The nuts and bolts of implementing lifetime income

A conversation with Vik Arya, Brian Abshire, Emily Phillips and Holly Verdeyen.
This conversation is an edited version from the PSNC Conference that occurred in June 2025.

Q: Vik

Where we sit today, what grade would you give the industry as it pertains to lifetime income implementation?

A: Emily

The momentum has picked up, but I would give the industry a C. There’s a massive disconnect between what a participant says they want, and how we talk to them about it. I think there’s a lot of work to be done to not only deliver solutions but also in the way we communicate with participants to get them interested and excited.

A: Brian

I completely agree, but I’m an optimist, so I’ll say a B. I think that last step — creating interest among participants — is making it easier for plan sponsors to press the button and implement.

A: Holly

B-minus. First, I think the regulators have done a great job. I also think the product providers have done a good job coming up with products that try to meet the needs of their participants. Finally, I think plan sponsors have done a good job getting educated.

However, getting income out of the plan is very difficult. There are solutions that generate income, and we have mechanisms to create income for participants, but they’re not well-connected. Also, getting income into the plans as the default options has yet to be embraced on a large scale.

Q: Vik

In the last 12 to 18 months, what has been the industry’s biggest leap forward?

A: Brian

I think the biggest movement forward is that there is finally implementation taking place. We can now bring clients in front of companies who’ve actually implemented something more than just a modeling tool or a calculator, for example as an embedded annuity within their plan. People have done this, and we didn’t see things blow up.

At the same time, I think it’s a challenge to make lifetime income easily digestible for interested plan sponsors who may lack the level of commitment of those early adopters. When we start to have those initial conversations, the options look and feel very different and it can be overwhelming. We have to make it more digestible.

A: Emily

I think there are two other important things that have changed and contributed to the industry’s progress. One is the new safe harbor language, making lifetime income more appealing to plan sponsors and participants alike. The second is a sense of urgency. There are more workers approaching retirement who are trying to figure out how their retirement savings can help replace incomes.

Q: Vik

Emily, when talking to clients, where do you see all this coming together?

A: Emily

Similar to Brian’s earlier point, the launch of new products and the adoption among more of our clients are creating momentum and interest. Plan sponsors are asking: What are other people doing? What’s available at my recordkeeper? And we’re also having conversations about their participants — what does their participant base look like, and who is expected to use this new feature?

I don’t think it’s realistic to expect that companies will add lifetime income solutions to their plans and there will immediately be a huge uptake. There is certainly some increased adoption, but there are also a lot of question marks. But at the end of the day, plan sponsors are interested.

Q: Vik

How is the growing interest in retirement income transforming how you work with plan sponsors?

A: Holly

Thinking about investment structure, we need to know the role that retirement income plays. It could exist in managed accounts or target date funds, or it may appear as a standalone option. Knowing this uncertainty, Mercer evolved its investment structure to delineate between fixed income and retirement income.

Then, we had to bring together multiple separate research functions to focus specifically on defined contribution research, target date funds, various retirement income strategies and managed accounts — all to evaluate their fit with retirement income solutions.

A: Brian

Often, plan sponsors who have a higher level of engagement are those who want to use this as an opportunity to say, “We may not have a pension anymore, but we’ve built and are providing a retirement income program instead.” And employees at these companies typically look to their employers for advice and trust that advice.

The uptake of annuities that we’ve seen is highly correlated to plan sponsors’ engagement and their willingness to address the needs of participants who are approaching the end of their careers.

A: Holly

I agree. I believe that participants are going to be more willing to take advantage of annuities because they believe that their employers have advocated for them and they’re getting access to institutional-quality insurance instruments.

Annuities are an area where the plan’s negotiating power and access to institutional solutions is especially beneficial for participants.

A: Emily

When it comes to cost, explicit investment fees aren’t the only consideration. Plan sponsors should think about opportunity cost — it’s a concern we often hear from participants. Because they don’t know how long they’ll live, participants will ask: “what if I want to spend all that money now?” It’s a valid question, and the plan sponsor must know how to explain and promote the attributes of their lifetime income solutions to answer it well.

Q: Vik

How do you actually implement lifetime income into a plan?

A: Holly

The key is to first define the plan’s objectives. Most DC plans already have many of the essential ingredients needed to generate retirement income for their participants, so they must consider how they want to add a lifetime income solution to complement what exists. After that, sponsors should analyze participants’ demographics and behaviors to best understand how they fit with the available options in the plan. Plan sponsors should also explore the retirement income solutions available to them via their recordkeepers or other vendors. After gathering all the pertinent information, the plan sponsor, potentially with help from its consultant, can decide how to best implement a retirement income solution into the plan.

Lifetime income also requires dedication from the plan sponsor to educate and communicate with participants about the various features. Most solutions allow participants to choose annuitization of a portion of their account balance, leaving the remainder in a target date fund. Typically, participants who choose not to annuitize are getting the same target date fund experience as if they did annuitize and, if they decide not to push that button, they should not be disadvantaged by the inclusion of the annuity option in the plan.

A: Emily

A couple years ago, we started surveying our clients during the retirement income onboarding process about retirement income and that has become part of our process. We ask plan sponsors to rank the factors they would use to evaluate the efficacy of a lifetime income solution. The goal is to discover where there is a lack of consensus among plan sponsors — and to also understand what is important to them.

We’ve talked with many plan sponsors about the different stakeholders who must be involved when implementing and evaluating lifetime income solutions. This highlights the need for a partner within the sponsor who is committed to developing the right solution, understands how a solution fits within the plan’s goals, and can help guide the plan sponsor through a potentially long timeline to implementation.

And, to Holly’s point, we feel if a plan sponsor is going to make lifetime income the default option, we want to help ensure that the participants who do not annuitize are as prepared for retirement as those who do.

A: Brian

We think there are four key elements that contribute to a successful implementation: One, the paternalistic instinct of the sponsor to do what’s right for participants; two, a governance structure with the right committees and meetings to enable progress; three, a tenured committee membership for continuity; and four, internal benefits personnel that can help drive the process. If a plan has those four elements, the timeline is about a year and a half. Without them — or if division exists at the organization — it can be a longer, more difficult process.

In addition, transparency from the product provider is another big consideration. A structured product can sound great on the surface, but if there are dozens of features embedded within it, and we don’t understand how they work together, that is often an impediment. And when it comes to a guaranteed product like an annuity, having a credible, committed partner is important from a counterparty risk standpoint.¹

Q: Vik

How do you think about measuring the success of a lifetime income solution?

A: Holly

There’s invariably going to be one committee member who asks, “How many people are actually going to annuitize?” And the answer typically is very few in the early stages. Initial adoption should not be a success metric, or the committee will deem it a failure. Instead, we should target seeing that number increasing over time.

A company may also judge success as replacing a defined benefit plan that’s been frozen or perhaps increasing the organization’s competitiveness in attracting and retaining talent. Or they may measure success by the amount of employee assets that are retained in the plan.

A: Brian

I like to remind clients that the reason for implementing lifetime income is to help make participants’ retirement situations better, and that’s a measure of success. People are going to choose their own adventure; that’s how a defined contribution plan works. But if you have an organization with 5000 participants and only 50 choose to annuitize, it may not be a large percentage, but it doesn’t just affect those 50 individuals, it affects their spouses, their kids, their inheritance. Everyone’s situation becomes more stable. It may only be 50 people, but I believe the impact on them and those around them is worth it.