1

May 3, 2010

FILED ELECTRONICALLY

Office of Regulations and Interpretations

Employee Benefits Security Administration

Room N-5655

Department of Labor

200 Constitution Avenue, NW

Washington, D.C. 20210

Attn.: Lifetime Income RFI

RIN 1210-AB33

CC:PA:LPD:PR (REG-148681-09)

Room 5205

Internal Revenue Service

P.O. Box 7604

Ben Franklin Station

Washington, D.C. 20044

The undersigned are nonprofit, nonpartisan public policy organizations committed

to promoting women’s retirement security. As will be discussed in our comments,

ensuring a stream of lifetime income is particularly important to women’s retirement

security. The undersigned commend the Departments of Labor and Treasury for making

expanded access to lifetime income payments a regulatory priority, and appreciate the

opportunity to comment and respond to the Departments’ Request for Information.

Introduction

Recent losses in the stock market and poor economic conditions underscore that

many U.S. workers are at risk of not having an adequate income in retirement. Even

before the current economic recession, research indicated that retirement savings are

likely to be inadequate for many Americans, particularly women. While there is a

substantial gender gap in all sources of retirement income, the disparity between

women’s and men’s pension income is especially pronounced and exists in levels of

retirement plan participation, pension benefits, and defined contribution account

accumulations. This gender gap in retirement income is largely attributable to women’s

experience in the labor force: women spend fewer years in the workforce, are more likely

to work in part-time employment, and historically earn less than their male counterparts.

Unfortunately, women need more, not fewer, retirement savings than men, because they

are likely to live longer than men and spend more years living alone. In 2008, almost 12

percent of women 65 and older lived in poverty (compared to 6.7 percent of men 65 and

older).
2

The continuing shift from defined benefit to defined contribution plans has

exacerbated the challenges women face in securing adequate retirement income. Over

the last two decades, much of the risk and burden of financing retirement has shifted from

employers to employees as coverage has moved away from traditional defined benefit

(DB) plans, in which workers typically accrue monthly benefits based on years of service

and earnings, in favor of defined contribution (DC) plans, in which participants

accumulate balances in self-directed individual accounts, such as 401(k)s. Across the

board, DC plan balances are typically inadequate for a secure retirement, and this is

especially pronounced for women. A 2008 study found that the median female worker

near retirement with a DC plan or IRA held $34,000 in her retirement accounts while her

male counterpart held $70,000.

Moreover, the very structure of these plans, in which workers bear responsibility

for the investment decisions, poses risks for all workers. In DC plans, workers are

responsible for allocating their funds among a range of options and individually bear the

investment risks. If investments do not perform as well as expected, workers will have

less money in their DC plans to provide income in retirement.

In addition, the fact that most workers, including women, do not spend their

careers in a single job has additional negative implications for women. When a worker

leaves a job, he or she can leave any retirement savings accrued in an employer’s DC

plan with the employer, as long as the account balance is above a certain minimum level.

However, workers leaving jobs often take distributions from their DC plans – either

withdrawing the savings (often subject to a tax penalty if they have not reached

retirement age) or rolling the savings over into another tax-qualified retirement savings

vehicle (such as another employer-sponsored DC plan or an individual retirement

account). Women, however, are less likely than men to roll over a “lump-sum” payment

when leaving a job.1Twenty-seven percent of men compared with 23 percent of women

re-invested their lump sum in one of these other savings vehicles. This reduces women’s

already lower retirement savings.

Likewise, because DC plans like 401(k)s typically pay out in lump sums as

opposed to annuities, workers bear the risk of managing their account balances so they

can provide additional support over their lifetimes and, for many, the lifetime of a

surviving spouse. This “longevity risk”—in which a retiree may live longer than

expected and thus exhaust his or her retirement savings—is especially manifest for

women. Because women on average live longer than men, their 401(k) balances must be

able to produce an income stream over a longer stretch of time. A woman whose 401(k)

plan does not offer an annuity option but who wishes to ensure lifetime income currently

can use her 401(k) balance to purchase an annuity from a private insurance company.

Small annuities purchased on the open market, however, are generally burdened by high

fees and low effective rates of return, which can reduce their attractiveness

notwithstanding the value of a lifetime stream of income. Women, in addition, generally

face the disadvantage of having to purchase annuity products from insurance companies

1 Moreover, women also lag behind men in re-investing the funds in other savings vehicles such as savings

accounts, stocks, bonds, or the purchase of a home.
3

that are priced using gender-distinct mortality tables (in contrast, defined benefit and

money purchase plan annuities are calculated without regard to gender, as required by

Title VII of the Civil Rights Act of 1964). This can amount to an appreciable decrease in

retirement income.

