NAPA
Spotlight Topic
PERCEPTION VS. REALITY IN THE DC SPACE
BY JOHN SULLIVAN
Through the Looking Glass— Perception vs. Reality in the Defined Contribution Space
What retirement plan providers want, and what plan participants need, often clash in the quest for greater personalization. What does the data actually say about recent innovation in the 401(k) space, and how can it help advisors achieve successful retirement outcomes for the clients with whom they work?
BY JOHN SULLIVAN
CONVENTIONAL
WISDOM IN THE RETIREMENT PLAN
INDUSTRY isn’t so conventional when observing actual data.
It often contradicts general agreement among product manufacturers and plan providers about the need—and demand— for certain products and services, compared with plan sponsor and participant attitudes.
While the development and messaging surrounding innovation in key areas continues to increase, adoption and utilization in those areas, at least for now, remain low.
There are several reasons why, including a lack of awareness and education from the investing public
about the products and strategies in question, advisor roadblocks for what they see as possible competitive threats, and plan sponsor reluctance over suitability issues that could lead to an increased risk of litigation, to name a few.1
It’s combined with the argument that 401(k) s and similarly styled defined contribution (DC) plans were developed as accumulation vehicles, and straying from this original mission by adding competing priorities could potentially cause plan sponsors and participants to lose focus.
“The primary goal of the first 401(k) savings plan I designed was to help middle-income employees save for retirement,”
retirement plan pioneer Ted Benna recently said.2
Yet, demand for retirement plan personalization is undoubtedly growing, fueled by the increasing use of artificial intelligence and a younger employee population accustomed to hyper-customization in the products and services they purchase, retirement benefits included.3
So, how is retirement plan personalization achieved in a manner that adheres to individual requirements, circumstances, and suitability without distracting from its original purpose—accumulation?
The following article will examine three industry “hot topics” (Retirement Income, Private Market Investments, and Accumulation/
Decumulation), and include MFS proprietary plan advisor, sponsor, and participant research.
The goal is to produce a more informed and complete picture of what participants actually want and need in the quest for greater personalization and, as a result, better retirement outcomes.
RETIREMENT INCOME
It’s a complex topic with a simple argument; provide an income stream that cannot be outlived, thereby reducing (or eliminating) longevity risk. Acting as a “paycheck in retirement,” retirement income—or lifetime income—products distribute consistent payments in a
manner similar to what an individual would receive in their working years.
These annuitized payments have several benefits, including lower stress and anxiety just before and during retirement, and the capacity for greater spending by the individual.4 They’re shielded from market volatility, often grow tax-free, and certain products offer cost-of-living adjustments (COLA) and other inflation protection options over time.
The demise of defined benefit (DB) pension plans and the rise of DC plans have federal regulators encouraging their availability in workplacebased retirement plans, and in September 2025, the Department of Labor (DOL) provided guidance for plan sponsors and fiduciaries that clarified their use as a qualified default investment alternative (QDIA).5
Product manufacturers and asset managers have long asserted that interest in these products (and their use within 401(k) plans) is high, yet their actual adoption is low.
According to the 68th Annual 401(k) Survey from the Plan Sponsor Council of America, only 8.9% of respondents had an inplan annuity in 2024, the latest year for which data is available.
Advisors are reluctant to recommend them, as well, and only 6% of advisors’ plans currently feature an in-plan income solution, and just 3% have an income component within their qualified default investment alternative (QDIA).6
REALITY CHECK:
MFS found that only 22% of advisors put “figuring out retirement income solutions” as a top concern.
– 2026 MFS DC Plan Sponsor Survey
So why aren’t they more popular, and why aren’t plan participants demanding them from sponsors?
Kelsey Mayo, Chief of Retirement Policy & Regulatory Affairs with the American Retirement Association (ARA), said that litigation risk is a key obstacle for fiduciaries.
“Litigation risk deters sponsors from using innovative products and plan enhancements and makes sponsors fearful of
doing anything outside the norm,” she explained.
Since using a retirement income option like an annuity isn’t required and (as the data show) isn’t common, fiduciaries, whether it’s the advisor, plan sponsor, or someone else, are apprehensive about taking on a product that could be construed as imprudent, Mayo added.
