May 3, 2010 

FILED ELECTRONICALLY

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue, NW, Room N-5655 

Washington, DC 20210 

Re: RIN 1210–AB33: Request for Information Regarding Lifetime 

Income Options for Participants and Beneficiaries in Retirement Plans

Dear Sir or Madam: 

AEGON USA (“AEGON”) appreciates the opportunity to provide its views with regard to the 

request for information that the Department of the Treasury and the Department of Labor 

(collectively, the “Agencies”) published on February 2, 2010, regarding Lifetime Income 

Options for Participants and Beneficiaries in Retirement Plans (the “RFI”). The AEGON 

companies market life insurance, annuities, pensions and supplemental health insurance, as well 

as mutual funds, throughout the U.S. and in certain countries in Europe and Asia. Its parent 

company is AEGON N.V., an international life insurance, pension and investment company 

based in The Hague, the Netherlands that has businesses in over twenty markets in the Americas, 

Europe and Asia, employs approximately 28,000 people and has over 40 million customers 

across the globe. 

The AEGON companies include two divisions dedicated to employer-sponsored retirement 

plans, a division focused on individuals transitioning into retirement and a division that delivers 

investment protection and retirement solutions. Diversified Investment Advisors (“Diversified”) 

offers the entire spectrum of defined benefit and defined contribution plans, including traditional 

and Roth 401(k) plans, traditional and Roth 403(b) plans, 457 plans and traditional and Roth 

individual retirement arrangements (“IRAs”).1

 Transamerica Retirement Services (“TRS”) 

offers a wide range of products, including 401(k), profit sharing, defined benefit and multiple 

                                                            1

 A leader in the retirement plan marketplace for mid- to large-sized organizations, Diversified is 

recognized for its commitment to participant education and for motivating participants to take charge of their 

financial future. Diversified offers retirement solutions to participants of every age and at every stage through its 

Plan of a LifetimeTM, a comprehensive communications program that includes automated tools, solutions and 

services that grow with participants’ needs from the date of hire, continuing through retirement. More information 

about Diversified can be found on its web site at http://www.divinvest.com. Diversified has received many awards 

for its communication and education services, and services more than 2,500 retirement plans, representing more than 

1.7 million participants and $42 billion in assets. 
2 

employer plans. TRS provides customized retirement solutions to meet the needs of small- to 

mid-sized businesses by marketing and distributing its products through consulting firms, brokerdealers, wire houses, independent agents, third party administrators (“TPAs”) and banks.2

 

Transamerica Retirement Management, Inc. (“TRM”) delivers education, product and advice 

alternatives through salaried financial advisors to help pre-retirees transition into retirement.3

 

Transamerica Capital Management (“TCM”) is an integrated AEGON business unit whose 

mission is to deliver investment protection and retirement solutions that build better futures for 

consumers. TCM has over 30 years of experience providing guaranteed annuity solutions to help 

consumers grow their retirement savings and help those savings last a lifetime. In addition to 

this business experience, AEGON companies perform and draw on significant research and 

surveys regarding the retirement market and the perspectives of both plan sponsors and 

individual savers.4,5 

Currently, the prevalence of lifetime income options in defined contribution plans is low. 

However, AEGON believes that the Agencies and Congress can take modest steps to increase 

the inclusion and use of lifetime income options in defined contribution plans. Experts, too, 

believe that the offering and election of lifetime income options will increase in the future.6 

AEGON strongly supports fostering the use of lifetime income options in defined contribution 

plans and IRAs in order to help ensure that Americans can successfully meet the challenge of 

translating savings to income and achieving a more financially secure retirement. We expect that 

the Agencies will receive voluminous comments in response to the RFI. We intend for our 

comments to supplement the submissions of the American Council of Life Insurers, the 

Committee of Annuity Insurers and the Insured Retirement Institute. 

                                                            2

 TRS has been recognized by PLANSPONSOR® Magazine as a top retirement plan provider for 

outstanding service for three years in a row (2009, 2008, 2007), earning 43 out of 46 “Best in Class” Cups for 

participant and sponsor services for 2009. TRS was awarded the DALBAR Seal of Excellence for Communications 

for its Defined Contribution Plan participant and plan sponsor web sites, at http://www.TA-Retirement.com. As of 

December 31, 2009, TRS services more than 15,500 retirement plans (including more than 200 multiple employer 

plan sponsors and thousands of adopting employers), representing more than 700,000 participants and more than 

$16.5 billion in assets. 

3

 On its web site (http://www.SecurePathbyTransamerica.com), TRM provides articles, videos and tools 

that help educate the Baby Boomer generation as they enter retirement. Through its communication programs and 

workshops, TRM provides consumers with an experience that helps them envision their retirement and map out a 

plan for the next stage of their lives. Services are provided directly to participants in employer plans as well as 

individuals. TRM provides services and advice through its team of licensed, registered financial advisors and offers 

its customers a variety of products, including annuities and IRAs. 

4

 Diversified’s research group, the Retirement Research Council, has more than 50 years of experience in 

retirement plan management. The Retirement Research Council’s findings are available at 

http://www.divinvest.com. 

