April 30, 2010 

The Honorable Phyllis Borzi 

Assistant Secretary, Employee Benefit 

Security Administration 

Department of Labor 

Washington, DC 20210-0002 

The Honorable J. Mark Iwry 

Senior Advisor to the Secretary, Deputy Assistant 

Secretary for Retirement and Health Benefits 

Department of the Treasury 

Washington, DC 20220-0002 

Nancy J. Marks 

Division Counsel/Associate Chief Counsel 

Tax Exempt and Government Entities 

Internal Revenue Service 

Department of the Treasury 

Washington, DC 20224-0002 

RE: RIN 1210-AB33

The Committee on Investment of Employee Benefit Assets (CIEBA) is the voice of the Association for 

Financial Professional (AFP) on employee benefit plan asset management and investment issues. CIEBA 

is a nationally recognized forum for ERISA-governed corporate pension plan sponsors on fiduciary and 

investment matters. CIEBA represents 120 of the nation’s largest retirement funds. Its members are the 

senior corporate financial officers who individually manage and administer corporate retirement plan 

assets. CIEBA members manage $1.1 trillion in defined benefit plan and defined contribution plan assets 

on behalf of 15 million participants. 

CIEBA commends the Departments of Labor and Treasury and the Internal Revenue Service for issuing 

the Request for Information Regarding Lifetime Income Options for Participants and Beneficiaries in 

Retirement Plans. By seeking input from a wide spectrum of stakeholders, the agencies should benefit 

from information that will help identify ways to better assist retirement plan participants prepare for their 

retirement. 

The following CIEBA submission was prepared by a group of CIEBA members with practical experience 

dealing with participants and plan investment issues. We did not respond to every question, including 

those that required special expertise, such as the actuarial and legal questions, or questions related to outof-plan activities. 

The following are some of the key points addressed in our submission: 
CIEBA Comments 

Re: RIN 1210-AB33 

April 30, 2010 

Page 2 

• Lifetime income options are not yet widely available in defined contribution plans. 

• Greater understanding of and access to appropriately structured lifetime income options would be 

beneficial to many participants. 

• To date, participants have shown little interest in lifetime income, for a variety of reasons. 

• Communications/education will be key in ‘moving the needle’ on participant interest in lifetime 

income options. 

• Currently, there are significant barriers affecting plan sponsors’ ability and willingness to offer 

lifetime income options. 

• More clarity around safe harbor provisions and guidelines are needed in a variety of areas, 

including counter-party risk and liability, communications, and reinsurance and structure of 

appropriate products. 

If you need additional information, please contact CIEBA’s Managing Director Judy Schub at (301) 

961.8682 or at jschub@afponline.org. 

Sincerely, 

Robert M. Hunkeler 

Chairman 

CIEBA 
CIEBA Responses to RFI on Lifetime Income Options in Retirement Plans 

(RIN 1210-AB33) 

Submitted April 30, 2010 

General

1. From the standpoint of plan participants, what are the advantages and disadvantages 

for participants of receiving some or all of their benefits in the form of lifetime payments? 

Advantages: 

• Participants are less likely to outlive their income, thus providing protection 

against longevity risk. 

• It is simple and predictable. Good for budgeting in retirement as it is a known 

income. 

• Purchasing deferred products in advance of retirement assists participants with 

critical retirement savings decisions in the working years leading up to retirement. 

• Removes the burden of appropriately managing and effectively drawing down 

their own assets. Most individuals are simply unable to do this effectively without 

some form of insurance or risk sharing. 

• If participants receive some Lifetime income (as opposed to all), it becomes a 

diversifier. 

• Reduces the risk of poor or of unscrupulous financial advice. 

Disadvantages: 

• Inflation may erode buying power in some product designs. Some product designs 

limit or eliminate the opportunity for growth in assets and/or income. 

• Some product designs limit or eliminate the ability of a participant to access 

assets in an emergency or bequeath balances. 

• Assets may not be portable to another provider or investment or portability may be 

very limited in comparison to common investment alternatives. 

• Product expenses may include additional layers of fees in comparison to common 

investment alternatives which may erode buying power. 

• There will always be individual winners (who live longer) and losers (who do not 

live as long). This may lead to adverse selection where participants who have 

health conditions that may shorten their life expectancy do not choose lifetime 

payments. 

• Exposure to the risk of default or impairment of the annuity provider. 

2. Currently the vast majority of individuals who have the option of receiving a lump sum 

distribution or ad hoc periodic payments from their retirement plan or IRA choose to do 

so and do not select a lifetime income option. What explains the low usage rate of 

lifetime income arrangements? 

• Marketing by brokers, paid financial advisors and/or retail mutual funds: 

o Over-estimation of possible returns, 

o Under-estimation of investment risks and impact of fees, and or 

o Little or no recognition of longevity risk. 

• Poor positioning or lack of in-plan options in Defined Contribution (DC) plans. 
CIEBA Comments Page 2 of 17 

Re: RIN 1210-AB33 April 30, 2010 

• Herding behavior tends to lead many participants away from considering a 

Lifetime income option. Individuals who do not know others who have utilized a 

Lifetime income option are less apt to utilize one themselves. Similar factors 

impact organizations sponsoring plans which defer the introduction of such 

options in part because peers do not offer similar options. 

