The long-term shift from traditional pensions to defined contribution (DC) plans puts employees in charge of their retirement savings—and needing help. Enhancements over the years have made a difference, and plans can now build on them by implementing a lifetime income solution. Having a steady income stream to rely on may help restore the confidence pensions once provided.
Almost a half century ago, benefits consultant Ted Benna used a small section of the 1978 Revenue Act to establish the first 401(k) plan. At the time, no one likely imagined that it would transform the retirement landscape. After all, defined benefit (DB) plans were the dominant retirement vehicle. Firms set aside money for employees, and after retirement, the DB plan provided them with a fixed payment for life.
Participants Need Help Solving the Retirement Puzzle
Today, the DC plan is a cornerstone of retirement readiness, and the responsibility for retirement planning has shifted to individuals. They have to navigate a host of risks, including investment risk, market risk and longevity risk—the possibility of running out of money in retirement. Managing these risks comes with a lot of decisions: how much to save, which investments to choose, when to retire and how much income to withdraw in retirement.
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However, plan participants—like many investors—struggle to make effective decisions when they’re under stress. For someone working to make ends meet and pay the mortgage, the day to day can crowd out decisions about saving for retirement, especially for someone who doesn’t have the financial literacy or confidence to weigh the pros and cons of their investment choices.
Income planning can be a particular challenge. According to our latest Inside the Minds of Plan Participants survey, more than 60% of participants believe they can sustain excessive spending rates of 7% or more. Others, worried about running out of money, may spend too little and live unnecessarily restrictive lives. Their spending hesitancy contrasts sharply with individuals that get a big confidence boost from having guaranteed income. The presence of income security could be a factor in making participants feel freer to spend in retirement, which may translate into higher satisfaction.
Thoughtful Plan Design Is the Solution…What’s the Next Piece?
Effective retirement advice matters more than ever—not because retirement planning is new, but because it’s no longer simple. The challenge of building wealth and translating savings into sustainable income isn’t a niche issue; it’s the defining financial challenge of modern retirement.
Over the years, DC plan sponsors have made thoughtful upgrades to help participants tackle the challenge. They’ve implemented auto-enrollment and auto-escalation, added diversified qualified default investment alternatives like target-date funds, and launched financial wellness and investment education programs. These changes have made a real difference in helping participants stay invested properly and on track.
But translating retirement savings into reliable retirement income remains a hurdle for many individuals—and they want and need help clearing it. In our 2025 survey, nine of 10 participants said they’d be at least “somewhat likely” to invest in a guaranteed income solution if it were offered in their plan, including 73% who were “very likely.”
Lifetime income solutions have the potential to transform retirement from a time of uncertainty into a time to spend with confidence, supported by a pension-like benefit. Plan sponsors considering such a default solution today can lean on growing regulatory clarity and continued design innovations. These developments make it easier to find a solution that makes the most sense for a specific plan.
Retirement doesn’t have to return to the past to be better. But we think it does need solutions that acknowledge the predictability, confidence and reliable income that pensions once provided. Because in the end, retirement was never supposed to feel like a test. It was supposed to feel like a reward.
“Target date” in a fund’s name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested—including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.
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