5

 The Transamerica Center for Retirement Studies (the “Center”) is a non-profit corporation and private 

foundation. The Center is funded by contributions from Transamerica Life Insurance Company and its affiliates and 

may receive funds from unaffiliated third parties. The Center’s research can be found at 

www.transamericacenter.org. 

6 See Diversified Investment Advisors, Prescience 2013: Expert Opinions on the Future of Retirement 

Plans (2008) (retirement plan experts surveyed collectively projected that, by 2013, 40% of plan sponsors would be 

offering lifetime benefit options to encourage retirement income discussions and help employees plan 

appropriately). 
3 

SECTION I. Mandatory Participant Education Pertaining to Retirement Distributions is 

Vital 

One reason that defined contribution plan lifetime income options are underutilized even when 

they are available is that participants often simply are not aware of the importance of income 

planning for retirement. Thus, we believe that modest mandatory education of plan participants 

would help more workers attain a financially secure retirement.7

 

The need for participant education, particularly as it relates to securing lifetime income from 

employee-funded plans, is reflected in participant behavior in plans administered by AEGON. In 

a ten-month study of defined contribution plans administered by Diversified and concluding in 

October 2008, Diversified paid out $1,539,194,174 in lump sums to 105,261 participants but 

only annuitized $1,442,316 on behalf of fourteen participants. This low use of annuity payouts 

occurred even though approximately 40% of the defined contribution plans administered by 

Diversified offer an annuity distribution option. The experience of TRS is even more sobering –

in more than 600 defined contribution plans that offer annuities in the small- to mid-sized 

employer market, only two participants annuitized their benefits under their plans in the 10-year 

period ending December 31, 2009. Individuals would benefit from education regarding, among 

other things, how much they will need to save to generate sufficient income in retirement, the 

formulation of a personal retirement strategy and the explanation of distribution options that can 

create a retirement income stream (such as purchasing an annuity).8 

Given the lack of education or awareness about income issues on the part of participants, it is 

critical that policymakers require the provision of educational materials to defined contribution 

plan participants regarding the distribution of plan accounts and how to translate plan balances 

into income streams in retirement. Participants are typically focused on the “savings” aspect of 

planning for retirement and are not sufficiently focused on how their savings will translate into 

income in their later years. When the “income” aspect of planning for retirement is neglected, 

participants may not know enough about how much they will need to save, how best to invest 

their plan account balances or what types of distributions will ensure financial security in 

retirement. 

                                                            7

 Increased numbers of plan sponsors are providing education regarding the distribution phase. See

Diversified 2009 Report on Retirement Plans (stating that 44% of plan sponsors plan to conduct an education 

campaign for the specific purpose of helping employees closer to retirement make income decisions; these 

campaigns typically include providing near-retirees with print materials, the opportunity to attend seminars and 

counseling focused on retirement income decisions; 39% refer those approaching retirement to outside advisers for 

additional counsel or make available annuities outside the plan). This is a positive trend; however, we believe that 

to reach defined contribution plan participants at large, the provision of some basic educational materials must be 

required. 

8 See 11th Annual Transamerica Retirement Survey. The Center’s survey found that 44% of workers cite 

401(k) plans, 403(b) plans and IRAs as their expected primary source of retirement income, with only 50% of 

workers “confident” (and only 8% “very confident”) in their ability to fully retire with a comfortable lifestyle. 

While 55% of workers have a retirement strategy, only 8% have “a written plan.” Participants have expressed a 

desire for more information and education regarding saving for retirement. 56% of workers would like to receive 

more information and advice from their employer on how to reach their retirement goals. Full survey results can be 

found at http://www.transamericacenter.org. 
4 

To this end, in connection with requiring that defined contribution plan sponsors provide 

educational materials to participants regarding retirement income planning, we urge the Agencies 

to develop tools to assist plan sponsors in meeting this requirement. 

Below we recommend two specific ways in which policymakers can make participant education 

mandatory – requiring inclusion of annuity illustrations on participant benefit statements and 

requiring distribution of an educational booklet developed by the Agencies – but do so in a way 

that will limit the operational burden for plan sponsors. 

1. Require Inclusion of Annuity Illustrations on Participant Benefit Statements

Defined contribution plan administrators have an obligation under the Employee Retirement 

Income Security Act of 1974, as amended (“ERISA”), to provide a benefit statement to each 

participant at least annually, and, if a participant has the right to direct the investment of her 

assets, at least quarterly. Such a benefit statement is required to show the amount and vested 

status of a participant’s account under the plan. 

We believe that Congress and the Department of Labor (“DOL”) should take steps to require that 

benefit statements also set forth a monthly annuity amount commencing at the plan’s normal 

retirement age based on the participant’s current account balance (assuming no further 

contributions are made). The annuity amounts should be shown as a single life annuity, with a 

note that if the participant is married at the time of distribution, she may take the distribution in 

the form of a qualified joint and survivor annuity covering both lives, in which case the monthly 

amount will be less for each life. 

