Employers Less Sure that Traditional Target Date Funds Meet Employees’ Retirement Needs

Interest in access to guaranteed lifetime income in retirement rose during the pandemic

NEW YORK, April 27, 2022 – More employers are starting to question whether traditional target-date funds (TDF) – the default retirement-plan option for millions of Americans – are setting up employees for success after they stop working, according to TIAA’s 2022 Retirement Insights Survey.

The survey, which polled more than 1,500 employers and employees, revealed that 66% of employers felt TDFs will help employees meet their retirement income needs, down from 78% in a previous survey in 2020.

Employers are also increasingly concerned about their employees “not saving enough for retirement” (66% in 2022 v. 57% in 2020) and “risking outliving their savings” (63% on 2022 v. 58% 2020). Almost three quarters of employers (72%) now say they are highly interested in a new generation of TDFs that gear towards some allocation of lifetime income.

“Employers are beginning to recognize several critical shortcomings of traditional target date funds and now seek retirement offerings that safeguard their employees’ savings and provide options for guaranteed monthly income for life,” said Colbert Narcisse, chief product and business development officer at TIAA. “Plan sponsors can better help participants by providing new customized target-date solutions that offer greater personalization and include access to guaranteed income in retirement that cannot be outlived. These solutions can also help dampen portfolio volatility in a rising interest rate environment.”

Though 77% of employees continue to say that saving for retirement is their top priority, more than half (51%) say that the pandemic has increased their anxiety about their ability to retire when they want. As employers grow skeptical of traditional TDFs, more employees say they are very or extremely interested in Guaranteed Lifetime Income (GLI) within retirement plans than they were in 2020 (54% in 2022 v. 51% in 2020), and nearly half (48%) say their interest increased during the pandemic.

Few employers (34%) currently offer GLI options and only 38% say they are familiar with provisions in the SECURE Act that would improve access to in-plan GLI. Employers who are familiar with and already offer in-plan GLI options, a majority (85%) say they are valuable for employees. Among those not currently offering GLI, 43% say they are extremely or very interested in GLIs.

While employees have signaled their interest in in-plan GLI options, perceived cost is still a primary barrier for nearly half (48%) of employees. Employers will need to emphasize the lower costs of these options in-plan versus outside of their plan to appeal to employees. When participants are asked how their interest in investing in a guaranteed lifetime income annuity would change if it was offered at a lower cost through their company's retirement plan, 73% say they’d be more interested.

Overall, less than half of plans (41%) are offering auto-enrollment or auto-escalation. Sponsors should consider adding this provision ahead of SECURE 2.0, which allows for increased participation rates and further simplifies plan administration. Another element sponsors can consider including is income projections, which are perceived as helpful by more than 7 in 10 employees (72%).

While GLI can improve retirement outcomes for all employees, it can be particularly beneficial for women who typically retire earlier and with about 30% less retirement savings than men. Looking ahead and to improve Americans’ retirement security, employers will need to re-familiarize themselves with the SECURE Act and its provisions and consider adding new retirement savings tools to their offerings.

To see the full survey results, click hereOpens pdf.

About TIAA

TIAA is a leading provider of secure retirements and outcome-focused investment solutions to millions of people and thousands of institutions. It is the #1 not-for-profit retirement market provider,1 paid more than $4.2 billion in lifetime income to retired clients in 2021 and has nearly $1.4 trillion in assets under management (as of 12/31/2021).2

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As with all mutual funds, the principal value of a target date fund isn’t guaranteed at any time, including at the target date, and will fluctuate with market changes. The target date approximates when investors may plan to start making withdrawals. However, you are not required to withdraw the funds at that target date. After the target date has been reached, some of your money may be merged into a fund with a more stable asset allocation. You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877-518-9161 or go to www.TIAA.org/prospectuses for current product and fund prospectuses that contain this and other information. Please read the prospectuses carefully before investing.

1 As of Dec. 31, 2020. Based on data in PLANSPONSOR’s 403(b) Market Survey, which published in August 2021.

2 As of  Dec. 31, 2021 assets under management across Nuveen Investments affiliates and TIAA investment management teams are $1,375 trillion.

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