• Lack of transparency and knowledge of the factors which drive cost and benefits. 

• A lack of education around Lifetime income products. Most individuals and 

organizations do not understand annuity-type investments. Even when information 

is available, most participants do not have the time or inclination to develop a 

practical understanding of the costs and benefits of these options in the absence 

of salient incentives. 

• Individuals do not want to leave assets with a Defined Benefit (DB) plan and 

potentially be subject to bankruptcy/Pension Benefit Guaranty Corporation 

(PBGC) limits. 

• More sophisticated individuals who may consider an institutional annuity do not 

want to be subject to the credit risk of an insurance company. 

• Few individuals and organizations understand the operation of the “Safety Net” 

provided by state guaranty associations or how it varies from state to state. 

• People tend to overestimate the amount of income which may be reliably 

generated by their wealth. They think the lump sum has a greater value than an 

equivalent annuity. 

• People underestimate their lifespan and the number of years spent in retirement. 

Further, it is difficult for individuals to determine how much income they will need 

in retirement. 

• People want to be able to bequeath assets to their heirs rather than insure income 

for their lifetime. 

• People like to be in control of their assets and overestimate their investment 

expertise in managing their retirement savings. 

• People tend to suffer from status quo bias. They become familiar with tracking 

their “balance” during their working years and consider that to be their end goal 

rather than the income it should generate in retirement. 

• Participants are individuals with varying needs. Current retirees or those now 

nearing retirement may already have retirement income through a DB plan along 

with retirement savings in a DC plan. 

• Small account balances may not cover the administrative cost of annuitization and 

may make the small monthly annuity generated unattractive and impractical. 

• Participants might have an immediate financial need for their assets or worry 

about a future emergency need 

Is it the result of a market failure or other factors (e.g., cost, complexity of products, 

adverse selection, poor decision-making by consumers, desire for flexibility to respond 

to unexpected financial needs, counterparty risk of seller insolvency, etc.)? 

• Virtually all of the examples listed in the question contribute to current low 

utilization rates. However, some specific causes may contribute more than 

others: 

o Lack of financial literacy. 
CIEBA Comments Page 3 of 17 

Re: RIN 1210-AB33 April 30, 2010 

o Most current DC plan designs include an implicit default to lump sum 

payouts, since Lifetime Income options are not offered in most cases, or 

are an opt-in feature in the few cases where they are available. Research 

on participant behavior shows that most participants accept a default in 

the absence of incentives to do otherwise. 

o The benefits and risks of various Lifetime Income options are often less 

obvious than the perceived benefits and risks of maintaining a large 

balance in an investment-only account. 

o It is virtually impossible for most people to equate the present value of a 

stream of future payments to a single lump sum. 

o Lack of unbiased reference points to judge the relative merits of a product. 

Decision makers (both participants and plan sponsors) would benefit from 

evaluating products in comparison with well designed and broadly 

available benchmarks. Few, if any, of these exist today. 

o The decision to choose a Lifetime Income option is very complicated and 

unstructured. Individuals are generally unable to accurately gauge the 

risks or relative merits of such products without clear and simple guidance. 

There are few sources of such guidance available to participants or plan 

sponsors. 

o In many cases, the decision to use a lifetime income option is irrevocable. 

Participants fear that their circumstances could change, making the 

decision to ‘buy’ a lifetime income option a bad decision. 

o In the past and to some extent today, many defined contribution plan 

participants also receive an annuity from a defined benefit plan, reducing 

their need for additional lifetime income options. 

Are there steps that the Agencies could or should take to overcome at least some of the 

concerns that keep plan participants from requesting or electing lifetime income? 

• Promote tax advantages and/or other forms of incentives for Lifetime Income 

over other forms of distribution. 

• Provide clear and robust guidance for plan sponsors with regard to the extent 

and nature of Safe Harbor provisions governing the selection of providers as well 

as the description and presentation of Lifetime Income options in retirement 

plans. 

• Establish a central repository of unbiased and reliable educational material on 

which plan sponsors may rely for plan design decisions and which may be used 

to develop communications for or distribution to plan participants. 

• Encourage plan sponsors and advice providers to offer advice that continues 

past the asset accumulation phase. 

• Encourage partial annuitization in Defined Benefit plans that offer lump sums. 

3. What types of Lifetime Income are currently available to participants directly from 

plans (in plan options), such as payments from trust assets held under a defined benefit 

plan and annuity payments from insurance contracts held under a defined contribution 

or defined benefit plan? 

• Very limited offerings in most 401(k) plans. 
CIEBA Comments Page 4 of 17 

Re: RIN 1210-AB33 April 30, 2010 

• While some DC plans offer annuities or other guaranteed products, the take up 

rate by participants has been very low. Some plans have eliminated annuity 

features due to low or no usage. 