Through AEGON Global Pensions,9

 an international unit of AEGON N.V., we are actively 

involved in the European retirement plan market. In March 2010, the European Federation for 

Retirement Provisions (“EFRP”) found that approximately one-third of defined contribution 

plans provide active participants with a best estimate of expected pensions upon retirement, not 

unlike the annuity illustrations we are proposing.10 The European experience may be instructive 

for the Agencies.11 

To assist plan administrators in including annuity amounts on benefit statements, we urge the 

Agencies to designate appropriate assumptions to be used in determining these amounts. For 

example, the annuity rates determined via survey by the Pension Benefit Guaranty Corporation 

                                                            9

 AEGON Global Pensions currently operates in about twenty countries, including Austria, China, Czech 

Republic, France, Germany, Hungary, India, Luxembourg, Netherlands, Poland, Romania, Slovakia, Spain, Sweden, 

the United Kingdom and the U.S. AEGON Global Pensions was created to provide a single point of contact for 

multinational companies looking to improve management of their pensions. Its web site is located at 

http://www.aegonglobalpensions.com. 

10 See March 2010 Survey on Workplace Pensions – Defined Contribution. The EFRP represents various 

national associations of pension funds and similar institutions for supplementary occupational pension provisions. 

The survey represented 21 countries, 42 different pension schemes, 58 million active plan members and 1.3 trillion 

euro savings. A full copy of the survey can be found at http://www.efrp.eu. 

11 For example, in the United Kingdom, plan service providers send “reminder” letters to plan participants 

six months and three months before retirement explaining what participants need to do to receive retirement income 

in the form of an annuity. In the U.S., it could prove helpful if plan sponsors were encouraged to provide certain 

information (especially regarding the relative merits of different distribution options) close to retirement, i.e., at the 

time a participant is deciding whether to annuitize. 
5 

could be used to determine the annuity conversion rate. In the case where an in-plan annuity 

investment option is made available to participants and would result in a different annuitized 

amount, plan administrators should be permitted to include that amount on the benefit statement 

in lieu of the amount determined using the factors established by the Agencies. 

Inclusion of these monthly annuity amounts will impose relatively minor burdens on sponsors 

and recordkeepers but will provide invaluable information to participants. Including such 

amounts will likely encourage participants to continue to save at current or higher levels as they 

see the balances that are needed to produce meaningful monthly income. In addition, the 

inclusion of these annuity amounts will illustrate to participants the benefits of electing a steady, 

e.g., monthly, stream of income in retirement as opposed to another form of distribution and will 

help to re-frame defined contribution plans as retirement income-generating vehicles, not just 

savings vehicles. Finally, the inclusion of the annuity equivalent could lead a participant in a 

plan that does not offer an annuity distribution option to request such an option of the plan 

sponsor. 

Bipartisan legislation that would require inclusion of annuity amounts on benefit statements has 

been introduced in both chambers of Congress. Senators Bingaman, Isakson and Kohl have 

introduced the Lifetime Income Disclosure Act of 2009 (S. 2832), and Representatives Kind and 

Reichert have introduced the Small Businesses Add Value for Employees Act of 2009 (H.R. 

4742). These bills would require annual disclosure of a projected annuity amount on benefit 

statements based on a participant’s current account balance. We strongly urge the 

Administration to support these bills and to push for their enactment. Until such legislation is 

passed, we encourage Congress and/or the Agencies to take steps to facilitate voluntary inclusion 

of annuity amounts on benefit statements by defined contribution plan sponsors. 

Although we believe inclusion of annuity illustrations on benefit statements should be 

mandatory, we do believe that sponsors should be able to use illustrations that they or their 

service providers develop that are more detailed or sophisticated than the standard illustrations 

we recommend above.

2. Develop a Booklet and Online Tools Regarding Retirement Distributions for Use 

by Plan Sponsors and Participants 

We encourage the Agencies to create an online “toolbox” for plan sponsors and participants to 

use in learning about lifetime income options. This toolbox would contain resources both to help 

plan sponsors meet their new obligations to provide distribution education and to help individual 

participants with their retirement income planning. 

The toolbox should include, at a minimum, a booklet developed by the Agencies in consultation 

with the private sector that contains objective information regarding typical distribution and 

income options available under defined contribution plans and rollover IRAs. Such information 

should include discussion and comparison of various distribution options (annuities, installments, 

lump sums, combinations of these forms, etc.) and the role these options can play in generating 

lifetime income. The booklet should also discuss the relative merits of electing an annuity 

distribution from the plan (where available) as opposed to rolling over to an IRA and 

subsequently electing an annuity distribution. This discussion would address such issues as fees 

and pricing, mortality assumptions, product choice, etc. Plan sponsors should be required to 

distribute the booklet to participants via hard copy or electronically. (We believe that circulating 
6 

a web link to the booklet should suffice; however, inclusion of a mere reference to the booklet in 

another document would not.) Plan sponsors could use the booklet as developed by the Agencies 

or could customize it with plan-specific information. 