Finally, we note that marital status matters for women’s retirement security.

Because women have fewer retirement savings of their own, women are more likely than

men to rely on their spouses’ pension income. As a result, widows and divorced women,

as well as never-married women, are especially vulnerable in retirement—in 2008, 15

percent of elderly widows, nearly 20 percent of divorced elderly women, and 18 percent

of never-married elderly women lived in poverty.2

Comments

As set forth above, women, on average, live longer and have fewer retirement

savings than men. As a result, women are particularly at risk of exhausting their

retirement savings if those savings are not distributed in the form of lifetime income.

Although Social Security benefits, which are lifelong and inflation-adjusted, offer an

important foundation for retirement security, they were not designed to be the sole source

of income in retirement. Thus, women would generally benefit by receiving distributions

from their retirement savings accounts as lifetime income payments, whether in the

context of the employer-based retirement system or in savings accounts such as

individual retirement accounts (IRAs), to supplement Social Security and bring them

closer to a secure retirement.

Employer-based retirement savings accounts

Most Americans who save for retirement do so through the employer-based

retirement system. Yet, participation in the employer-based retirement savings system is

far from universal. Not all workers have access to retirement savings plans through their

employers.3 And only 40 percent of women who are eligible to participate in an

employer’s retirement savings plan actually participate.4

As mentioned above, defined benefit pension plans, which pay benefits in the

form of a life annuity (or, for married participants whose spouses did not waive this

option, joint-and-survivor annuities), predominated in the employer-based retirement

2 NWLC calculations based on U.S. Census Bureau, Current Population Survey, Annual Social and

Economic Supplement (2009) (using CPS Table Creator, available at

http://www.census.gov/hhes/www/cpstc/cps_table_creator.html).

3

In 2008, 50.6% of all workers worked for an employer that sponsored a retirement plan, and 40.4% of

those workers participated in a retirement plan. Craig Copeland, Employee Benefit Research Inst., Issue

Brief No. 336, Employment-Based Retirement Plan Participation: Geographic Differences and Trends,

2008, at 8 fig.1 (2009), available at http://www.ebri.org/pdf/briefspdf/EBRI_IB_11-2009_No336_RetPart.pdf.

4

In 2008, 40.2% of all female workers participated in an employer-sponsored retirement plan. For fulltime, full year wage and salary workers aged 21 to 6), less than two-thirds of female workers are covered

(56.2%). Copeland, supra note 3, at 9 fig.2.
4

system for many years. Increasingly, however, employers offer defined contribution

plans such as 401(k)s or 403(b)s. Few 401(k) plans offer options for participants to

receive some or all distributions in the form of lifetime income payments,5and most

participants in 403(b) plans elect to receive lump-sum payments.

Require Lifetime Income Option

Increasing the availability of lifetime income options from employer-sponsored

DC plans would benefit women. (Question 1) There are distinct advantages to lifetime

income payment options offered through employer-sponsored plans, as compared to

annuities purchased from a private insurance company (the lifetime income option

available to IRA owners or participants in 401(k)s that do not offer annuity options).

(Question 8) First, as mentioned above, women generally face higher prices than men

when purchasing annuities outside an employer-sponsored plan, on the open market.6

But federal law prohibits employers from requiring women to pay more than men for

annuities offered through employer-based retirement savings plans.7In addition,

employer-based retirement savings plans may be able to negotiate lower fees overall,

premised on a group rate—which is particularly important for workers with lower

account balances (who are disproportionately women). Further, it is to be hoped that as

increasing numbers of participants in employer-sponsored plans select annuities, costs

(and risk) could be spread out and the price of annuities would drop further.8Thus, we

would strongly recommend that 401(k) and other employer-based DC plans be required

to offer a lifetime income option. (Question 13) Gender-neutral pricing should be

mandated, as under current law. (Question 16)

5

In 2008, only 14% of surveyed employers that offered a 401(k) plan offered an annuity option to

participants. Hewitt Assocs., Research Highlights: Trends and Experience in 401(k) Plans 7 (2009),

available at

http://www.retirementmadesimpler.org/Library/Hewitt_Research_Trends_in_401k_Highlights.pdf.