• Some DC plans offer distribution programs which draw down assets based on a 

formula, fixed percentage of assets or fixed dollar amount where participants pick 

the amount, the frequency and the duration of the payments. Some plan 

sponsors report that this type of program is relatively popular. However, these 

programs do not guarantee that distributions will extend for the life of the 

participant, which participants may not fully understand. 

• By law, all DB plans offer annuity options to participants. Many large pension 

plans do not allow lump sum distributions. For example, in 2008, more than 80 

percent of the dollars paid out by CIEBA members’ plans were recurring 

payments. 

• However, when plans offer lump sums, a large percentage of participants opt for 

this form of benefit. 

4. To what extent are the Lifetime Income options referenced in question 3 provided at 

retirement or other termination of employment as opposed to being offered 

incrementally during the accumulation phase, as contributions are made? How are such 

incremental or accumulating annuity arrangements structured? 

• Some insurance companies offer an accumulation product in which participants 

can contribute throughout their working lives. These products provide dollar cost 

averaging into annuity amount. 

• Newer guaranteed minimum withdrawal features allow contributions while active. 

• Several designs being considered by the large plan market focus on establishing 

a floor on retirement income through the incremental or large-scale purchase of 

deferred payout products during a participant’s working years. 

• Most of these designs establish an annual amount of income which a participant 

may withdraw from their assets in retirement and guarantee that participants will 

continue to collect a minimum amount of income even after their assets are 

depleted. 

• Various designs differentiate themselves in several respects, most importantly, 

the manner in which the amount of guaranteed income is determined, the 

manner in which the amount of guaranteed income may increase over the life of 

the participant, the level of fees paid by the participant leading up to and in 

retirement, and the structure of the guarantee itself. 

• At least two broadly discussed designs further differentiate themselves from 

single insurer products by offering variations on a multi-insurer approach. 

5. To what extent are 401(k) and other defined contribution plan sponsors using 

employer matching contributions or employer non-elective contributions to fund Lifetime 

Income? To what extent are participants offered a choice regarding such use of 

employer contributions, including by default or otherwise? 

• At least one well publicized product design focuses on employer contributions as 

the funding source for the purchase of deferred Lifetime Income. However, as far 

as we know, this product has not been adopted by any plans as of this date. 
CIEBA Comments Page 5 of 17 

Re: RIN 1210-AB33 April 30, 2010 

• Virtually all of the existing products and designs currently under development in 

the large plan market may be adapted to use employer contributions as the 

primary source of funding. Behavioral finance research would suggest that 

designing default actions to include such contributions would lead to wider 

adoption among plan participants. 

• Two issues that continue to discourage employer matching or non-elective 

contributions going to lifetime income options are: 

o Need for better safe harbors. 

o Need to address portability concerns raised by some lifetime income 

option products. 

6. What types of Lifetime Income or other arrangements designed to provide a stream 

of income after retirement are available to individuals who have already received 

distributions from their plans (out-of-plan options), such as IRA products, and how are 

such arrangements being structured (fixed, inflation adjusted, or other variable, 

immediate or deferred, etc.)? Are there annuity products under which plan 

accumulations can be rolled over to an individual retirement annuity of the same issuer 

to retain the annuity purchase rights that were available under the plan? 

• We do not know of any such arrangements.

7. What product features have a significant impact on the cost of providing lifetime 

income or other arrangements designed to provide a stream of income after retirement, 

such as features that provide participants with the option of lifetime payments, while 

retaining the flexibility to accelerate distributions if needed? 

• The price of options are generally driven by the following factors: 

o Market conditions, especially volatility, impact cost of hedging, 

o The level and term structure of interest rates across the entire yield curve, 

but 10-year nominal Treasuries, in particular, and 

o Riskiness of underlying investments’ asset allocation and the availability 

and cost of liquid hedging instruments to offset the risk of the underlying 

investment allocation (e.g., equity futures contracts and interest rate 

swaps). 

• The most expensive features of a guaranteed product may change depending on 

the nature of other features included. For example, products which provide 

participants with the ability to withdraw all or a portion of their principal without 

penalty will increase the cost of the longevity option embedded in the product. 

• One feature that was commonly offered prior to the financial crisis of 2007-2009, 

but subsequently withdrawn from virtually all products is known as a “roll up”. Roll 

ups guarantee the participants that the asset base used to calculate their income 

benefits will increase by a minimum percentage each year. This form of 

guarantee became problematic during the financial crisis. Another feature which 

is sometimes confused with a roll up, but is far less expensive is known as a 

“ratchet”. This feature continues to be offered in many products today. A ratchet 

provides the opportunity for income to increase, but only if certain values, such 

as the participant’s current account balance, are higher than at a previous 

measurement date. This is sometimes referred to as a “High Watermark”. 

Ratchets are far less expensive to hedge than are roll ups. The most value from 
CIEBA Comments Page 6 of 17 

Re: RIN 1210-AB33 April 30, 2010 

a ratchet feature accrues before participants retire and begin taking withdrawals 

from their accounts. 

8. What are the advantages and disadvantages for participants of selecting Lifetime 

Income payments through a plan (in-plan option) as opposed to outside a plan (e.g., 

after a distribution or rollover)? 