Studies have consistently found that workers need more education regarding saving, investing 

and planning for retirement.12 AEGON believes that plan participants would benefit from simple 

“principles” to help them understand and properly prepare for their income needs in retirement. 

For inclusion in the booklet and to assist participants more generally, we strongly urge the 

Agencies to create a set of “Principles of Retirement Income” to enumerate certain basic rules of 

thumb or guidelines regarding retirement income planning. For example, one Principle would be 

ensuring steady monthly retirement income to cover fixed expenses such as housing and food. 

We recommend that the Agencies develop other tools in addition to the booklet. For example, an 

online calculator that enables participants to input individualized data to project their retirement 

income would be a useful “do-it-yourself” addition. It would also be helpful if the Agencies 

were to provide on their web sites an objective list of resources for plan participants to utilize in 

retirement income planning, including (i) telephone and internet contact information for nonproprietary organizations that can provide access to financial professionals who can assist 

individuals with retirement income planning, (ii) information regarding sources and amounts of 

guaranteed income that a participant might have, such as a web link to the Social Security 

Administration web site, information about defined benefit plans and steps to take if an 

individual is unsure whether she has access to a defined benefit plan or has earned pension 

benefits, and (iii) other tools and resources to assist participants in retirement income planning. 

3. Allow Annuity Illustrations and the Booklet to Be Delivered Electronically 

Consistent with our general view that plan communications to participants be permitted to be 

delivered electronically, we believe that it is critical that participant education tools such as the 

annuity illustration and the booklet described above be permitted to be delivered electronically, 

e.g., by email attachment or by circulating a web link to the information. The Agencies each 

have their own set of electronic delivery rules, but we strongly encourage the Agencies to adopt 

the Internal Revenue Service (“IRS”) electronic delivery rules for this purpose as experience has 

shown that these rules effectively balance promotion of electronic distribution and protection of 

participant interests. Such an adoption would be consistent with recent DOL pronouncements on 

how benefit statements can be delivered electronically.13

4. Require Education of IRA Investors Regarding Lifetime Income Considerations 

IRA assets comprise a significant portion of retirement savings. As such, any focus on fostering 

lifetime income options is incomplete without considering IRA assets. Similar to our 

suggestions with respect to defined contribution plans, we recommend consideration of the 

following changes with respect to IRAs: (i) requiring annual disclosure of annuity values to IRA 

investors, similar to the annuity illustration described in this Section; (ii) requiring education of 

                                                            12 The 11th Annual Transamerica Retirement Survey found that 68% of workers indicated that they do not 

know as much as they should about retirement investing. Further, 51% said they “guessed” at their retirement 

savings needs. See full survey results at http://www.transamericacenter.org. 

13 See, e.g., DOL Field Assistance Bulletin 2006-03 (noting that employers may furnish pension benefit 

statements to participants and beneficiaries in accordance with the IRS rules regarding electronic communications). 
7 

IRA investors regarding the income stage of retirement planning as discussed in this Section; and 

(iii) making fiduciary relief discussed in Section II available to IRAs. 

5. Expand Interpretive Bulletin 96-1 and Guidelines Applicable to Computer 

Modeling to Expressly Address In-Plan Annuity Investment Options and the 

Income Distribution Phase of Retirement

As discussed in detail in Section II below, we believe that there are steps DOL can take to revise 

its guidance surrounding investment education and advice to encourage plan sponsors to go 

beyond the mandatory education we recommend above and to assist plan participants with 

retirement income planning. 

First, DOL could facilitate plan sponsor education of participants regarding lifetime income and 

distribution decisions by expanding the application of Interpretive Bulletin 96-1 (“IB 96-1”) to 

address investment-related education regarding in-plan annuity and annuity hybrid investment 

options and the provision of educational information regarding plan distribution options and 

decisions. Second, expansion of the guidelines applicable to computer-generated investment 

advice recommendations would greatly encourage investment advisers to incorporate annuities 

and income distribution advice into their computer models. 

SECTION II. Certain ERISA and Internal Revenue Code Guidance Should Be Extended to 

Apply to In-Plan Annuity Investment Options and Retirement Plan 

Distributions 

ERISA and the guidance thereunder contain numerous fiduciary obligations and safe harbor 

methods for meeting such obligations. Similarly, the Internal Revenue Code (“Code”) and 

related guidance contain myriad rules applicable to retirement plans. The manner in which these 

rules apply to lifetime income investment and distribution features and products is not always 

clear. Given the consequences of becoming liable for a fiduciary breach or failing to adhere to 

applicable rules of the Code, additional guidance and safe harbors in this area would be quite 

valuable to plan sponsors and would assist with the effort to facilitate the inclusion and use of 

income options in defined contribution plans. We suggest that the Agencies review and modify 

the guidance items discussed below to clarify their application to lifetime income features and 

products. 

1. Expand IB 96-1 to Encompass Participant Education Concerning Distribution 

Options and In-Plan Annuity Investment Options 

As mentioned in Section I, IB 96-1 provides guidance with respect to the extent to which 

investment-related educational information (i.e., regarding allocation of account balances among 

various asset classes) can be provided without resulting in the provision of investment advice. 

