Vanguard, TIAA Launch Target-Date Lifetime Income Trusts for 401(k)s

Vanguard is launching a new series of collective investment trusts called Target Retirement Lifetime Income Trusts, in partnership with TIAA, aimed at providing guaranteed lifetime income options within 401(k) and other workplace retirement plans. The product integrates the TIAA Secure Income Account, which offers a savings annuity that accumulates over time and can be converted into guaranteed lifetime payments, into Vanguard's existing target-date fund glide path. This marks Vanguard's first new target-date series since 2003 and reflects a growing trend of incorporating annuity features into defined-contribution plans to address retirees' income security needs. The Target Retirement Lifetime Income series follows the same investment glide path as Vanguard's flagship Target Retirement funds until age 55, after which allocations gradually shift toward the TIAA annuity component, expected to represent 25% of the portfolio by age 65. Participants have the option to convert that portion into lifetime guaranteed income, aiming to provide predictable retirement income alongside traditional savings. This collaboration aligns with ongoing regulatory scrutiny and developments, including a recent executive order encouraging inclusion of lifetime income strategies in workplace retirement plans and the Department of Labor's withdrawal of a rule that threatened a safe harbor for fiduciaries selecting annuity providers. Market adoption of in-plan annuities has been gradual due to complexity concerns and limited consumer understanding, with only 14% of those working with financial advisors reporting a strong grasp of annuity products. Embedded annuities in target-date funds, like those introduced by Vanguard and competitors such as BlackRock, seek to mitigate these barriers by simplifying implementation, enhancing cost transparency, and managing sequence-of-returns risk during retirement. The Vanguard-TIAA partnership aims to offer a low-cost solution rooted in lifetime income, reflecting TIAA's long-standing emphasis on guaranteed income since its founding in 1918. Morningstar notes the Vanguard Target Retirement funds already manage over $1.3 trillion, accounting for more than a third of the $4 trillion invested in target-date funds, which could accelerate interest and adoption of lifetime income solutions within retirement plans. However, the ultimate impact on retirement outcomes remains to be seen, with education and participant engagement identified as key challenges to broader acceptance. This product introduction signifies a strategic step in blending traditional target-date investing with lifetime income guarantees to enhance retirement security for plan participants.