Educate Your Participants About Lifetime Income in Retirement Plans

David Kaleda

In recent years, we have seen a plethora of lifetime income products designed for 401(k) plans. Further, a 2025 executive order and Department of Labor guidance signaled regulator interest in supporting the inclusion of lifetime income options in 401(k) plans. The DOL also recently proposed a regulation that provides helpful guidance regarding the inclusion of lifetime income in such plans and issued an advisory opinion relating to qualified default investment alternatives, including income products.

Advisers to the fiduciaries of 401(k) plans—who may be fiduciaries themselves—should look to help their clients understand both the variety of solutions available in the retirement plan marketplace and the legal issues involved in selecting a lifetime income solution.

Fiduciaries to plans covered by the Employee Retirement Income Security Act are subject to strict standards of conduct. Failure to meet those standards can result in substantial personal liability, requiring the fiduciary to make the plan whole in the event of a loss. The inclusion of a lifetime income solution in the plan will often involve a fiduciary decision related to its selection and monitoring. Fortunately, recent White House statements and DOL guidance reinforce the position that ERISA should allow for the inclusion of lifetime income options in plans.

Regulatory Updates

On August 7, 2025, President Donald Trump signed an executive order supporting “alternative investments” in 401(k) plans and directing the secretary of labor to, among other things, clarify the DOL’s position on alternative investments—including lifetime income—in such plans. While many advisers would not characterize lifetime income as an “alternative asset,” the White House sent a clear signal of support for such solutions.

Subsequently, on September 23, 2025, the DOL issued Advisory Opinion 2025-04A, which affirmed that the definition of a QDIA includes an insured lifetime income product that is part of a managed account program, as long as the plan meets the other conditions of the QDIA safe harbor under Section 404(a)(5) of ERISA.

Additionally, on March 31, the DOL published in the Federal Register a proposed rule that, if finalized in its current form, provides a safe harbor that fiduciaries can follow when selecting plan investments, including those with lifetime income features. The proposed rule provides helpful guidance on the application of ERISA to the evaluation of lifetime income benefits. For example, the DOL states that a fiduciary should consider the annuity market in general, annuity conversion rates and break-even ages as part of its evaluation.

Understanding the Options

Importantly, in helping plan fiduciaries evaluate lifetime income products and services, advisers should understand that there are many different types of solutions. Advisers should also be familiar with how each works; the fees associated with such products; and whether such options are appropriate for the plan and its participants.  

As illustrated in the advisory opinion, the lifetime income option may be incorporated into a default investment option intended to be a QDIA. In that regard, a common product design provides that, as the participant reaches a certain age, a portion of his or her account balance is automatically allocated to an insurance company separate account. The participant purchases “income units” that can be converted to cash or used to purchase an annuity (that is, a stream of benefit payments over the life of the participant).

In some cases, the lifetime income feature guarantees a minimum payment if the account balance goes to zero (for example, a guaranteed minimum withdrawal benefit). On the other hand, some lifetime income solutions allow the participant to use the income units or other portion of the accrued benefit to purchase a qualified annuity outside of the plan. Annuities may be structured in a variety of ways, including immediate annuities or deferred annuities, including qualified longevity annuities.

Advisers can help plan sponsor clients navigate the marketplace and evaluate these nuances and the associated costs to the plan participants. Due to litigation risk, some fiduciaries may be reluctant to include lifetime income if such inclusion will increase the plan’s fees and expenses. However, ERISA does not require the inclusion of only the lowest-cost investments, alternatives or features under the plan. The benefits of lifetime income may, in fact, outweigh any increased costs to the plan. The proposed rule reinforces this position.

Stability and Portability

Advisers and their clients can also look to Congress to address two key issues that plan fiduciaries face when evaluating lifetime income products: the stability of the insurance company issuer and the portability of the lifetime income benefit.

The Setting Every Community Up for Retirement Enhancement Act of 2019 added a safe harbor to Section 404 of ERISA, pursuant to which a plan fiduciary can meet fiduciary duties when selecting an insurer that issues a guaranteed retirement income contract. The provision only requires getting certain representations from the insurance company, rather than the extensive analysis required under other DOL guidance such as Interpretive Bulletin 95-1.

The definition of GRIC is broad enough to include many kinds of lifetime income products and features. Some lifetime income programs also include a multi-issuer solution to offer added fiduciary protection and to increase price competition.

The SECURE Act also added several provisions to the Internal Revenue Code that would allow an in-service distribution or trustee-to-trustee transfer of a qualified plan distribution annuity contract in the event the plan terminates the investment option. Note, however, that this provision does not preclude plans from including annuities or other lifetime features that are not a QPADC, which may be unwieldy in form and operation.

Understanding the Benefits

Participant education is also key. Providing written and online materials, illustrations, the use of artificial intelligence, and other strategies can help participants understand the benefits of lifetime income and whether it is the right choice for them. Additionally, a good education program can be a helpful strategy in mitigating ERISA fiduciary liability risk.   

In summary, plan fiduciary interest in lifetime income products appears to be increasing. Accordingly, insurance companies have developed a variety of solutions. Further, recent activity by the White House and the DOL portend an interest in issuing additional helpful regulatory and sub-regulatory guidance.

Advisers can help plan fiduciaries understand the role lifetime income may play in their plans, understand how these solutions work and meet their ERISA fiduciary duties.

David Kaleda is a partner in Eversheds Sutherland (U.S.) LLP.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.