Defined contribution (DC) plan participants are building the foundation of their own retirement plans with the help of the tools they’ve been given by their plan sponsors. These tools include a large inventory of investment products and a do-it-yourself manual.

The discussion of whether plan participants are up to the task usually centers on whether they will save enough money and make good choices with their investments. The consensus is that if participants lack anything, it is advice, not products. With the wide variety of equity and fixed income funds available and automatic rebalancing capabilities, the toolbox looks full.

One significant retirement product, however, is generally missing, and until recently, its absence has generated little discussion. Most 401(k)s and other DC plans rarely offer current employees a product that will guarantee a defined lifetime income stream. Such a guarantee can be provided only by an annuity.

Eric S. Levy, vice president and head of defined contribution products for Lincoln Financial Group, estimates that there are only three or four in-plan annuity products on the market today. (Annuities provided as an investment option during the accumulation stage of a DC plan). Lincoln Financial, which ranks in the top 10 annuity writers in the United States, does not offer one. Like other major providers, it sells its annuities to retirees who want to convert their lump-sum DC balances to produce an income.

Levy characterizes the in-plan market as a “nascent industry” now. But, he says, “We are studying what the in-plan market looks like, and we absolutely see the potential in it.”

Allianz Life Financial Services, a division of Allianz Life Insurance Company of North America, also is researching the in-plan market with interest. Allianz is another top 10 annuity writer that does not currently offer in-plan annuities. President Robert DeChellis explains that the annuity marketplace may be broadening beyond its traditional base of retirees or people close to retirement.

“We’re starting to get inquiries about annuities from a nontraditional pool of individuals. HR professionals and people who are pure registered investment advisors—people who have traditionally shunned annuities—are saying, ‘This is something we might need in our practice as consumers start to look for more predictability and certainty,’” he says.

“The annuity product has been designed for one-time investment and maybe over the life of the contract people would add to it sporadically,” DeChellis continues. “But it’s nothing like a 401(k) plan where people are putting money into it every two weeks. If people are going to start using annuities as an investment planning vehicle, it means the product is going to have to be built in a way that allows for regular savings or regular contributions.

“Our approach is to build products that allow for this consistent level of savings over time. So whether you’re 25, 35 or whatever your age is, we think annuities need to have some part in a person’s retirement planning process.”

The federal government also is getting involved in this issue. The U.S. Department of Labor and U.S. Department of the Treasury spent a good part of this year gathering extensive data from insurers and other retirement product companies about the use of annuity-type products. Then in mid-September the DOL and Treasury conducted joint hearings titled “Lifetime Income Options For Participants And Beneficiaries In Retirement Plans.”

The industry organizations summoned to the hearings represented a virtual Who’s Who of the retirement planning market—insurers and mutual fund companies as well as associations such as the American Benefits Council and actuarial and benefits consulting firms. The data gathered was voluminous.

Robert DeChellis, who presented written testimony for Allianz, notes, “In response to the question about whether annuities should be in-plan or out-of-plan and how that should be handled, they received over 800 responses.”

A recurring theme at the hearings was the need for stronger “safe harbor” protection for plan sponsors that offer in-plan annuities. Eric Levy, who testified on behalf of Lincoln Financial, explains.

“We talked about giving clarity to the plan sponsor about what they can and can’t do in choosing these products. Up to now, the concept of the ‘safest available annuity’ does not provide them with enough guidance that would enable them to make an informed decision. It becomes a pretty onerous process where much of the information they would need to make an informed decision may not be publicly available.”

The education process that took place during the government hearings is likely to help build momentum for in-plan annuities. As the Allianz spokesperson pointed out at the hearings, “The 401(k) industry successfully educated consumers about mutual funds to save for retirement; now government and the industry need the same kind of concerted education effort on annuities and how they can help Americans when they are in retirement.”

But annuity providers, whether their products are offered in-plan or out-of-plan, have some challenges to overcome in educating the public. In an Allianz study of 3,200 Americans ages 44-75 conducted in May 2010, 54% expressed a distaste for the word “annuity.” Probing the data, the company found that consumer attitudes toward annuities were shaped long ago.

The same consumers in the study were asked what features would be the most important to them if they could build the ideal financial product. (Their choices included a wide selection of variables including high returns, low fees and access to money.) The most selected feature was “the ability to provide a stable, predictable standard of living throughout retirement.” In second and third place, respectively, were “the ability to provide a guaranteed income stream for life” and “guaranteed not to lose value.”

If financial product guarantees are what consumers are looking for in a retirement product, and defined benefit plans are no longer available to most workers, now may be a propitious time for the introduction of annuities into defined contribution plans.