Retirement Income Is Moving to the Center of Defined Contribution Plan Design

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What emerging industry trends signal—and how plan committees should respond

The Next Evolution of the 401(k)

For decades, defined contribution plans have been designed with a primary objective: helping participants accumulate assets for retirement. Increasingly, that is no longer enough.

Across the retirement industry, there is a growing shift toward integrating retirement income solutions directly within 401(k) plan design. A new generation of target-date strategies and related investment frameworks now incorporate optional lifetime income features, giving participants the ability to convert a portion of their savings into predictable income streams in retirement.

While still evolving, this trend reflects a broader recognition: Retirement success is not just about reaching a balance, it is about generating sustainable income.

Why This Shift Is Happening

Several structural forces are driving this evolution:

An Aging Participant Base. A growing percentage of participants are nearing retirement, increasing demand for strategies that support income generation rather than continued accumulation.

The “Decumulation Gap.” Many participants are comfortable saving through a target-date fund but lack confidence when transitioning to retirement income decisions. The shift from accumulation to spending remains one of the least supported phases of the retirement journey.

The Decline of Traditional Pensions. As employer-sponsored defined benefit plans have become less common, the responsibility for managing income and longevity risk has shifted to individuals. At its core, the industry is responding to a fundamental challenge: How do participants turn a lump sum into a reliable retirement paycheck?

What These New Solutions Actually Do

Although designs vary, most retirement income-oriented strategies share several key characteristics:

• Integration with existing target-date structures
  Often built into familiar investment vehicles already used as default options
• Gradual introduction of income-focused components
  Typically increasing exposure to income-generating or insurance-based features as participants approach retirement
• Optional conversion to lifetime income
  Providing participants the ability—but not the obligation—to elect guaranteed income at or near retirement
• Retention of flexibility
  Participants who prefer liquidity or market exposure generally are not required to annuitize assets

In many cases, these structures treat lifetime income features as a partial replacement for traditional fixed income allocations, reframing part of the portfolio around income stability rather than total return.

Opportunity—and Complexity—for Plan Committees

From a fiduciary perspective, this emerging category presents both opportunity and added complexity.

Potential benefits include:

• Addressing longevity risk by providing access to guaranteed lifetime income
• Simplifying retirement decision-making for participants
• Extending the usefulness of the plan into retirement, rather than ending at separation
• Improving participant outcomes by reducing behavioral risks in withdrawal decisions

 Key considerations include:

• Cost and value assessment of income-focused features, particularly those involving insurance components, introduce additional layers of fees and structure.
• Product complexity, as these solutions can be more difficult to evaluate than traditional target-date funds due to varying design approaches, income structures, and underlying assumptions.
• Outcomes depend significantly on participant decisions—whether to elect income, how much to convert, and when.
• As with any investment decision, the key fiduciary standard is not selecting a “perfect” solution, but demonstrating a prudent, well-documented evaluation process.

Retirement Income Is No Longer Theoretical

What was once considered an emerging concept is becoming a more practical plan design consideration.

Industry activity is increasing, product development is accelerating, and regulatory attention continues to evolve. At the same time, adoption remains in relatively early stages, giving plan sponsors time to evaluate options thoughtfully rather than reactively.

This moment represents an important transition: Retirement income is moving from a peripheral feature to a core component of plan design discussions.

What Plan Committees Should Be Doing Now

Plan sponsors are not required to adopt specific retirement income solutions. However, they should be actively addressing the topic within their governance framework. We recommend focusing on four core areas:

1. Define a Retirement Income Philosophy

Clarify the role the plan should play in supporting participants beyond accumulation.

• Should the plan facilitate retirement income?
• What participant outcomes is the committee trying to support

2. Establish Evaluation Criteria

If income-oriented strategies are considered, define how they will be evaluated.

• Cost structure and transparency
• Flexibility and portability
• Risk considerations (including insurer exposure, if applicable)
• Participant usability and understanding

3. Integrate Income into Participant Communication

Even without adopting new products, participants need guidance on how to turn savings into income.

• Framing balances in terms of potential income
• Educating participants on withdrawal strategies
• Helping participants understand trade-offs between flexibility and guarantees

4. Document the Process

Committees should clearly document:

• That retirement income has been discussed
• How potential solutions were evaluated
• The rationale for decisions—whether to adopt, defer, or monitor

This aligns with a core fiduciary principle, namely, that the quality of the process—not the eventual outcome—is what will be evaluated.

Retirement Success Redefined

The evolution of defined contribution plans reflects a broader shift in how retirement success is defined.

For many years, success was measured by how effectively a plan helped participants accumulate wealth. Increasingly, success will be measured by whether participants can convert that wealth into sustainable income throughout retirement.

For plan committees, the key question is no longer whether retirement income matters. It is whether the committee is addressing it intentionally, proactively, and with a well-documented fiduciary framework. Highland has been advising DC plan sponsors on fiduciary responsibilities, plan design and retirement income strategies for more than 32 years. If you would like to have a conversation around these topics, contact Bill Meerman or Rich Swanner at 440-808-1500.

Highland Consulting Associates, Inc. was founded in 1993 with the conviction that companies and individuals could be better served with integrity, impartiality, and stewardship. Today, Highland is 100% owned by a team of owner-associates galvanized around this promise: As your Investor Advocates®, we are Client First. Every Opportunity. Every Interaction.

Highland Consulting Associates, Inc. is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer of solicitation for the sale or purchase of specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.