In Plan Option:

Advantages: 

• Institutional pricing (lower than retail). 

• Company has fiduciary and oversight responsibilities with respect to the provider. 

• Less predatory marketing practices. 

• Incremental/less drastic change (no roll over process) – a continuation of 

investing with a known entity and plan. 

• Access to independent advice. 

• In-Plan options can be structured to avert the behavioral biases of participants 

such as herding behavior and status quo bias. 

• Opt-out defaults which include Lifetime Income will result in broader adoption 

specifically because of behavioral biases. 

• No gender discrimination in pricing. 

• Flexibility to buy-in to an option pre-retirement and get a better rate. 

Disadvantages: 

• Reduced number of choices. The participant must go with the product and the 

company(s) selected as the provider. 

• Opt- in design which include Lifetime Income will result in lower adoption, in the 

absence of other incentives, specifically because of behavioral biases. 

Out of Plan Option:

Advantages: 

• Freedom to choose provider and options of the annuity. 

• Ability to consolidate all assets. 

Disadvantages: 

• Offers only retail pricing. 

• Individual is responsible for selection and oversight of the provider, including 

assessment of the financial strength of the provider. 

• Individuals need to move their assets and make a decision. 

• May be subject to predatory marketing practices and selling pressure. 

• Do not have access to institutional independent advice. 

• Lack of reliable benchmarks or reference points for comparison. 
CIEBA Comments Page 7 of 17 

Re: RIN 1210-AB33 April 30, 2010 

9. What are the advantages and disadvantages from the standpoint of the plan sponsor 

of providing an in-plan option for lifetime income as opposed to leaving to participants 

the task of securing a lifetime income vehicle after receiving a plan distribution? 

In Plan Option:

Advantages: 

• Greater assets (through retention of participants in plan) create pricing 

efficiencies. 

• Professional staff negotiate product with vendor avoiding predatory practices. 

• The DC plan begins to look like the Defined Benefit plan and becomes a 

substitute for a frozen DB plan. 

• Provides employer another tool to maintain competitive benefits and manage the 

workforce. 

• Many of the advantages that accrue directly to participants may indirectly help 

plan sponsors by increasing employee satisfaction and retention. 

Disadvantages: 

• Plan sponsor has fiduciary (provider credit default potential) and oversight 

responsibility for the product and vendor. It also adds to the plan sponsor’s work 

load and cost. 

• Lack of adoption among peer companies poses material headline risk, employee 

relations issues and exposure to legal action in the event of unforeseen negative 

results. 

• Products continue to develop at a rapid pace and design improvements continue 

to emerge. 

• There is a lack of understanding with regard to current safe harbor guidance. The 

fiduciary cannot control future events. Sponsors may face legal risk even if they 

have chosen annuity provider(s) prudently. 

• Current safe harbor guidance must be improved to explicitly recognize more 

Lifetime Income designs. 

• There is a lack of broad consensus among plan sponsors and product providers 

on standards.

Out of Plan Option:

Advantages: 

• Plan sponsor relinquishes role as fiduciary and no longer has oversight 

responsibility for the product and vendor. 

• Established offerings, record keeping, systems, reporting, etc. exist. 

Disadvantages: 

• Fewer assets allow for less pricing efficiencies. 
CIEBA Comments Page 8 of 17 

Re: RIN 1210-AB33 April 30, 2010 

• Individuals could be subject to unscrupulous marketing practices. 

• No control of quality of products that participants end up choosing. 

10. How commonly do plan sponsors offer participants the explicit choice of using a 

portion of their account balances to purchase a lifetime annuity, while leaving the rest in 

the plan or taking it as a lump sum distribution or a series of ad hoc distributions? Why 

do some plan sponsors make this partial annuity option available while others do not? 

Would expanded offering of such partial annuity options -- or particular ways of 

presenting or framing such choices to participants -- be desirable and would this likely 

make a difference in whether participants select a lifetime annuity option? 

• Partial annuitization may be suitable for some plan participants. It allows 

participants to have some guaranteed income, while preserving the potential for 

remaining assets to provide a buffer against future inflation. 

• However, participants will continue to be faced with many of the same obstacles 

to utilization, albeit to a somewhat lesser degree. 

• Participants may prefer partial annuities because it leaves them with assets to 

deal with emergencies and/or to bequeath to their heirs. 

• Some providers of irrevocable annuity products support the idea of partial 

annuitization over full annuitization due to the uncertainties that surround 

retirement income adequacy. 

It is very important to note that participant-directed Defined Contribution plan 

participants enjoy a valuable design benefit in the freedom they have to make 

choices and subsequently change their minds at any point in the future. Some 

would argue that this design feature should extend into Lifetime Income options 

as well. There is most certainly a cost to maintaining this flexibility. 

