It’s that time of year —industry stakeholders are offering their predictions on what trends will have a significant impact on the retirement industry. And one such report predicts that in-plan retirement income solutions will continue to rise to the forefront.
The Institutional Retirement Income Council’s (IRIC) annual forecast of key retirement industry trends for 2025 anticipates a “growing wave” of innovation and adoption of retirement income solutions, reflecting the increased interest of plan sponsors, providers, and participants.
“Next year will be the acceleration of plan sponsor adoption for in-plan retirement income options,” says IRIC Executive Director Kevin Crain. “With traditional pensions becoming increasingly rare, ensuring retirement income security is a shared responsibility of employees and employers.” And as such, this broadens the plan sponsor’s responsibility from just accumulation to ensuring participants can achieve long-term retirement security, the organization suggests.
According to Crain, 2024 was when in-plan retirement income offerings continued to evolve regarding product creation and DC plan recordkeepers’ implementation. DC investment and insurance providers accelerated product design offerings, such as hybrid target date funds, hybrid managed accounts, annuity marketplaces, and systematic withdrawal programs. As a result, the in-plan retirement income product inventory has grown, giving plan sponsors a range of solutions, the organization notes.
A similar report by Mercer observes that retirees are under pressure to make savings last through retirement and need help navigating both unexpected financial hurdles and sustainable spending in retirement. “Understanding how to effectively draw down assets coupled with longevity risk continues to be a concern for many,” the report notes.
“In 2025, DC plan sponsors should evaluate the need for retirement income and begin to establish a philosophy and roadmap for how to address decumulation informed by participant demographics,” Mercer suggests, adding that an effective offering should include varying levels of participant support.
Additional Retirement Income Trends
The IRIC identified few additional trends it believes will have a significant impact on retirement plans and participants in 2025.
Product Development: As alluded to above, the industry consortium of investment firms, insurance providers, plan recordkeepers, consultants, and middleware technology firms will continue to design new retirement income solutions and improve how to utilize such solutions, the IRIC suggests.
Customized in-plan retirement income options, including hybrid target-date funds and managed accounts, will continue to gain momentum by addressing participants’ unique circumstances and retirement goals, the organization predicts. In addition, the retirement income component of the hybrid investment will offer flexible approaches — either an annuity retirement income offering or a retirement paycheck systematic withdrawal option.
What’s more, integrated retirement income planning combining the DC and Social Security retirement income pillars will create a creative product design that “bridges” DC plan income decisions with Social Security election decisions, IRIC further predicts.
Participant Engagement and Demand: With employees strongly interested in solutions that provide easy-to-understand, reliable and predictable income streams, participant demand will drive the industry and plan sponsors to enhance retirement income planning tools and personalize retirement income projections for DC plans and other retirement income pillars, IRIC says.
The tools will include using AI to engage participants in a more interactive planning experience. Enhancing such tools may also increase participant comfort in utilizing in-plan retirement income options, the organization notes.
Expansion of Automatic Features: In-plan automatic solutions will continue to increase the impact of DC plan accumulation. According to IRIC, the acceleration of adopting new plans (particularly in the small business segment) will expand the utilization of auto-enrollment and auto-increase solutions.
The organization adds, however, that it is not expected in 2025 that automatic solutions will broaden to retirement income in-plan options. Hybrid investments with embedded income solutions need more broad-based plan adoption before being considered qualified default investment alternatives (QDIAs), the report emphasizes.
Financial Wellness Programs: According to IRIC, participants need more help with retirement preparation, as they do not understand the election decisions and processes for Social Security and Medicare, and they need help with projecting retirement income. As such, employers will continue to enhance their financial wellness programs to include pre-retiree education and planning programs, the organization further predicts.
To that end, the pre-retiree module will consist of personalized planning tools for retirement income projections (including integrating non-DC plan retirement income sources); education about Social Security and Medicare; and budgeting and tax planning for post-retirement life and opportunities to accumulate additional savings before retirement. The pre-retiree programs will be offered to employees at earlier ages (age 50+), so the employee has significant time to plan and act before retirement, the organization further suggests.
