What Are the Pros and Cons of In-Plan Income Guarantees vs. Out-of-Plan Options. And Why Consider One Over the Other?
As more employees approach retirement, one question continues to rise to the surface:
“How do I turn my savings into a reliable paycheck?”
With the passage of the SECURE 2.0 Act, employers now have more flexibility to incorporate in-plan income solutions, including annuities, directly into their retirement plans. At the same time, participants still have access to out-of-plan income strategies once they leave employment or roll over their assets.
For HR leaders and CFOs, this creates both an opportunity and a decision point.
Why Income Guarantees Are Gaining Attention
For years, retirement plans have done an excellent job helping employees accumulate assets. But as retirement gets closer, the focus naturally shifts:
• Will my money last?
• How do I create consistent income?
• What happens if markets decline early in retirement?
Income guarantees, typically through annuity structures, help address these concerns by converting a portion of savings into predictable, often lifetime income.
In-Plan Income Guarantees: Pros and Considerations
What It Means
An in-plan solution allows participants to allocate a portion of their workplace retirement plan into an income product while still inside the plan.
Advantages:
• Simplicity and Access
Participants can elect income features within a familiar environment; no rollover required.
• Institutional Pricing
Plans may offer lower-cost options due to scale and fiduciary oversight.
• Fiduciary Vetting
Plan sponsors evaluate and monitor providers, helping bring a level of due diligence to the selection.
• Behavioral Benefits
Participants are more likely to engage with income solutions when they’re built into the plan experience.
Considerations:
• Fiduciary Responsibility
Adding an income solution introduces ongoing oversight, including insurer selection and monitoring.
• Portability Limitations
Income features may not always transfer seamlessly if an employee changes jobs.
• Plan Complexity
Additional features can increase administrative and communication demands.
• Limited Customization
Plan-based options may not fit every participant’s unique financial situation.
Out-of-Plan Income Guarantees: Pros and Considerations
What It Means
Participants roll assets to an IRA or other vehicle and purchase an income solution independently.
Advantages:
• Flexibility
Participants can tailor income strategies to their personal goals and timelines.
• Broader Selection
The retail marketplace offers a wide range of products and features.
• Portability
Income strategies are not tied to an employer plan.
• Integrated Planning
Allows coordination with tax, estate, and broader financial planning strategies.
Considerations:
• Potentially Higher Costs
Retail pricing may be higher depending on the structure.
• Decision Complexity
Participants must navigate choices without the built-in framework of a plan.
• Advice Dependency
Outcomes often depend on the quality of guidance received.
• Behavioral Risk
Without structure, some participants delay or avoid converting assets into income.
Why Consider One Over the Other?
There’s no one-size-fits-all answer and that’s exactly the point.
In-plan solutions can be especially effective when the goal is to:
• Increase access and participation across the workforce
• Provide a simplified, guided experience
• Leverage fiduciary oversight to support better outcomes
Out-of-plan solutions may be more appropriate when:
• Participants have more complex financial needs
• Customization becomes a priority
• Individuals are working closely with a financial advisor
A Practical Takeaway for Plan Sponsors
This doesn’t have to be an either/or decision.
Forward-thinking employers are increasingly viewing in-plan income as a foundational option, while recognizing that some participants will benefit from more personalized, out-of-plan strategies.
This is where thoughtful plan design and participant guidance come together.
The real opportunity is helping employees make the shift from focusing on how much they’ve saved to understanding how that savings can generate income they can rely on.
That’s where confidence increases and where plan sponsors can make a meaningful impact.
Final Thought
As income solutions continue to evolve, so does the role of the plan sponsor from offering a savings vehicle to supporting a more complete retirement income strategy.
Taking the time to evaluate these options today can help position your plan, and your people, for greater confidence tomorrow.
Scott Higgins | AIF ®, CFP®, CPFA®, NSSA®
Financial Advisor
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