11. Various “behavioral” strategies for encouraging greater use of lifetime income have 

been implemented or suggested based on evidence or assumptions concerning 

common participant behavior patterns and motivations. These strategies have included 

the use of default or automatic arrangements (similar to automatic enrollment in 401(k) 

plans) and a focus on other ways in which choices are structured or presented to 

participants, including efforts to mitigate “all or nothing” choices by offering lifetime 

income on a partial, gradual, or trial basis and exploring different ways to explain its 

advantages and disadvantages. To what extent are these or other behavioral strategies 

being used or viewed as promising means of encouraging more lifetime income? Can or 

should the 401(k) rules, other plan qualification rules, or ERISA rules be modified, or 

their application clarified, to facilitate the use of behavioral strategies in this context? 

• Behavioral strategies (especially default provisions), when combined with 

education, will help increase assets in Lifetime Income options. 

• Clarification of acceptable behavioral design standards will increase the 

confidence of plan sponsors who might be aware of their potential benefits, but 

would otherwise forego implementing them for fear of censure and/or legal 

exposure. 
CIEBA Comments Page 9 of 17 

Re: RIN 1210-AB33 April 30, 2010 

12. How should participants determine what portion (if any) of their account balance to 

annuitize? Should that portion be based on basic or necessary expenses in retirement? 

• Individual flexibility should be maximized due to different levels of other 

resources (private savings, additional retirement accounts, including spouses’ 

accounts). 

• Lifetime distribution options should secure income for basic, necessary 

expenses. It should also provide the same level of liquidity to allow participants to 

draw down assets when an unexpected need arises. 

13. Should some form of lifetime income distribution option be required for defined 

contribution plans (in addition to money purchase pension plans)? If so, should that 

option be the default distribution option, and should it apply to the entire account 

balance? To what extent would such a requirement encourage or discourage plan 

sponsorship? 

• Each Defined Contribution plan and its population of participants are subject to 

unique circumstances. It would be imprudent to assume that all DC plans are 

appropriate vehicles for Lifetime Income to participants. 

• There should be no additional requirements for plan sponsors. Any lifetime 

income option could discourage plan sponsorship, due to the complex nature of 

the options and potential risks associated with them. 

14. What are the impediments to plan sponsors’ including lifetime income options in 

their plans, e.g., 401(k) or other qualification rules, other federal or state laws, cost, 

potential liability, concern about counterparty risk, complexity of products, lack of 

participant demand? 

• All of the above plus: 

o There is limited first mover advantage. It makes better sense for others to 

work out the operational and investment kinks. 

o While work is currently underway to assess various designs to offer 

Lifetime Income through Defined Contribution plans, many products 

continue to evolve and have not been around long enough and/or not 

used sufficiently to provide a good basis for assessment. 

o Concern about credit risk of the insurance provider. Are the assets 

protected in a bankruptcy and who will provide the income for life if the 

annuity provider no longer exists? Is the state insurance guaranty system 

sufficient to handle a large company and/or several smaller company 

failures in a short period of time? 

o With uncertainty about the ability of the state guaranty system to handle 

several failures, there is limited information about reinsurance in the plan 

context. 

• Current safe harbor provisions are imprecise and difficult to apply to various 

products currently under consideration, specifically guaranteed lifetime/minimum 

withdrawals benefits (GLWB or GMWB). More clarity and revised guidelines that 

specifically apply to those products in all phases of their life cycle (not just in the 

insurer payout phase) will enable plan sponsors to select products without fear of 

undue liability. 
CIEBA Comments Page 10 of 17 

Re: RIN 1210-AB33 April 30, 2010 

• State insurance laws differ and some product designs may be approved in some 

states, but not others. Standard design features should be agreed to and 

available for plans with participants in all states. 

• State insurance guaranty associations provide little clarity on how GLWB/GMWB 

products would be valued in the event of insurer insolvency prior to the point 

where an insurer is paying benefits to a participant. The Agencies would provide 

invaluable assistance to plan sponsors by working with various guaranty 

associations and the National Organization of Life and Health Insurance 

Guaranty Associations (NOLHGA) to develop and communicate a clear policy as 

it relates to valuing such instruments in all phases of their life cycle. 

• To date, participants have shown little interest in Lifetime Income options. 

15. What are the advantages and disadvantages of approaches that combine annuities 

with other products (reverse mortgages, long term care insurance), and how prevalent 

are these combined products in the marketplace? 

Disadvantages: 

• Each of these products can be complex, and bundling them ratchets up the 

overall complexity exponentially, both for the plan sponsor and the participant. 

• High quality / low cost providers of each type of product may be different, offering 

little advantage to bundling. 

• The vast array of participants’ overall financial situations and needs makes it 

extremely difficult to determine which bundled solutions might be useful, and 

likely leads to very low usage of any particular bundled solution. 

• Some products (such as reverse mortgages) may be ill-advised for many 

participants, and could appear to be endorsed by the sponsor 

16. Are there differences across demographic groups (for example men vs. women) that 

should be considered and reflected in any retirement security program? Can 

adjustments for any differences be made within existing statutory authority? 

Participant Education

The Department of Labor issued Interpretive Bulletin 96-1 (29 CFR 2509.96-1) to clarify 

that the provision of investment education, as described in the Bulletin, will not be 

considered the provision of “investment advice,” which would give rise to fiduciary status 

and potential liability under ERISA for plan participants’ and beneficiaries’ investment 

decisions. 