Aside from low awareness and education about the product, its potential, and availability in 401(k)s, part of the reason for low demand among participants might be the name—annuity. Traditional objections, such as high fees and the perception that they favor the manufacturer at the expense of the annuitant, make the branding problematic. Research and consulting firm Greenwald & Associates routinely
finds a disconnect in perception between an unnamed product that lists the benefits that annuities provide and an annuity itself.
“Stigma around the name ‘annuity’ remains,” Founder and Managing Director Mathew Greenwald wrote. “The gap between the appeal of an unnamed product and a guaranteed lifetime income annuity remains, with a third of consumers decreasing their level of interest when the word ‘annuity’ is used. Finding ways to rehab the ‘annuity’ name should be a priority, starting with framing it as part of a broader retirement income strategy.”7
Indeed, the “rehab” is already underway, and the reason terms like retirement income and lifetime income are in wider use.
“The gap between the appeal of an unnamed product and a guaranteed lifetime income annuity remains, with a third of consumers decreasing their level of interest when the word ‘annuity’ is used. Finding ways to rehab the ‘annuity’ name should be a priority, starting with framing it as part of a broader retirement income strategy.”
PRIVATE MARKET INVESTMENTS
Whether to include private market investments (alternative investments) as an investment option in 401(k)s has generated a considerable amount of discussion among industry stakeholders, regulators, and the financial press. Private market investments are equity or debt in privately-owned companies that do not trade on public stock exchanges. They include private equity, private credit, infrastructure, and real estate, among other asset classes.
In August 2025, President Trump issued an executive order (EO14330) to encourage their inclusion within defined contribution plans. It resulted in a proposed rule from the DOL “that clarifies, and provides a safe harbor for, a fiduciary’s duty of prudence under the Employee Retirement Income Security Act of 1974 (ERISA) in connection with selecting designated investment alternatives for a participant-directed individual account plan, including asset allocation funds that include alternative assets.”8
Typically reserved for high-net-worth individuals with significant investable assets, proponents argue that a “democratization” of private market investments is needed and should be structured in a professionally managed account and made available
“Typically reserved for high-net-worth individuals with significant investable assets, proponents argue that a “democratization” of private market investments is needed and should be structured in a professionally managed account and made available to retail investors within 401(k) plans.”
to retail investors within 401(k) plans.
They add that DB plans have successfully incorporated private market investments for decades, which have delivered higher risk-adjusted returns and diversification benefits.
They further note that investment opportunities in public companies have shrunk while those in private companies have grown. There are half as many U.S. publicly traded companies as there were in the 1990s, more companies are going public later, choosing to stay private
during their highest growth phase, and nearly 87% of firms with more than $100 million in revenue a year remain private.9
REALITY CHECK:
Just 6% of sponsors told MFS that inclusion of private assets is “extremely/very important” for outcomes; 73% say “not very” or “not at all.”
– 2026 MFS DC Plan Sponsor Survey
Critics counter that private market investments have higher fees, are complex and difficult for the average retail investor to understand and include unsuitable illiquidity requirements. Low awareness and demand from the general investing public have critics further arguing that the asset classes are “sold rather than bought,” meaning marketed by investment managers hungry for the potential sales opportunities they offer.
“Who’s pushing for private market investments in 401(k) plans?” highprofile tort lawyer Jerry Schlichter, founder and managing partner of Schlichter Bogard LLC, recently (and rhetorically) asked. “Not AARP, not the Pension Rights Center, or unions. It’s private equity managers who want to tap into $6 trillion in 401(k)plans. There are no advocates for ordinary investors who want it.”10
ACCUMULATION/ DECUMULATION
Few retirement plan innovations have done more to help people save than the so-called “autorevolution”—automatic enrollment, deferral, and escalation.
Introduced as part of the Pension Protection Act (PPA) of 2006, they revolutionized workplace retirement savings plans by encouraging employers to require employees to “opt
out” rather than “opt in” to 401(k) plans.
Auto-enrollment, specifically, is shown to increase savings rates by roughly 2% per year in the first 5 years of plan investment.11
Yet financial professionals (and their clients) are increasingly concerned about withdrawing accumulated assets in a sustainable manner that provides an affordable, high-quality of life in retirement without depleting them too quickly.
