalized planning tools designed to improve financial security in retirement.

Industry Trends and Innovation

The current evolution of retirement income solutions is as follows:

Product development is in the middle stages of maturity, with several innovative solutions available.
Recordkeeper adoption remains in the early stages due to technological integration challenges.
Plan sponsors are just beginning to recognize the importance of structured income solutions in DC plans.

Several innovative strategies are emerging to bridge the gap between savings and sustainable income. Hybrid solutions, which combine guaranteed income with flexible investment options, are gaining traction. Enhanced target-date funds now incorporate income-focused components, while annuity supermarkets provide participants with streamlined options for converting savings into income. Planning tools powered by artificial intelligence (AI) enhance participant engagement by offering personalized projections and real-time financial insights.

Market growth underscores this shift. Assets in in-plan retirement income products are also growing rapidly, with BlackRock’s LifePath hybrid offering reaching $16 billion and Nuveen’s suite surpassing $35 billion.

Addressing Key Challenges

Despite momentum, several barriers hinder the widespread adoption of retirement income solutions:

Fiduciary responsibility. Plan sponsors face legal and ethical obligations to act in participants’ best interests. Concerns over litigation and regulatory uncertainty often deter them from offering structured income solutions. However, more precise fiduciary guidelines and third-party assessments can help mitigate these risks.
Standardization and integration. The lack of industrywide standards has slowed adoption. Unified terminology, disclosure practices and middleware technology that facilitate seamless integration across recordkeeping platforms can help streamline implementation and enhance accessibility.
Participant education and engagement. Many employees lack an understanding of retirement income solutions, leading to indecision or reliance on inadequate strategies. Interactive video content, gamified mobile applications, AI-driven chatbots, and integrated data sources (such as Social Security projections) can significantly improve participant awareness and decision-making.

By addressing these challenges, plan sponsors can better support employees in achieving a secure retirement while meeting fiduciary responsibilities.

Strategies to Accelerate Adoption

To promote the integration of retirement income solutions in DC plans, industry stakeholders may employ a multifaceted approach with four specific strategies:

Data-driven decision-making. Predictive analytics can help sponsors tailor retirement income solutions to specific participant needs. Managed accounts, which provide personalized savings and investment models based on participant data, offer a prime example of how data-driven insights enhance engagement and effectiveness.
Technological integration. Middleware technology and AI-driven tools can enable seamless recordkeeping and real-time financial modeling, reducing administrative burdens and enhancing participant experience. The 2024 DCIIA study found that 47% of surveyed recordkeepers view middleware technology as essential for a robust retirement income framework.
Industry collaboration. Plan sponsors, consultants, service providers and industry associations should collaborate to share leading practices and establish standards. Roundtable discussions and joint research efforts can help refine solutions that better align with participant needs.
Empowering advisors and consultants. Retirement-focused advisors and consultants are critical in guiding plan sponsors through the complexities of income solutions. Industry associations can support this effort by offering certification programs, training modules and interactive learning resources that enhance advisors’ ability to provide informed recommendations.

The Future of Retirement Income Solutions

Looking ahead, several trends will likely shape the future of retirement income solutions:

Expansion of hybrid products. The popularity of hybrid solutions that combine retirement income with investment flexibility is expected to grow. These solutions may provide participants with a balance of security and growth potential.
Integration with health savings accounts (HSAs). As healthcare costs rise, integrating HSAs with retirement income solutions may offer a holistic approach to financial planning, helping to ensure retirees can address both income needs and healthcare expenses.
Regulatory clarity. Recent guidance from the U.S. Department of Labor has provided more clarity around fiduciary responsibilities, reducing plan sponsors’ concerns about offering retirement income solutions and encouraging broader adoption.
AI and personalized planning. Advances in AI and machine learning will likely continue to enhance retirement planning tools, making them more adaptive to individual participant needs and improving overall retirement readiness.

T. Rowe Price’s 2025 U.S. Retirement Market Outlook noted that plan sponsor interest in retirement income solutions has doubled since 2021. Additionally, the percentage of sponsors with no opinion on these options has dropped significantly, reflecting a growing awareness and willingness to explore income-focused strategies.

Time Is Now to Further Examine DC Plans

Integrating structured retirement income solutions into DC plans is a critical means to improve the financial security of millions of American workers. As traditional DB plans decline and life expectancy rises, retirees should have reliable strategies to convert savings into sustainable income.

Stakeholders can accelerate the adoption of effective retirement income solutions by addressing fiduciary concerns, enhancing standardization, leveraging technology and fostering industry collaboration.

The time is ripe for all this. The retirement services industry, employers and employees need to act now to build a future where financial stability in retirement is not a privilege but a standard reality for all.

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