I will confess that I am (still) of a mixed mind on imbedding retirement income solutions in 401(k) plans — and a new whitepaper on the implications of the new Investment Selection rule has done little to assuage those concerns.
But the “meat” of the paper considers the implicatio
ns of applying the Labor Department’s “new” Investment Selection Rule (though its official label at present remains “Fiduciary Duties in Selecting Designated Investment Alternatives”), and its list of six factors fiduciaries are charged with applying in their consideration(s) of all participant-directed choices[ii] on their retirement plan menu — at least if they expect to benefit from the presumption of prudence the Labor Department proposes to invoke in what it at least calls a “safe” harbor.
Factors Focus
And while those six factors — fees, complexity, performance, benchmarking, liquidity, and valuation — are to be broadly applied under the proposal, much (most? All?) of the coverage and discussion to date has been about the application of the Labor Department’s proposal to private markets, cryptocurrency, and the like. That said, this paper thoughtfully reminds us that retirement income option(s) require careful consideration as well.
Not to blend the first two, but fees on these retirement income offerings are definitely “complicated.” They’re higher than the other components of the target-date fund — the question is, what is the commensurate value? Their addition to the target-date fund definitely also adds mechanical complexity, certainly at the participant level (presumably the default facilitates adoption, but at some point, the participant has to “deal” with the reality).
As for performance — well, as the paper acknowledges, “Evaluating these products’ performance requires accepting upfront that forecasting is hard.” Ditto benchmarking, for much the same consideration. “Participants receiving guaranteed income through a GLWB or income annuity are benefiting from something traditional performance comparisons do not capture,” according to the authors. “This is where the Department of Labor’s emphasis on meaningful benchmarks becomes especially challenging for these products.”
And then there’s liquidity and valuation — which are one thing at a plan level, and potentially something quite different at the participant level. Oh, and the authors add a seventh factor; financial strength and the insurer’s credit rating — which while the SECURE Act may well provide helpful guidance there, those factors certainly bear additional, thoughtful consideration — and I would argue particularly so in a default fund scenario.
Complicate ‘Ed’
The paper itself is undeniably positive[iii] in its assessment of the need for, and the opportunities with, these solutions. It not only reviews the growing number of target-date structures incorporating guaranteed income components, it also outlines the potential behavioral and longevity-risk benefits of annuities.
But in my reading, the analysis is far more “nuanced.” Indeed, much of the paper reads like a litany of unresolved complications:
- Different annuity structures behave very differently.
- Fees and guarantees can be difficult to evaluate.
- Liquidity tradeoffs remain significant.
- Portability remains a significant concern — people change jobs, plan sponsors change recordkeepers, recordkeepers get acquired, insurers merge, and rollovers are complicated enough already.
- Participant understanding is limited — to say the least. Much less the understanding of the plan fiduciaries (and advisors) considering these options.
Little wonder that current adoption remains fairly muted despite years of industry attention and encouragement.
Proponents would, and have of course, argued that defaulting participants into these structures merely applies the same behavioral-finance principles that helped positively drive participation and savings rates higher.
If these structures were a straightforward solution, adoption likely would have moved beyond niche implementation by now. Instead, the industry continues searching for a retirement-income framework that participants will understand, fiduciaries will accept, and recordkeeping systems can realistically support — or at least one that can be slipped into a target-date offering that has already passed those tests.
And while it remains just a proposal at this point, the Morningstar analysis suggests that applying the Labor Department's proposed framework to retirement-income solutions may rightly prove to be more challenging than applying it to traditional investment options.
The challenge is that retirement-income products are not merely investments with different return characteristics; they are insurance structures layered into investment vehicles. That distinction may ultimately require a different fiduciary lens altogether.
And whether the required analysis produces better fiduciary decisions — or simply more complexity — remains to be seen.
- Nevin E. Adams, JD
[i] In fairness, a full quarter of the 13-page paper is devoted to disclosures/disclaimers.
[ii] Lifetime income options were one of the categories of investment alternatives named in President Trump’s August 2025 Executive Order (even if most wouldn’t be inclined to include them in that category).
[iii] In one executive summary bullet, it’s noted that assets in target-date strategies that include an annuity component for lifetime income grew to $44 billion at the end of March 2026, up from $25 billion a year earlier. However, in a separate bullet it’s acknowledged that “so far, growth has been driven by two series: BlackRock LifePath Paycheck (USD 26 billion in assets at the end of March) and custom target-date AB Lifetime Income (USD 14 billion).” So, $40 billion of the $44 billion in just those two.
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