Fidelity Joins BlackRock, Vanguard in Offering Annuities in 401(k) Plans

Pensions may be going the way of the dinosaurs, but retirement savers can increasingly find another product in their plans that serves a similar purpose: annuities. 

Fidelity Investments is adding an offering in early 2027 that will give investors access to a target-date fund with an embedded annuity via Nationwide and New York Life. The new suite of collective investment trusts, called Freedom Lifetime, will add another layer to traditional strategies by converting a portion of an employee’s target-date balance into guaranteed lifetime income. The move follows similar announcements from  Vanguard, which teamed up with TIAA to offer a similar product in December. BlackRock’s LifePath Paycheck, which launched in 2024, also offers retirees guaranteed income via annuities. 

Vanguard and Fidelity following BlackRock is a sign that there’s a ton of demand for this type of product, said Jason Kephart, a senior principal at Morningstar. But savers trying to navigate these new offerings will likely require significant input from advisors. “The challenge with these strategies is the education part, and making sure that the participants really understand what the options are,” Kephart added. 

Advisors’ Roles 

For the many retirees worried that their retirement savings and Social Security won’t be enough for the decades to come, annuities can help fill gaps by turning savings into a steady stream of income. Historically, savers could get guaranteed income through pensions, or by venturing into the retail annuity market, but that’s full of confusing language, costly products and commission-based sales.

“Introducing lifetime income solutions in 401(k) plans, especially in default investments like target-date funds, gives participants an ‘easy button’ when it comes to generating lifetime income,” said David Blanchett, head of retirement research at Prudential Financial. Still, he said, “advisors need to get more knowledgeable on these types of solutions more generally. The lifetime income space has evolved significantly over the last few years, and will likely continue doing so.” 

More than a dozen target-date series come with guaranteed income nowadays, and they all do so in their own way, which makes it tough to compare them and select the best, Kephart said. A useful starting point is understanding the two types of annuities the products are using: 

• BlackRock, Vanguard and the new Fidelity offering use versions of income annuities in which savers give up a portion of their paychecks for cash flows later. The downsides are that the funds typically can’t be accessed once they’re converted, they lose purchasing power due to inflation, and the costs can be challenging to evaluate, Kephart wrote in a recent report. 
• Guaranteed lifetime withdrawal benefits, used by J.P. Morgan and AllianceBernstein, offer more flexibility, but they can come with high fees, conservative withdrawal rates compared with traditional income annuities, and the possibility of participants accidentally withdrawing too much and lowering their guarantees. 

Feels Personal. “The decision to annuitize is such a personal one that it really depends on your own risk tolerance and expected retirement spending,” Kephart said. “It’s definitely not for everyone, and I think an advisor being able to help [clients] understand if it’s right for them would be the key.”

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