6

For example, one online annuity quote generator estimates that a 64-year old female in the District of

Columbia purchasing an annuity with $50,000 would receive a monthly payment of $304, whereas a 64-

year old male in the District of Columbia purchasing an annuity with the same amount would receive a

monthly payment of $324. ImmediateAnnuities.com, Instant Annuity Calculator,

www.immediateannuities.com (search run by NWLC Apr. 28, 2010). For low- or moderate-income

retirees, an extra $250 per year could be significant.

7 Equal Employment Opportunity Comm’n, Compliance Manual, Chapter 3: Employee Benefits, Title

VII/EPA Issues, II(A) (2000) (“Although women as a class generally live longer than men, Title VII

requires that each woman -- and each man -- be treated as an individual. As a result, employers may not use

sex-based actuarial tables -- which rely on generalizations about women’s and men’s life expectancies -- to

calculate . . . the amounts that it will charge its male and female employees for those benefits.”) (citing

Arizona Governing Committee v. Norris, 463 U.S. 1073 (1983); Los Angeles Dep't of Water and Power v.

Manhart, 435 U.S. 702 (1978)), available at http://archive.eeoc.gov/policy/docs/benefits.html.

8 Notwithstanding, the undersigned submit that low- and moderate-income workers as well as small

employers would benefit from the creation of low-cost, reliable, inflation-adjusted alternative annuity

products. These alternatives could include low-cost annuities with limited options, administered through a

government clearinghouse (such as the PBGC or an entity based in the federal Thrift Savings Board), or

retirement savings bonds (R-bonds), backed by Treasury securities and payable only at retirement, which

would be received as lifetime income (or at least would offer an option to receive it as lifetime income).

We encourage the Secretaries to consider exploring and supporting the creation of these, and other, annuity

products that would provide alternatives to the annuity products currently on the market.
5

We recognize that account balances below a certain amount present

administrative burdens and are unlikely to result in meaningful lifetime income

payments. Yet in our experience, even relatively small amounts of dependable lifetime

income can be significant for low- and moderate-income workers. In addition, DB plans

and the federal Thrift Savings Plan contemplate very small monthly payments—DB plans

must annuitize benefits with a present value in excess of $5,000,9and the Federal Thrift

Savings Plan must do so for account balances above $3,500.10 We therefore encourage

the Departments of Labor and Treasury to conduct a joint study to determine an

appropriate minimum account balance for purchase of an annuity with the needs and

likely account balances of low- and moderate-income workers in mind. A participant

should thus be given the option of receiving his or her account balance (or portion of the

account balance) amount as an annuity, so long as the amount to be annuitized at least

equals some minimum threshold. (Question 13)

Default Form of Benefit

Question 13 of the Request for Information asks whether lifetime income options

should be made the default form of benefit. Such an approach could turn inertia into a

potential advantage, and might increase the number of individuals receiving lifetime

income payments from DC plans in the same way that “automatic enrollment” has

increased the number of participants in 401(k) plans. However, while the promise of

default lifetime income is significant, it is possible that some individuals would respond

negatively to having some or all of their savings converted into a lifetime income option

by default.

To address this possibility, we would recommend that, first, before the Secretaries

consider mandating that lifetime income payments become the default form of benefit,

plans first be required to offer lifetime income as an optional form of benefit for a

specified period of time. As participants become more familiar with lifetime income

options, and become accustomed to DC plans offering lifetime income options, they may

eventually respond less negatively to being defaulted into a lifetime income option. Pilot

projects with intensive education efforts also may prove effective.11 In addition, a default

lifetime income option that offered a “trial” period12 would permit participants who, for

whatever reason, did not realize that some or all of their savings would be converted into

lifetime income to opt out of that default. (Question 11)

Spousal Protections

9

26 U.S.C. § 411(a)(11).

10 5 U.S.C. § 8435(g).

11 Providing participants with benefit statements that estimate the annuity that could be purchased with the

existing account balance, as proposed by the Lifetime Income Disclosure Act, S. 2832, 111th Cong. (2009),

currently before the Senate, could also help condition the workforce to think of their retirement savings in

terms of lifetime income. (Question 17)

12 See, e.g., William G. Gale et al., The Retirement Security Project, Increasing Annuitization in 401(k)

Plans with Automatic Trial Income 12 (2008), available at

http://www.brookings.edu/~/media/Files/rc/papers/2008/06_annuities_gale/06_annuities_gale.pdf.
6

In addition, lifetime income options offered through employer-based retirement

plans would benefit women because they trigger important spousal protections.