17. What information (e.g., fees, risks, etc.) do plan participants need to make informed 

decisions regarding whether to select lifetime income or other arrangements designed 

to provide a stream of income after retirement? 

• Education about turning account balances into income streams. 

• Education about the various products available to provide Lifetime Income 

(including fees guarantees and features). 
CIEBA Comments Page 11 of 17 

Re: RIN 1210-AB33 April 30, 2010 

• Information about insurer credit risk and any reinsurance coverage or state 

guarantees. 

• Education about longevity risk and approaches to mitigating this risk. 

• Education about participant sensitivity to the sequence of investment returns they 

experience and the particular risks posed by negative market returns in the years 

approaching and immediately after retirement. 

• Modeling and or advice resources to compare products under various scenarios. 

(It should be noted that it is not in outside investment advisors interest to have 

participants move money into an annuity which lowers the base for their fees or 

eliminates the need for their services.) 

When and how (i.e., in what form) should it be provided? 

• Web sites, 800-number during business hours, occasional emails / mailings. 

What information currently is provided to participants, who typically provides it, and 

when and how is it provided to them? 

• Currently, most participants receive quarterly information or on-demand Web 

updates from the plan sponsor and/or the recordkeeper regarding fund 

investments which may include account market value, performance, fees, risks, 

commentary, top sectors/countries, etc. At a bare minimum, the Lifetime Income 

product information should be communicated at the same frequencies using the 

same parameters. Additionally, the lifetime income product should include an 

explanation of how it works, who may want to use it and why. Plan sponsors may 

also want to consider educational webinars or live meetings to explain the 

product and field questions. 

18. Is there a need for guidance, regulatory or otherwise, regarding the extent to which 

plan assets can be used to pay for providing information to help participants make 

informed decisions regarding whether to select Lifetime Income or other arrangements 

designed to provide a stream of income after retirement, either via an in-plan or out-of 

plan option? 

• Yes, it would be helpful if there was specific and clear guidance that allowed for 

education materials to be paid from plan assets rather than by the plan sponsor. 

19. What specific legal concerns do plan sponsors have about educating participants as 

to the advantages and disadvantages of lifetime income or other arrangements 

designed to provide a stream of income after retirement? What actions, regulatory or 

otherwise, could the Agencies take to address such concerns? 

• Liability concerns relative to when education becomes advice. 

• Establish safe harbor rules to eliminate liability to sponsor. 

20. To what extent should plans be encouraged to provide or promote education about 

the advantages and disadvantages of lifetime annuities or similar lifetime income 

products, and what guidance would be helpful to accomplish this? 
CIEBA Comments Page 12 of 17 

Re: RIN 1210-AB33 April 30, 2010 

Disclosing the Income Stream that Can be Provided from an Account Balance

ERISA section 105 requires defined contribution plans to furnish to each participant an 

individual benefit statement, at least annually, that includes the participant’s “accrued 

benefits,” i.e., the individual’s account balance. 

21. Should an individual benefit statement present the participant’s accrued benefits as 

a lifetime income stream of payments in addition to presenting the benefits as an 

account balance? 

• Such a display would be helpful to participants. 

• Sponsors should be provided safe harbors on making income projections due to 

the number of assumptions that need to be made. 

22. If the answer to question 21 is yes, how should a lifetime stream of income 

payments be expressed on the benefit statement? For example, should payments be 

expressed as if they are to begin immediately or at specified retirement ages? 

• Both immediate and projected would be helpful. However, it should be made 

clear that future contributions by either the plan sponsor and/or the participant 

are not guaranteed. 

Should benefit amounts be projected to a future retirement age based on the 

assumption of continued contributions? 

• Yes; Underlying assumptions should be clearly specified. 

Should lifetime income payments be expressed in the form of monthly or annual 

payments? Should lifetime income payments of a married participant be expressed as a 

single-life annuity payable to the participant or a joint and survivor-type annuity, or both? 

• Monthly and annual payments would support the educational effort around 

Lifetime Income options. 

• Both single life and Joint &Survivor forms could be shown as well as the impact 

of taking early and deferred retirements on benefit payments. 

23. If the answer to question 21 is yes, what actuarial or other assumptions (e.g., 

mortality, interest, etc.) would be needed in order to state accrued benefits as a lifetime 

stream of payments? 

If benefit payments are to commence at some date in the future, what interest rates 

(e.g., deferred insurance annuity rates) and other assumptions should be applied? 

Should an expense load be reflected? 

• The interest rate assumption should be the same as used by the underlying 

Lifetime Income option to project benefit payments and hedge market exposures. 

Are there any authoritative tools or sources (online or otherwise) that plans should or 

could use for conversion purposes, or would the plan need to hire an actuary? 
CIEBA Comments Page 13 of 17 

Re: RIN 1210-AB33 April 30, 2010 

Should caveats be required so that participants understand that lifetime income 

payments are merely estimates for illustrative purposes? 

• Yes. 

Should the assumptions underlying the presentation of accrued benefits as a lifetime 

income stream of payments be disclosed to participants? 

• Yes. 

