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LIMRA Research Head explains the growing market opportunity for in-plan guarantees and the role of education.

Following the recent passing of the SECURE Act 2.0, the financial services industry expects greater adoption of in-plan guarantees in late 2023 and 2024. In-plan guarantees are plan designs offered by employers that can convert retirement savings into a stream of guaranteed income payments during retirement. Designs of in-plan guarantees include annuities inside a target date fund (TDF), a stand-alone annuity product, and annuity options outside of the plan but linked to it. Educating advisors, plan sponsors, and employees on the value of in-plan annuities will affect their acceptance.

“The feeling in the industry is that near the end of 2023 and going into 2024, we’ll see greater adoption of in-plan annuities from the larger plans, and eventually the smaller plans will follow after that,” explains Bryan Hodgens, head of LIMRA distribution and annuity research. “Getting retirement plan advisors and consulting firms that advise employers comfortable with in-plan annuities is critical to success.”

LIMRA research suggests that defined contribution (DC) plan advisors need more knowledge about in-plan annuities. Three in 10 advisors believe guaranteed income solutions need simplification for their clients to understand them better. Considering that financial advisors set up 93% of retirement plans,1 Hodgens notes that the industry should first focus on this group.

Precise and effective education will be essential for the successful adoption of in-plan guarantees. Hodgens suggests the industry should explain to advisors and consultants:

Additionally, the industry can educate all parties who would be involved with in-plan guarantees. For employers, help them understand plan design and Safe Harbor guidelines. Provide employees an understanding of how annuities work. Finally, show record keepers the proper technology they can invest in to support these plans.

Despite historically low adoption of in-plan annuities to date — just 14% of DC plans offer this option — LIMRA research shows that workers’ need and desire to create a guaranteed income within their employer-sponsored retirement savings plans is high. Less than a quarter of younger workers (under age 50) have a defined benefit plan with the majority primarily relying on DC plans for retirement savings. LIMRA research shows 70% of workers believe the in-plan guarantee should be an option in their DC plan.

“While the need and interest are great, insurance companies still need to figure out how to explain the value of these products to several audiences — plan sponsors, participants, advisors, and consultants — to improve awareness and affect higher adoption rates,” says Hodgens.

The opportunity is there. If our industry can provide effective education to all parties involved, more Americans could access a pension-like income. 

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12019 Plan Sponsor Attitudes Study, Fidelity.

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