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Rethinking retirement: what in-service annuity rollovers could mean for the retirement ecosystem
Although relatively narrow in scope, the proposal builds on a wave of recent policy evolution, simplifying the IRS 402(f) Special Tax Notice and allowing workers aged over 50 to use a portion of their 401(k), 403(b), or 457 balances to purchase individual retirement annuities without triggering separation from service. Provisions such as emergency savings accounts, student loan matching, and Roth catch-up mandates, alongside a shifting fiduciary regulatory landscape, allow better flexibility for long-term financial security to plan participants and members.
US government debt is rising sharply, with net interest outlays projected to reach record levels as a percentage of Gross Domestic Product (GDP). Social Security’s Old-age and Survivors Insurance trust fund faces depletion by 2033, potentially forcing benefit cuts or tax increases.
Simultaneously, interest rates are expected to remain structurally higher than in the 2010s, making annuity income more attractive. Public policy is thus subtly shifting toward encouraging private retirement income solutions and enabling tools that promote annuitization, whether in- or out-of-plan.
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Participants: new pathways to retirement income
This proposed in-service annuity rollover capability would provide near-retirees with more flexibility to begin securing income without exiting the workforce or the plan. It opens the door to flexible annuitization strategies, improving longevity risk management and smoothening the decumulation phase. Combined with Roth Required Minimum Distribution (RMD) eliminations and rising interest rates, this creates stronger incentives for proactive income planning.
However, product complexity, illiquidity, and fee opacity remain challenges. Participants will still need help interpreting options, increasing the importance of digital advice, managed accounts, and compliant rollover journeys.
Plan sponsors: design, governance, and operational impact
For plan sponsors, the proposed changes introduce more choices and complexities, including:
- How should plans offer in-service annuity pathways?
- What governance, fiduciary controls, and participant safeguards are necessary?
- How should sponsors evaluate annuity providers and product types?
Sponsors must coordinate with recordkeepers to ensure compliance with notice delivery, spousal-consent tracking, withholding processes, and 1099-R coding. For many, this will trigger updates to investment policy statements, participant communications, and oversight procedures.
Recordkeepers: building the infrastructure for retirement income
Enabling in-service annuitization at scale demands more than policy changes. It requires robust, low-friction technology infrastructure, including:
- Real-time integration with annuity carriers for application processing, order status visibility (for example, via Depository Trust and Clearing Corporation’s (DTCC’s) Account Processing Platform (APP) / Account Control Tool (ACT), and policy issuance
- Dynamic participant experiences, including simplified 402(f) notices personalized to plan rules and participant contexts
- Tax and compliance automation for evolving Roth catch-up rules, emergency-savings withdrawals, and future Treasury match programs, such as the Saver’s Match, expected to begin in 2027
Recordkeepers must build decumulation capabilities as core platform services, not bolt-ons, embedding Application Programming Interfaces (APIs), audit trails, and controls throughout to manage this flexibility effectively.
Insurers: a gateway to retail annuity demand
Retail annuity sales in the US hit a record US$432 billion in 2024, driven by rising yields and product innovation in Registered Index-linked Annuities (RILAs), fixed index annuities, and guaranteed lifetime income.
If in-service rollovers become more commonplace, insurers gain more direct access to a workplace-based distribution channel for individual annuity products, particularly deferred-income annuities and Qualified Longevity Annuity Contracts (QLACs). To compete, carriers must:
- Support seamless digital applications and policy deliveries
- Provide pricing transparency, liquidity features, and portability languages
- Align product data and compliance documentation with retirement-platform standards – for example, the Association for Cooperative Operations Research and Development (ACORD) Life and Annuities (L&A) and Society of Professional Asset Managers and Recordkeepers (SPARK) Institute
WealthTech and advisors: orchestrating decumulation
The ecosystem shift from accumulation to decumulation demands new capabilities from digital wealth platforms and advisors. Partial in-service annuitization, Roth conversions, Social Security claims, and tax-aware withdrawal sequencing will increasingly converge in employer-integrated advice journeys.
Firms that embed fiduciary-grade advice engines, audit-ready documentation, and participant education into the plan User Experience (UX) will be better positioned as compliance pressures evolve so that participants and members do not outlive their savings.
System Integrators (SIs): enablers of digital retirement infrastructure
SIs will play a crucial role in enabling the new retirement-income rails. Modernizing recordkeeping platforms, event-driven architectures, API gateways, and tax/withholding services is vital to support:
- Modular annuity marketplaces
- Compliance-by-design participant flows
- Treasury-facing reconciliation for Saver’s Match and student-loan match
This is also a standards game, leveraging SPARK APIs, DTCC Insurance and Retirement Services (I&RS), and ACORD / Next-generation Digital Standard (NGDS) schemas to ensure scalability and interoperability.
What comes next: don’t wait for mandates
Even if the proposed legislation takes some time, the direction is clear. Demographic aging and macroeconomic pressures are nudging retirement systems toward enabling lifetime income. Stakeholders across the ecosystem should begin preparing now following our recommendations below:
- Plan sponsors: Evaluate the feasibility and design of in-service annuity options
- Recordkeepers: Invest in annuity onboarding, compliance automation, and decumulation hubs
- Insurers: Digitize annuity issuance and collaborate on workplace-ready product features
- WealthTechs: Integrate decumulation workflows and advice orchestration
- SIs: Build standards-based rails and accelerators for income infrastructure and enable benefits orchestration
The opportunity ahead is not just related to compliance but better outcomes: smoother transitions, more personalized income solutions, and stronger participant confidence in their retirement journeys.
If you found this blog interesting, check out, From legacy to leadership: How AI is rewriting the future of retirement – Everest Group Research Portal, which delves deeper into another topic relating to retirement.
To take the conversation forward, contact Akshay Pawar ([email protected]) and Vigitesh Tewary ([email protected])