The Labor Department has reversed course on a proposal to repeal the annuity “safe harbor” established under the Pension Protection Act of 2006. The change makes it more likely employers will continue offering annuities and other lifetime income options in 401(k) plans.
That’s good news for insurers, who lobbied aggressively to preserve the safe harbor and the lifetime income products they sell through workplace retirement plans.
But is it good news for you as a 401(k) participant?
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Advocates say yes.
Keeping the safe harbor, they argue, means plan sponsors are more likely to maintain lifetime income options in their investment menus, giving workers and retirees continued access to products that can provide guaranteed monthly checks for life.
That, in turn, can help address longevity risk — the possibility you’ll outlive your savings.
Why longevity risk matters
Longevity risk is one of the most significant challenges retirees face, according to the Society of Actuaries. The group says the best way to manage it is with guaranteed lifetime income from sources such as Social Security, traditional pensions and annuity payments.
A 2025 Allianz Life study found that 64% of Americans worry about outliving their savings, with concern even higher among Gen Xers (70%) and millennials (66%).
Industry rushes to add lifetime income options
“This is a pivotal moment in the evolution of retirement planning,” said Edmund F. Murphy III, president and CEO of Empower, in a press release. “By opening the door to additional types of assets, we can offer everyday savers access to the same opportunities that have historically powered institutional portfolios.”
In recent months, major plan providers — including Empower, BlackRock, Fidelity and Voya Financial — have rolled out lifetime income offerings in their 401(k) plans. The trend has accelerated since the SECURE Act and SECURE 2.0 gave employers clearer legal protections when adding annuities and other lifetime income products.
Related: White House makes risky changes to retirement accounts
The Labor Department’s reversal also follows a presidential executive order directing federal agencies — including the Labor Department, the Securities and Exchange Commission and the Treasury Department — to reexamine and potentially loosen rules that have long restricted alternative assets in defined contribution plans.
Advisers weigh pros and cons
William Brancaccio, a certified financial planner with MONECO Advisors, sees the move as an example of regulators trying to untangle a complex web of rules.
“There are layers of regulation built into the financial services sector,” he said. “Some are fairly straightforward — such as a mortgage debt-to-income ratio limit on FHA loans — but when it comes to retirement plan regulation, there are multiple layers that work together. The Pension Protection Act’s safe harbor, along with the SECURE Act and SECURE 2.0, have all promoted offering annuity income streams in plans. You can’t unwind one part without affecting the others.”
His bottom line: “Overall, choice is always a good thing. It leads to market competition on what insurers and plans might offer.”
The case for plan-based annuities
Brancaccio admits he has rarely recommended a plan’s annuitization option — just once, because it had an unusually favorable payout rate. Going forward, he said, if a plan offers a lifetime income option, he will evaluate it in the context of a client’s entire financial plan.
“For some clients, they have enough of a floor of income between Social Security, a pension or an abundance of assets that they won’t draw down,” he said. “For others — especially those at risk of running out of money in retirement — a favorable lifetime income stream to cover core expenses can be valuable.”
He added that many advisers “push commissionable annuities for lifetime income that might not be the best fit. Having this option through a plan is a nice alternative — and a way for the client to compare options.”
What you could be giving up
Not everyone is convinced this will benefit plan participants.
“Of course this is a big win for insurers who lobbied heavily for this,” said Marianela Collado, a certified financial planner with Tobias Financial. “This represents commissions for them.”
Her advice: Understand your needs — and the trade-offs.
- Is there a real risk you’ll outlive your money? Have you run the numbers? If so, a plan-based annuity might be worth considering, but only if you understand what you’re giving up.
- What are you giving up? Collado uses the phrase “make the deal with the devil” to describe giving up all your principal in exchange for a guaranteed income stream. “Sounds simple, right?” she said. “But what happens if you only live two years after making this deal? Do you get your principal back? In most cases, you don’t. That’s the price you pay for this guaranteed income stream.”
Related: Millions of Medicare beneficiaries could see major price shock
She warns that many participants are unpleasantly surprised to learn there is no principal payment to surviving loved ones. “This has to be looked at holistically before people get blinded by words like ‘guaranteed,’” she said.
Skepticism from other advisers
Other planners share that view.
Between this and allowing private assets and crypto into 401(k)s, “this is just a way for big finance to push their products and increase their revenues,” said Alex Caswell, a certified financial planner with Wealth Script Advisors. “There’s no doubt in my mind these changes will come with ‘educational’ material encouraging participants to ‘explore’ — meaning buy — these products.”
Caswell also wonders how these products will compensate 401(k) providers such as Fidelity and Vanguard.
“Furthermore, given that annuities would only turn on once a client is retired, there’s no reason they can’t buy this product outside of their 401(k) through a qualified rollover,” he said. “By putting them front and center in a 401(k), we’re encouraging people to take this option even when it’s often not in their best interest.”
Related: Gen X crisis looms on 401(k)s, IRAs