IB 96-1 has been very helpful in assisting plan sponsors in providing defined contribution plan 

participants with effective and meaningful investment education. However, given the 

importance of the income distribution phase of retirement, we encourage DOL to expand the 

application of IB 96-1 to encompass education regarding retirement income planning and 

selection of plan distribution options. With such an expansion, plan sponsors will be 

significantly less hesitant to provide educational information to participants in connection with 

the income distribution phase and the forms or combinations of distributions that will assist in 
8 

generating lifetime income. Such an expansion will have the effect of facilitating participant 

education as discussed in Section I by providing fiduciary comfort to sponsors. 

Specifically, it would be helpful if DOL were to expand IB 96-1 to apply to the income 

distribution phase by clarifying the kinds of information that can be provided to a participant 

without constituting investment advice. For example, the guidance should clarify that generic 

computer model outputs regarding forms of distribution based on various participant inputs 

should be treated as education, not advice. Computer models should be permitted to generate 

generic education and guidance regarding the forms of distribution (annuity, installment, lump 

sum, etc.) a participant should consider in translating her account balance into income in 

retirement. It would also be helpful if the guidance specified that use of questionnaires and other 

interactive tools about forms of distribution constitutes education and not advice. 

In addition, we recommend expanding IB 96-1 to clarify its application to in-plan annuity 

investment options and hybrid guaranteed insurance products (such as guaranteed lifetime 

withdrawal benefits and guaranteed minimum withdrawal benefits). In particular, it would be 

helpful if DOL would clarify that investment education may be provided with respect to these inplan insurance investment options to the same extent it may be provided with regard to other 

plan investment options. While we view this as more of a confirmation of how to read IB 96-1, 

it would be helpful to have formal guidance upon which employers may rely. 

2. Extend Advice Computer Models to Expressly Include Distribution Advice and 

In-Plan Annuity Investment Options 

DOL has also issued important guidance with respect to the provision of investment advice 

through the use of various computer models that rely on generally accepted investment 

principles. The SunAmerica Advisory Opinion has led to a great expansion of advice based on 

computer models developed by third parties, and recently DOL issued proposed regulations 

regarding the provision of investment advice through proprietary computer models in accordance 

with the Pension Protection Act of 2006 (“PPA”). 

We encourage DOL to make two changes with respect to the existing computer model guidance. 

First, we urge DOL to issue guidance similar to its SunAmerica letter, pursuant to which a 

computer model could be used to provide distribution advice based on standard and accepted 

distribution principles and individualized participant inputs. For example, the computer model 

might recommend partial annuitization through specific annuities or certain installment 

payments, and could also provide specific recommendations as to investment of the remaining 

assets. 

Second, we encourage DOL to clarify that computer models under SunAmerica and the PPA at a 

minimum may include advice about investing in in-plan annuity investment and hybrid 

guaranteed income options available under a plan. Each helps to stem longevity risk and should 

be considered by participants in determining how best to invest their defined contribution plan 

assets. Indeed, we believe not only that DOL should permit such options to be included, but that 

DOL should require such options to be taken into account (when offered by the plan) in order for 

the computer model to satisfy the applicable standards. These are the sort of steps we believe the 

Agencies must take if we are to significantly increase the use of lifetime income options. 
9 

3. Modify the Annuity Selection Criteria Regulation to Provide Less Burdensome 

Insurer Evaluation Rules and Clarify Its Application to In-Plan Annuity 

Investment Options 

Pursuant to a provision of the PPA, DOL issued new regulations in 2008 on the fiduciary 

standard to be applied by defined contribution plan sponsors when selecting an annuity provider 

for plan distributions. The new standard, contained in DOL Reg. § 2550.404a-4, includes a 

fiduciary safe harbor for the selection of providers of annuity distributions from defined 

contribution plans. 

We recommend that DOL substantially simplify the process by which a fiduciary must evaluate a 

potential insurer’s financial health by providing an objective safe harbor for evaluating solvency. 

Plan fiduciaries are understandably intimidated by the requirement to evaluate the financial 

stability of insurers. They are uncertain about exactly how to do so and fear the potential 

liability consequences from any missteps. 

As a result, an objective safe harbor that provides relief to fiduciaries regarding financial 

evaluations of annuity providers would be immensely helpful. For example, it would be helpful 

if the safe harbor was at least in part based on the fact that (i) an annuity provider has passed the 

review of state regulators (which are charged with overseeing insurance companies and ensuring 

financial solvency), and (ii) the annuity provider’s capital is sufficient pursuant to standards set 

by the National Association of Insurance Commissioners. Once the annuity provider is selected, 

plan sponsors would, of course, have a continuing obligation to monitor the provider but could 

continue to rely on the objective benchmarks described above and would only need to pursue 

further evaluation if confronted with significantly changed circumstances affecting the insurer. 

