It hasn’t been long since the tide turned and interest shifted from college to trade school. As the repercussions of our declining birth rates reverberate through the labor market, competition for workers is going to get fierce. It’s fascinating to me to watch these shifts and how they impact benefits programs—in this case bringing a longstanding benefit from the trades into more everyday use: The pension concept has filtered (slowly) into retirement plans in the form of retirement income vehicles for 401(k) participants.  

These programs have come a long way since they were first introduced and failed to gain traction because they were extremely expensive for employers and prohibitively rigid for participants. Maybe exposure to those rather ugly early plans has kept you from looking into these options.  

It may be time to reconsider.  

Where the 401(k) world meets defined benefits, you get retirement income vehicles—an “income for life” option that provides a steady monthly deposit. When auto workers went on strike in 2023, a retirement income plan was part of their new contract, in place of a pension plan that wasn’t making the grade anymore. That helped—ahem—grease the wheels for these plans to be considered in other industries and for companies of all sizes.  

These retirement income programs can either be inside or outside of the 401(k) plan and can be part of the target date fund or not. In many ways, they’re a return to the past: Employees are auto-enrolled in the plan and their contributions auto-increased as their careers progress. When retirement time comes, the plan sends out a monthly check to the employee, always and forever, until death do plan and participant part. Full circle.  

As demand has grown, these vehicles have become more affordable for employers and flexible for participants, now allowing employee-friendly options like partial distributions and providing peace of mind about covering the gap between social security and total expenses.  

For employees who have low interest in the details of their financial future or get overwhelmed by the possibility of managing a large pot of retirement funds when it becomes available, a retirement income vehicle is a reassuring option that keeps money coming in with almost no engagement on the participant’s part. That alone is a big selling point for a sizable portion of the workforce.  

Another is that, unlike an annuity program, where whatever sum is left over when a participant dies stays with the insurer who paid the annuity, these plans come with an insurance guarantee that enables participants to leave a legacy to beneficiaries.  

The retirement income option is a bonus for employers, too. Many of my clients maintain a culture that keeps up relationships with their retirees—including them in company events long after they’ve been fixtures around the workplace. For that kind of operation, retirement income is an extension of the appreciation they show to their team. It’s another way to show they have their backs for the long-term.  

I also know that a lot of employers want to make retirement planning easy for their employees, and a guaranteed monthly income is as easy as it gets, even though it comes with a bit of extra cost (although less all the time!) and responsibility for them.  

Not much, really. Your fiduciary duty won’t substantially shift, and choosing which product to offer will certainly take some research and consideration, but after your plan is in place, you’ll do the same kind of monitoring and oversight that your 401(k) demands.  

One critical consideration is how you’ll introduce and explain the option to employees. At this point, a 401(k) is a known product. Certain details may vary, but employees have come to understand and expect these programs. Because the retirement income vehicle is still an outlier, employers who choose them can expect to provide a fair amount of education for employees about the what, how, and why of them.   

I expect these programs are going to become much more common and valued than they are now, and I’d be happy to walk you through the decision-making process if you think a retirement income vehicle might be a great addition to your benefits program. Get in touch!