Should the assumptions used to convert accounts into a lifetime stream of income 

payments be dictated by regulation, or should the Department issue assumptions that 

plan sponsors could rely upon as safe harbors? 

• Regulations would be too inflexible to account for all situations. 

• A reasonable safe harbor would use the same assumptions as the underlying 

Lifetime Income option is using to project benefit payments and hedge market 

exposures. 

24. Should an individual benefit statement include an income replacement ratio (e.g., 

the percentage of working income an individual would need to maintain his or her preretirement standard of living)? If so, what methodology should be used to establish such 

a ratio, such as pre-retirement and post-retirement inflation assumptions, and what are 

the impediments for plans to present the ratio in a meaningful way to participants on an 

individualized basis? 

• Since replacement ratios at the plan level do not take into account other assets 

(Social Security, private savings, and other sources of retirement income) or 

individual liabilities (heath care/long-term care costs) they can be misleading. 

Plans sponsors may have difficulty communicating effectively about replacement 

ratios and how they should be used. 

• It should be at the option of the plan sponsor on whether to not to include a 

replacement ratio. 

401(k) and Other Plan Qualification Rules

Income Tax Regulations that apply specifically to lifetime annuities include: 26 CFR 

1.401(a)-11, 26 CFR 1.401(a)-20, 26 CFR 1.401(a)(9)-1 through 26 CFR 1.401(a)(9)-9, 

26 CFR 1.417(a)(3)-1, and 26 CFR 1.417(e)-1. 

25. How do the 401(k) or other plan qualification rules affect defined contribution plan 

sponsors' and participants' interest in the offering and use of lifetime income? Are there 

changes to those rules that could or should be made to encourage lifetime income 

without prejudice to other important policy objectives? 

• Establish clear safe harbor rules to eliminate liability to sponsor. 

26. Could or should any changes be made to the rules relating to qualified joint and 

survivor annuities and spousal consents to encourage the use of lifetime income without 

compromising spousal protections? 

• Retain spousal consent rules in Defined Benefit plans. 
CIEBA Comments Page 14 of 17 

Re: RIN 1210-AB33 April 30, 2010 

27. Should further guidance clarify the application of the qualified joint and survivor 

annuity rules or other plan qualification rules to arrangements in which deferred in-plan 

insurance annuities accumulate over time with increasing plan contributions and 

earnings? 

28. How do the required minimum distribution rules affect defined contribution plan 

sponsors' and participants' interest in the offering and use of lifetime income? Are there 

changes to those rules that could or should be made to encourage lifetime income 

without prejudice to other important policy objectives? In particular, how are deferred 

annuities that begin at an advanced age (sometimes referred to as longevity insurance) 

affected by these rules? Are there changes to the rules that could or should be 

considered to encourage such arrangements? 

29. Are employers that sponsor both defined benefit and defined contribution plans 

allowing participants to use their defined contribution plan lump sum payouts to 

"purchase" lifetime income from the defined benefit plan? Could or should any actions 

be taken to facilitate such arrangements? Should plans be encouraged to permit 

retirees who previously took lump sums to be given the option of rolling it back to their 

former employer's plan in order to receive annuity or other lifetime benefits? 

• Generally, employers do not allow participants to use DC assets to “purchase” 

Lifetime Income from the Defined Benefit plan. In fact, many plan sponsors would 

like to transfer much of the risk associated with the DB plan and not add to the 

liabilities. Some plans are underfunded and should not be required to add to that 

burden by increasing DB liability exposure. 

• This provision would not be attractive to plan sponsors since roll-over 

contributions or returning lump sum benefits would increase plan liabilities and 

thus increase the plan sponsor risks related to their net income volatility, funding 

ratio volatility and contribution requirements. In addition to raising the overall 

amount of liabilities, allowing participants to roll money into the DB plan 

introduces another variable into the projection of future liabilities and even more 

uncertainty, especially since participants would be more likely to use this option 

during or following times of market weakness and/or volatility. 

• For the reasons stated above, DB plans should not be encouraged to permit 

retirees who previously took lump sums to be given the option of rolling it back to 

their former employer's plan in order to receive an annuity or other lifetime 

benefits. 

• Further, there is some question about how Pension Benefit Guaranty Corporation 

(PBGC) guarantees apply to employee roll-overs. While employee contributions 

are paid first by PBGC, there is a question about whether any annuity benefits 

‘bought’ by the participant would affect guaranteed benefits. 

• Lastly, there would be a large cost involved to update recordkeeping systems 

and company systems in order to implement such proposed changes. 
CIEBA Comments Page 15 of 17 

Re: RIN 1210-AB33 April 30, 2010 

Selection of Annuity Providers

The Department of Labor’s regulation 29 CFR 2550.404a-4 contains a fiduciary safe 

harbor for the selection of annuity providers for the purpose of benefit distributions from 

defined contribution plans. 

30. To what extent do fiduciaries currently use the safe harbor under 29 CFR 

2550.404a-4 when selecting annuity providers for the purpose of making benefit 

distributions? 

31. To what extent could or should the Department of Labor make changes to the safe 

harbor under 29 CFR 2550.404a-4 to increase its usage without compromising 

important participant protections? What are those changes and why should they be 

made? 