The application of the ERISA fiduciary rules to in-plan annuity investment options is somewhat 

unclear. It is our view that, under current law, such annuities are like other investment options 

under the plan, and, as a result, the fiduciary rules applicable to investments apply. In-plan 

annuity investment options typically also provide annuity forms of distribution. If so, then the 

annuities are subject to both the fiduciary standards applicable to investments and those 

applicable to annuity distributions, including DOL’s annuity selection criteria regulation and safe 

harbor. It would be helpful to plan sponsors and annuity providers, and would foster the 

inclusion of more in-plan annuity investment options, if this understanding is confirmed through 

law or guidance. 

4. Clarify the Application of the Qualified Joint and Survivor Annuity/Spousal 

Consent Rules to In-Plan Annuity Investment Options and Other Lifetime 

Income Products

We believe clarification is needed regarding the application of the Code’s qualified joint and 

survivor annuity (“QJSA”) and spousal consent rules to annuity options offered under a plan, 

including to guaranteed income products that either do not have a traditional annuity payout 

option or have a unique payout option where the insurance contract regarding the annuity does 

not become irrevocable until after a trial period of payments or until the cash value of the 

participant’s account reaches zero. The QJSA and spousal consent rules generally do not apply 

to a defined contribution plan that meets certain death benefit requirements unless the participant 
10 

elects “payment of benefits in the form of a life annuity.”14 Treasury regulations offer additional 

detail by providing that the spousal consent rules apply if the “participant elects at any time” a 

life annuity option.15 It would be helpful if clarification could be provided with respect to how 

several of these concepts apply to plan annuity products. 

First, we recommend confirmation that, for an in-plan annuity investment option, the QJSA and 

spousal consent rules do not become effective upon investment in the option, but rather upon 

distribution. The clear general rule, as spelled out in the preceding paragraph, is that investment 

elections do not trigger the QJSA rules; rather, distribution elections do. 

Second, clarification as to the application of the QJSA rules to hybrid guaranteed income 

products (guaranteed lifetime withdrawal benefits (“GLWBs”), etc.) and trial annuities is 

necessary. We are not aware of any guidance that addresses the degree to which the QJSA rules 

apply to hybrid guaranteed income products, and the IRS has only issued one piece of 

nonprecedential guidance with respect to application of the QJSA rules to trial annuities 

(guidance with which we respectfully disagree).16

It appears to us that a participant does not “elect a life annuity” and therefore become subject to 

the QJSA rules simply by commencing payments under a trial annuity or a hybrid guaranteed 

lifetime income product. Rather, an irrevocable election to receive a life annuity frequently is 

not made under the contract until the end of the trial period or until the cash value of the 

participant’s account is exhausted. Typically with respect to such products, a participant may 

change the conditions of the payout at any time prior to the date the obligations under the 

contract become fixed. We do not believe that simply commencing payments under the product 

results in application of the QJSA rules. Rather, we believe the life annuity becomes irrevocable 

– and triggers the QJSA rules – when the obligations under the contract become fixed. 

While we believe the QJSA rules do not legally apply until the life annuity becomes irrevocable, 

we recommend that some flexibility be provided with regard to the administration and timing of 

spousal consent so that, for example, consent could be obtained at the time initial payments 

under the hybrid product begin. 

We also urge the Agencies to explore the feasibility of allowing the plan sponsor to transfer 

administrative obligations and/or fiduciary liability regarding QJSA and spousal consent 

administration for annuity products offered in the plan to the annuity provider. 

5. Facilitate Development of Electronic Spousal Consent Regime 

As mentioned in Section I, permitting plan sponsors to use electronic delivery mechanisms can 

both make disclosures more effective and control costs. We urge the Agencies to move beyond 

electronic delivery of disclosures and to work with all stakeholders in the retirement plan system 

to develop and approve an electronic means for complying with the spousal consent rules. Such 

                                                            14 Code § 401(a)(11)(B). 

15 Treas. Reg. § 1.401(a)-20, Q&A-4. 

16 See Priv. Ltr. Rul. 200951039 (Sept. 21, 2009) (treating an election to commence a trial annuity 

providing for systematic withdrawals followed by a life-contingent annuity as an election of a life annuity with 

respect to the life-contingent annuity, notwithstanding that the participant could stop, accelerate or opt out of the 

annuity). 
11 

a step would address what has been a significant impediment to the adoption of annuity options 

in defined contribution plans. 

6. Provide Guidance on Section 404(c) Relief and Expand the Safe Harbor to 

Include In-Plan Annuity Investment Options and Other Lifetime Income 

Options 

Section 404(c) of ERISA provides relief from fiduciary liability for any losses that occur as a 

result of the exercise of control by a plan participant or beneficiary over assets in her individual 

account. DOL regulations provide a safe harbor regarding what constitutes an “ERISA section 

404(c) plan.”17 This safe harbor has been considerably helpful in encouraging plan sponsors to 

offer a diversified array of investment options as part of a plan’s menu. However, the safe 

harbor makes no specific reference to in-plan annuity investment options or other lifetime 

income options. DOL should confirm that 404(c) relief is available for a participant’s 

investment of her assets in an in-plan annuity option or other lifetime income investment option 

held in an ERISA section 404(c) plan. In addition, policymakers should give serious 

consideration to expanding the fiduciary relief to a participant’s or beneficiary’s exercise of 

control over the distribution of her assets from an ERISA section 404(c) plan where the plan 

offers a range of distribution forms and/or a range of specific annuity distribution offerings. This 

would encourage the offering of in-plan annuity options and other lifetime income options. 