Often compared to a football game, the accumulation period during working years is only the first half, with effective decumulation the second half in the quest to reach the goal line. It’s one reason for the development of the previously discussed retirement income products, as well as for “to” versus “through” target-date fund glidepaths.
Decumulation strategies are essential to successful retirement outcomes, yet 401(k)s (and defined contribution plans in general) are—again— primarily accumulation vehicles, something plan sponsors, advisors, and participants should not lose sight of.
So, how is an effective balance achieved, one that provides necessary resources in retirement without sacrificing the accumulation focus?
Professional financial advice has been shown to make a material difference in retirement savings and outcomes, but it involves more than just dollars and cents. It’s a process that
can add value through behavioral coaching, asset allocation, periodic rebalancing, spending/ withdrawal strategies, and asset location, leading to an almost immeasurable benefit—participant peace of mind.
Indeed, this “advisor alpha” can add an estimated 1.5% to 3% in net annual value to a retirement portfolio versus a do-ityourself approach.12
REALITY CHECK:
Plan sponsors value personalized advice twice as much (70% saying it is “extremely/ very important for outcomes”) versus in-plan retirement income solutions (34%).
– 2026 MFS DC Plan Sponsor Survey
Active management can also positively affect the accumulation process through key benefits such as integrated fundamental research, risk management, longer-term conviction, and the ability to capitalize on market inefficiencies.
Active management is part of MFS Investment Management’s QDIA solutions, anchored by the MFS Lifetime® Funds, a series of target-date mutual funds.
The suite utilizes an active management approach with a “toretirement” glide path that aims for long-term growth before shifting to a more conservative allocation upon
reaching the target date. Key Features of MFS Lifetime Funds include:
• Active Management: The series are built with actively managed underlying MFS funds, allowing the managers to seek alpha rather than solely tracking benchmarks.
• Glide Path Strategy: The funds follow a “to-retirement” glide path. In the early years, they maintain higher equity allocations to maximize capital appreciation to help build wealth during participants’ long-time horizons. In the later years, they adjust risk gradually, transitioning to a conservative allocation at retirement,
protecting participants’ capital when they need it most.
• Diversification: The series span geographies, styles, market caps, investment approaches, credit quality, and duration, maintaining exposure to equities, fixed income, and nontraditional asset classes depending on the horizon.
• Breadth of Capabilities: MFS offers multiple share classes (including Class R6 and Class I) and vehicle options (mutual funds and collective investment trusts) tailored for institutional retirement plans and defined contribution platforms.
11 How Much Does 401(k) Auto-Enrollment Help Workers Save for Retirement? Munnell, Alicia. crr.bc.edu. January 9, 2025.
12 “The Value of a Financial Advisor.” Bergenn, Eric. bergenn.com. February 13, 2025
Before investing, consider the fund’s investment objectives, risks, charges, and expenses. For a prospectus, or summary prospectus, containing this and other information, contact MFS or view online at mfs.com. Please read it carefully.
Important Lifetime Fund Risk Considerations: The fund may not achieve its objective and/or you could lose money on your investment in the fund. You may experience losses near, at, or after the target date. There is no guarantee of the fund’s principal value, including at the target date, or that the fund will provide adequate income at and through your retirement. Stock: Stock markets and investments in individual stocks are volatile and can decline significantly in response to or investor perception of, issuer, market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions. Bond: Investments in debt instruments may decline in value as the result of, or perception of, declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer-specific, or other conditions. Certain types of debt instruments can be more sensitive to these factors and therefore more volatile. In addition, debt instruments entail interest rate risk (as interest rates rise, prices usually fall). Therefore, the portfolio’s value may decline during rising rates. Portfolios that consist of debt instruments with longer durations are generally more sensitive to a rise in interest rates than those with shorter durations. At times, and particularly during periods of market turmoil, all or a large portion of segments of the market may not have an active trading market. As a result, it may be difficult to value these investments and it may not be possible to sell a particular investment or type of investment at any particular time or at an acceptable price. The price of an instrument trading at a negative interest rate responds to interest rate changes like other debt instruments; however, an instrument purchased at a negative interest rate is expected to produce a negative return if held to maturity. International: Investments in foreign markets can involve greater risk and volatility than U.S. investments because of adverse market, currency, economic, industry, political, regulatory, geopolitical, or other conditions. Underlying Funds: MFS’ strategy of investing in underlying funds exposes the fund to the risks of the underlying funds. Each underlying fund pursues its own objective and strategies and may not achieve its objective. In addition, shareholders of the fund will indirectly bear the fees and expenses of the underlying funds.
