Exploring the 'Annuities in TDFs' Trend with Morningstar's Jason Kephart

401(k) Specialist Podcast

There’s a trend happening right now where asset managers are using a new strategy to help 401(k) plan participants manage their retirement spending: Target date funds featuring annuities.

Morningstar recently did some really interesting research on this trend, and there are some compelling reasons to believe this type of solution could gain some serious traction in the coming years.

Jason Kephart, director of multi-asset ratings for Morningstar Research Services LLC, was a lead author of the new research, and he explains why annuities in target date funds are trending, who’s getting into this market, how it can help retirement plan participants, and some of the roadblocks that need to be overcome if it is to become a broadly adopted solution.

Certainly, here are the expanded key points:

1. Innovation in Target Date Funds with Annuities: Asset managers are now integrating annuities within TDFs, aiming to aid retirees in managing their retirement income more effectively. While these innovative products have been introduced recently, they represent a small but potentially growing portion of the TDF market.
2. Addressing Retirement Income Management: The asset management industry has excelled in helping individuals accumulate savings for retirement, but support for income management post-retirement has been lacking. TDFs with annuities are proposed as a solution to this gap, offering streamlined decision-making and a reliable income stream for retirees.
3. Challenges to Adoption of Annuities in Target Date Funds: Despite the potential benefits of annuities in TDFs, there are concerns about low investor interest, possibly due to past products failing to attract users. The complexities involved in understanding annuities, the apprehension about fees, and legal considerations for plan sponsors are significant obstacles, alongside the need for educating both plan sponsors and participants about these new options.

To view the full Morningstar research, “Target Dates and Annuities… It’s Complicated,” click here.

SEE ALSO:

• New Wave of Annuities in TDFs: ‘It’s Complicated’