SECTION III. Adopt Reforms to Address Impediments to In-Plan Annuity Investment and 

Distribution Options 

One impediment to the adoption of in-plan annuity investment options in defined contribution 

plans has been uncertainty about what occurs if in the future the annuity investment option is no 

longer part of the plan’s menu. This could occur as the result of a change in plan recordkeeper, a 

merger of plans or a decision to discontinue the offering of the annuity option. This uncertainty 

may cause employers and participants to be hesitant with regard to inclusion or election of an 

annuity investment option under the plan. An employer may hesitate to include lifetime income 

products in its plan, for example, because of a concern that it will make it more difficult to 

change plan recordkeepers at a later date. Likewise, participants may be discouraged from 

selecting lifetime income products because they believe they will change jobs soon and may be 

unable to continue to fund the option once they have separated from service. Plan sponsors and 

participants have understandably wondered how such circumstances would affect them. 

1. Amend the Law to Clarify Rules Relating to In-Service Distributions of In-Plan 

Annuity Amounts 

In order to make in-plan annuity offerings more attractive to employers and participants, we 

recommend making a few changes and clarifications to the Code and ERISA in order to enable 

sponsors and participants to retain the value of such offerings even under changed plan or 

participant circumstances. 

It can be difficult for a plan sponsor to eliminate an in-plan annuity investment option in the 

event of plan recordkeeper change or to distribute an annuity contract to a participant in the event 

of severance. The plan fiduciary has the authority to unilaterally eliminate an investment option, 

                                                            17 DOL Reg. § 2550.404c-1. 
12 

including the ability to liquidate an investment and move the proceeds to another plan option. 

Yet, in the case of an in-plan annuity investment option, such action could potentially cause 

participants to lose valuable economic rights. In that regard, ordinarily only the cash surrender 

value of an annuity contract is payable to participants if the annuity is removed from the menu. 

This could result in participants losing the value of insurance guarantees they may have built up. 

With this in mind, an employer may be reluctant to add an in-plan annuity to its investment menu 

unless it has a way to protect participants if it decides to drop the annuity option at a later point. 

Lack of clarity in the current retirement plan rules also make it difficult for a plan sponsor to 

comfortably distribute an annuity contract to affected participants. Although it is true under the 

law that a plan may make an in-service distribution of an annuity contract that retains all of the 

in-service restrictions specified under the plan, the rules regarding such a distribution are not 

well-developed and remain rather unclear, particularly with respect to the extent of ongoing 

obligations by the plan sponsor. Many plan sponsors are not aware these distributions are 

possible and the lack of clarity causes others to hesitate in relying on this avenue for eliminating 

plan annuity options. 

While it would certainly be helpful to clarify the rules surrounding these in-service distributions 

of annuity contracts, we believe facilitation of a traditional IRA rollover solution would also be 

beneficial for both sponsors and participants. 

Specifically, we believe the law should be clarified to allow participants to take in-service IRA 

rollovers of amounts in in-plan annuity investment options when the in-plan annuity is no longer 

available in the plan (as a result of discontinuation by the plan sponsor or inability of a new plan 

recordkeeper to support the option). We also recommend that the law be amended to make clear 

that such in-service rollovers are not taxable or subject to an early distribution penalty tax. We 

urge the Administration to advocate for these changes before Congress. 

2. Permit Employers to Establish a Minimum Account Balance Threshold for 

Annuitization 

The economics of annuitization do not necessarily make good sense in the case of very small 

account balances, as the level of charges needed to finance the insurance guarantees tend to be 

large relative to the account balance. It is also the case that many participants with very small 

defined contribution plan account balances are often well-served by keeping those modest 

amounts in liquid form to finance unexpected expenses. Accordingly, with regard to account 

balances below a certain dollar amount, it may not make good sense to permit an annuity form of 

distribution. In establishing a minimum threshold, plan sponsors would have to ensure that 

application of such a threshold does not result in a discrimination issue. Plan sponsors would 

have to test the “group” of participants with balances in excess of the threshold (which they 

likely are not currently doing) and this could result in a failure of the nondiscrimination rules. 

To relieve these uncertainties and because it is important that employers be encouraged to offer 

annuity forms of distribution in their plans, we believe it would be fruitful to clarify the 

nondiscrimination rules under Code section 401(a)(4) regarding the testing of plan benefits, 

rights and features to deem as nondiscriminatory certain requirements for minimum annuity 
13 

purchase amounts or minimum monthly annuities. Similar “deemed” rules are already in effect 

with regard to plan loans.18 

3. Employers Should Permit Employees to Elect an Annuity Distribution with 

Respect to Only a Portion of Their Accounts

In order to foster use of annuity distribution options, the ability to annuitize only a portion of a 

defined contribution plan account balance is key.19 For a variety of reasons, individuals are 

hesitant to commit their entire retirement account balance to the purchase of an annuity. 