• The current safe harbor should be improved to recognize more Lifetime Income 

designs.

• Further, the safe harbor must explicitly protect fiduciaries from liability resulting 

from negative future events that could not be foreseen.

32. To what extent could or should the safe harbor under 29 CFR 2550.404a-4 be 

extended beyond distribution annuities to cover other lifetime annuities or similar lifetime 

income products? To which products should or could the safe harbor be extended? 

ERISA Section 404(c)

ERISA section 404(c) and 29 CFR 2550.404c-1 provide defined contribution plan 

fiduciaries with limited relief from the fiduciary responsibility provisions of ERISA where 

a participant or beneficiary exercises control over the assets in his or her account. 

33. To what extent are fixed deferred lifetime annuities (i.e., incremental or 

accumulating annuity arrangements) or similar lifetime income products currently used 

as investment alternatives under ERISA 404(c) plans? Are they typically used as core 

investment alternatives (alternatives intended to satisfy the broad range of investments 

requirement in 29 CFR 2550.404c-1) or non-core investment alternatives? What are the 

advantages and disadvantages of such products to participants? What information 

typically is disclosed to the participant, in what form, and when? To what extent could or 

should the ERISA 404(c) regulation be amended to encourage use of these products? 

34. To what extent do ERISA 404(c) plans currently provide lifetime income through 

variable annuity contracts or similar lifetime income products? What are the advantages 

and disadvantages of such products to participants? What information about the annuity 

feature typically is disclosed to the participant, in what form, and when? To what extent 

could or should the ERISA 404(c) regulation be amended to encourage use of these 

products? 
CIEBA Comments Page 16 of 17 

Re: RIN 1210-AB33 April 30, 2010 

Qualified Default Investment Alternatives

ERISA section 404(c)(5) provides that, for purposes of ERISA section 404(c)(1), a 

participant in a defined contribution plan will be treated as exercising control over the 

assets in his or her account with respect to the amount of contributions and earnings if, 

in the absence of an investment election by the participant, such assets are invested by 

the plan in accordance with regulations of the Department of Labor. The Department of 

Labor’s regulation 29 CFR 2550.404c-5 describes the types of investment products that 

are qualified default investment alternatives under ERISA section 404(c)(5). 

35. To what extent are plans using default investment alternatives that include 

guarantees or similar lifetime income features ancillary to the investment fund, product 

or model portfolio, such as a target maturity fund product that contains a guarantee of 

minimum lifetime income? What are the most common features currently in use? Are 

there actions, regulatory or otherwise, the Agencies could or should take to encourage 

use of these lifetime income features in connection with qualified default investment 

alternatives? 

• Investments with Lifetime Income features should be explicitly allowed as a 

QDIA. 

Comments Regarding Economic Analysis, Regulatory Flexibility Act, and

Paperwork Reduction Act

Executive Order 12866 (EO 12866) requires an assessment of the anticipated costs 

and benefits of a significant rulemaking action and the alternatives considered, using 

the guidance provided by the Office of Management and Budget. In addition, the 

Regulatory Flexibility Act (RFA) may require the preparation of an analysis of the 

economic impact on small entities of proposed rules and regulatory alternatives. For this 

purpose, the Agencies consider a small entity to be an employee benefit plan with fewer 

than 100 participants. The Paperwork Reduction Act (PRA) requires an estimate of how 

many “respondents” will be required to comply with any “collection of information” 

requirements contained in regulations and how much time and cost will be incurred as a 

result. The Agencies in this section of the RFI are requesting comments that may 

contribute to any analyses that may eventually need to be performed under EO 12866, 

RFA, and PRA, both generally and with respect to specific areas identified in questions 

36 through 39. 

36. What are the costs and benefits to a plan sponsor of offering lifetime annuities or 

similar lifetime income products as an in-plan option? Please quantify if possible. 

37. Are there unique costs to small plans that impede their ability to offer lifetime 

annuities or similar lifetime income products as an in-plan option to their participants? 

What special consideration, if any, is needed for these small entities? 
CIEBA Comments Page 17 of 17 

Re: RIN 1210-AB33 April 30, 2010 

38. Would making a lifetime annuity or other lifetime income product the default form of 

benefit payment have an impact on employee contribution rates? If so, in which 

direction and why? 

• The designation of a Lifetime Income option as a default form of benefit payment 

from a Defined Contribution plan could have a measurable impact on individual 

employee contribution rates. However, it is entirely possible that the magnitude of 

this impact would be difficult to discern at the plan level. 

• Some may increase their contribution rates if they believed their current 

contribution levels (and/or investment returns) are insufficient to fund an 

acceptable standard of living in retirement. Others, however, might conclude that 

the Lifetime Income product provides enough to establish an acceptable 

standard of living in retirement thereby freeing them to redirect some of their 

savings to other consumption. 

39. For plans that offer lifetime annuities or similar lifetime income products, what 

percentage of eligible workers elect to annuitize at least some of their retirement assets 

and what percentage elect to annuitize all of their assets?