Fidelity, State Street Offer Retirement Plans With Income Streams

Fidelity Investments and State Street Global Advisors have joined a growing number of financial services firms taking advantage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act to offer retirement plans that provide an income stream during retirement.

The SECURE Act created a safe harbor that eases liability concerns that often prevented plan sponsors from offering annuities within a defined contribution (DC) plan.

Fidelity Investments’ Guaranteed Income Direct offering allows clients to convert a portion of their 401(k) or 403(b) plan savings into an annuity to provide pension-like payments during retirement. The firm cited research from the Employee Benefit Research Institute (EBRI)’s 2021 “Retirement Confidence Survey” that indicates 78% of workers are interested in an investment option that would guarantee monthly income when they retire.

“Shifting from saving for retirement to living in retirement is one of the biggest transitions a person will make in their lifetime,” Keri Dogan, senior vice president of retirement solutions at Fidelity, said in a statement. “Our new Guaranteed Income Direct product provides employees with a simplified option to use their retirement savings plan assets to create their own personal pension and provide them with a steady, reliable stream of income to help cover their expenses in retirement.”

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Under Fidelity’s Guaranteed Income Direct product, participants can convert any amount of their retirement plan savings to guaranteed retirement income. Any savings that are not converted to an annuity can remain in the workplace savings plan.

State Street Global Advisors’ IncomeWise offering is a deferred lifetime income product launched within the University of California’s DC plans that cover more than 300,000 participants and have more than $34.6 billion in assets. IncomeWise combines traditional target-date funds (TDFs) with a guaranteed lifetime income solution for participants of defined contribution plans.

IncomeWise uses State Street’s TDFs to help participants save money during their working years. They can then convert a portion of that money into a guaranteed income stream for their later years of retirement by purchasing a qualified longevity annuity contract (QLAC).

“The University of California has been researching how best to evolve our retirement savings program to help participants save during their working years and live long, comfortable lives in retirement,” University of California Chief Investment Officer Jagdeep Singh Bachher, said in a statement. “People are living longer, with smaller pensions due to shorter job tenures. Given market volatility, there’s now a strong need for a supplemental source of guaranteed income in the later years of life.”

The investment firms are joining several other firms that have recently begun offering DC plans that provide income during retirement. In October, BlackRock said it will begin offering a guaranteed stream of income for life in 401(k) plans by embedding annuity contracts directly into a target-date strategy. The program offers plan participants the option to purchase fixed individual retirement annuities from the insurers that will provide a guaranteed stream of income for life.

Nationwide, in partnership with Capital Group, also announced in October the launch of its NCIT American Funds Lifetime Income Builder Target Date Series. The TDF incorporates a fixed indexed annuity with a guaranteed lifetime withdrawal benefit. And in March, a consortium of firms that includes American Century Investments, Lincoln Financial Group, Nationwide, Prime Capital Investment Advisors, SS&C Technologies, Wilmington Trust N.A., and Wilshire launched a new in-plan target-date series with guaranteed income.