Sponsor Spotlight
A discussion with MFS Lead Retirement Strategist and Managing Director Jeri Savage.
Q Research suggests a disconnect between industry enthusiasm for products like retirement income solutions/private market investments and actual demand. What’s driving that ‘perception’ gap?
A That gap is largely driven by a mismatch between industry conversation and sponsor priorities. The strongest evidence in our research is that sponsors still see better retirement outcomes as coming first from the fundamentals: participation, deferral rates, diversification, and staying invested over time. 70% of sponsors say personalized advice is very or extremely important to improving outcomes, versus just 34% for retirement income solutions and 6% for private assets. In other words, the industry may be innovating quickly, but most sponsors are still focused on simpler, more immediate ways to improve participant readiness.
Q Retirement income products are marketed as a way to reduce longevity risk and provide retirement ‘stability,’ yet adoption remains low. Why, and what are the current barriers to greater adoption?
A Adoption remains low in part because many sponsors are still unconvinced that an in-plan retirement income solution fits the realities of their participant base. One barrier is philosophical:
more than half of sponsors say they are neutral about keeping retirees in the plan, which makes it harder to design around long-term in-plan distribution. Another is practical: many of the solutions currently available still feel complex, difficult to explain, or insufficiently flexible for a participant population with highly varied needs. And perhaps the biggest issue is that a DC plan is often only one piece of an individual’s broader retirement puzzle, alongside Social Security, personal savings, spousal assets, and sometimes legacy DB benefits. Trying to solve for retirement income inside only one component can miss the bigger picture. That is why many sponsors still appear more comfortable treating the DC plan primarily as a strong accumulation vehicle, while using advice, planning, and optional distribution tools to help participants build a more complete income strategy.
Q Do average defined contribution participants actually want private market investment offerings, or is this more industry-driven?
A Right now, the evidence suggests private market demand is much more industry-driven than participant-driven. Sponsor interest remains limited: According to MFS’ DC Plan Sponsor Survey, only 4% are likely to implement private assets in the next 12 to 24 months, and just 6% view their inclusion as very or extremely
important to better participant outcomes. Most sponsors say participants are not asking for access to private or digital assets, and when they do ask, it is often to understand headlines rather than to gain actual exposure. That matters because defined contribution plans succeed when participants can use investments clearly and appropriately. Private markets may eventually earn a role in some structures, but today the data suggest they are still far from a mainstream participant need.
Q Do you agree that the industry risks overcomplicating the 401(k)’s original mission primarily as an accumulation vehicle, or is a more ‘holistic approach’ (accumulation/ decumulation) inevitable?
A Yes, there is a real risk of overcomplicating the 401(k)’s core mission. The strongest retirement outcomes still start with accumulation: getting participants into the plan, encouraging appropriate savings rates, diversifying prudently, and helping people stay invested through volatility. That is why target-date funds remain so dominant, with more than 90% of plans offering them and 86% using them as the QDIA, according to MFS’ DC Plan Sponsor Survey. At the same time, a broader conversation about decumulation is inevitable as the workforce ages. The
better answer is not to replace accumulation with a more complicated framework, but to build around it. In practice, that means keeping TDFs and core plan design focused on long-term accumulation while adding optional tools, advice, and withdrawal support for participants whose needs become more individualized near or in retirement.
Q We hear so much about the value of personalized advice. How important is human guidance in helping participants make retirement decisions, and can technology alone realistically fill that role?
A Human guidance remains extremely important, especially as retirement decisions become more complex and personal. Sponsors clearly recognize that: nearly three-quarters of plan sponsors say they offer access to an advisor in some form, MFS’ DC Plan Sponsor Survey found. Participants appear receptive as well, with 71% saying they would use advisory help if their employer offered it. Technology can do a great deal, but it may not fully replace human judgment, particularly when participants face tradeoffs around spending, timing, risk, and income in retirement. The next phase is likely not human versus technology, but human guidance supported by technology so advice can remain both personal and scalable.