Individuals are particularly concerned about the need to access cash to cover unplanned expenses 

in retirement. If it is a question of annuitizing all of an account balance or none of it, individuals 

will pick none almost every time. Partial annuitization can be attractive because it permits an 

individual to purchase an annuity to cover certain fixed expenses (such as housing, food, health 

insurance, utilities, etc.) in retirement. 

Many defined contribution plans that offer annuity forms of distribution only permit 

annuitization of the entire account balance. In our experience, many sponsors of such plans have 

not contemplated the possibility of partial annuitization or are not aware that such choices can be 

easily and effectively offered.20 

To increase the inclusion of partial annuitization distribution options, we suggest that the 

Agencies publish educational materials for plan sponsors and participants regarding the 

availability and the benefits of such options. 

4. Contingent Support of Mandatory Annuity Distribution Offering in Defined 

Contribution Plans

We believe that, in order to successfully encourage the use of annuity forms of distribution in 

defined contribution plans, the Agencies must resolve the key compliance and fiduciary issues 

discussed in prior Sections of this letter, such as clarification regarding the application of the 

qualified joint and survivor annuity and spousal consent rules and revision of the 404a-4 safe 

harbor for selection of an annuity provider. 

                                                            18 See Treas. Reg. § 1.401(a)(4)-4(b)(2)(ii)(E). 

19 One proposal not addressed in detail in this paper is the provision of tax incentives for annuity 

distribution. TRS’ experience in the group purchase annuities market for terminating defined benefit plans has 

shown that employees are more likely to annuitize all or a portion of their vested benefits when the plan provides 

enhanced conversion factors for annuitized distributions. Over the last five years, between 3% and 10% of plan 

participants in terminated plans that provided such enhancements have elected an annuity distribution option rather 

than a lump sum option. In addition, according to the Center’s 11th Annual Transamerica Retirement Survey, 53% 

of employees with an employee-funded plan believe tax breaks and incentives would help motivate them to save 

more for retirement. We believe the enactment of tax incentives for annuitization would be an effective way to 

encourage distributions in the form of guaranteed lifetime income. 

20 A Diversified survey found that many plan sponsors do not provide a great deal of flexibility within the 

plan to help retiring employees structure a retirement income strategy that will keep pace with inflation, changing 

needs or a longer-than-anticipated lifespan. Indeed, two-thirds of plan sponsors allow participants to draw down a 

fixed periodic income from the retirement plan, but only 41% allow an adjustable periodic income and less than onethird offer a lifetime income distribution option. In the absence of partial annuitization options under plans, 

employees who want to structure an income strategy that will evolve with their lifestyle in retirement may need to 

take a lump sum distribution and set up their income strategy through a retail brokerage account. 
14 

Once such issues are successfully resolved, we believe Congress and the Administration should 

give serious consideration to the adoption of legislation that would require all defined 

contribution plans (including those that are exempt from the QJSA and spousal consent rules) to 

offer an annuity form of distribution. We believe such a requirement is likely to be necessary at 

some point so that all defined contribution plan participants have access both to this vital income 

generation and longevity protection tool and to the economies of scale and efficiencies that come 

from offering the annuity in the plan context. 

SECTION IV. Conclusion 

AEGON sincerely appreciates the opportunity to present our views on this vitally important 

public policy challenge. We encourage the Agencies and Congress to consider the 

recommendations we have addressed in this response to the RFI, which we strongly believe will 

encourage both the inclusion of annuity investment and distribution options in defined 

contribution plans and the use of these options by participants. Specifically, we support the 

following actions by the Agencies and/or Congress, as applicable, discussed in detail herein: 

 Mandating certain types of participant education relating to plan distributions and 

retirement income planning, specifically with respect to (i) inclusion of annuity 

illustrations on benefit statements, and (ii) distribution of a booklet developed by the 

Agencies that contains objective information regarding typical distribution and 

income options under plans and IRAs, as well as a set of retirement income 

“principles” to educate participants; 

 Expanding and clarifying the application of certain ERISA and Code guidance with 

regard to lifetime income investment and distribution options, including, among 

others, (i) IB 96-1, (ii) the advice computer model guidance, (iii) the QJSA and 

spousal consent rules, and (iv) ERISA section 404(c); and 

 Adopting reforms to address impediments to in-plan annuity investment and 

distribution options, including with respect to (i) the distribution of in-plan annuity 

contracts and in-service rollovers of such contracts to IRAs, (ii) partial annuitization, 

and (iii) consideration of mandatory annuity distribution offerings in defined 

contribution plans. 

We believe these actions will ultimately help workers achieve a more financially secure 

retirement while alleviating the operational and fiduciary impediments for employers sponsoring 

defined contribution plans. 

Thank you again for your consideration of our perspective and recommendations. Should any 

questions arise in connection with our response to the RFI, please contact Jeanne de Cervens at 

jdecervens@aegonusa.com. 

Sincerely, 

Mark W. Mullin 

President and CEO