(Question 8)

Women have fewer retirement assets than men, and more women rely on their

spouses’ pensions than men.13 And among widowed persons, 21 percent of widows

compared to just 5 percent of widowers receive pension benefits based on the pension of

a deceased spouse.14 Spousal protections in retirement savings are therefore extremely

important for women. The Retirement Equity Act of 1984 (REA)15 made a lifetime

annuity with a survivor annuity for a spouse the default form of benefit from DB pension

plans for married workers.16 Following the enactment of the REA, the number of married

men who provided a survivor annuity for their spouses increased 15 percent, ensuring a

more secure retirement for many more widows.17

However, DB plans have been increasingly supplanted by retirement savings

plans such as 401(k)s. In general, participants in DC plans take distributions of their

benefits in the form of a lump sum at retirement, or roll their account balances over into

another tax-qualified retirement savings plan when they change jobs prior to retiring. But

no spousal protections are available to the spouses of married participants who do so,

meaning that the participant can make the decision to take a lump-sum or rollover

distribution without any input from the spouse.18 In contrast, if a 401(k) or similar DC

plan offers annuities and a married participant selects an annuity, spousal protections

equivalent to those in DB plans apply: the participant must choose a lifetime annuity

with a survivor annuity of at least 50 percent for a spouse, unless the spouse waives the

survivor benefit. 19 Thus, when DC plans offer annuity options, important spousal

protections are triggered.

Because of the importance of robust spousal protections for lifetime payments

from retirement savings, the Secretaries should ensure that lifetime income options

offered by DC plans fall under the statutory definition of annuity.20 Second, the spousal

protections that apply to annuities offered by DC plans under current law should be

maintained. (Question 26) There should be no difference between spousal protections

for lifetime income received from DC plans and that received from DB plans. This is

13 According to NWLC calculations based on the 1998 Health and Retirement Study, 87% of married

women as opposed to 31% of married men relied on their partner’s pension income.

14 Pension & Welfare Benefits Admin., U.S. Dep’t of Labor, Retirement Benefits of American Workers:

New Findings from the September 1994 Current Population Survey tbl.D11 (1995), available at

http://www.dol.gov/ebsa/programs/opr/redbook/d_11.htm.

15 Retirement Equity Act of 1984, Pub. L. No. 98–397, 98 Stat. 1426.

16 Pub. L. No. 98–397, § 103 (codified at 29 U.S.C. § 1055(a)–(b)).

17 U.S. Gen. Accounting Office, GAO/HRD-92-49, Pensions Plans: Survivor Benefit Coverage for Wives

Increased After 1984 Pension Law 7 (1992) (examining data from 1984-1989), available at

http://archive.gao.gov/t2pbat6/146159.pdf.

18Generally, a participant in a 401(k) plan cannot designate a beneficiary (in case the participant dies while

participating in the plan) other than his or her spouse without that spouse’s consent. 26 U.S.C. § 417(a)(2).

19 See 26 U.S.C. § 401(a)(11); Internal Revenue Service Publication 6391, Explanation No. 3, Joint and

Survivor Determination of Qualification 3 (2009), available at http://www.irs.gov/pub/irs-pdf/p6391.pdf.

20 The undersigned believe that this can be accomplished by regulation.
7

particularly important because spousal protections have already been weakened by

permitting spousal consent to be transmitted through electronic technologies.21 Third, in

the event that lifetime income options are made the default form of benefit, it should be

clarified that a participant must obtain spousal consent not only to take a single life

annuity, but also a lump sum or other form of benefit, as under the federal Thrift Savings

Plan.22

Rollovers from Other Qualified Plans

Low- and moderate-income individuals face significant barriers to saving through

an employer-sponsored DC plan. Although participants can contribute up to $16,500 per

year under current law, few workers, especially low- and moderate-income workers, do

so.23 Among women making a contribution to a 401(k)-type plan in 2005, only 6 percent

made the maximum contribution; indeed, the average contribution in 2005 was roughly

$3,500.24 Moreover, because the median job tenure for women is less than five years,25

there is a risk that the retirement savings that a female worker accumulates with one

particular employer may be small.

Since the average worker has multiple jobs during his or her career,26 he or she is

likely to have accumulated retirement savings with a number of employers. Under

current law, workers with retirement savings in an employer-based plan can either keep

the account balance in the employer’s plan (if they have more than a minimum amount of

savings), or roll the account balance into another tax-qualified retirement savings

account—such as another defined contribution or defined benefit plan, if it accepts

rollover contributions, or, more likely, an IRA.27 Thus, as a worker nears retirement, he

21 Commentators, including some of the undersigned, submitted that the use of electronic media to waive a

survivor annuity presents issues of authentication and conflict-of-interest between spouses. See Use of

Electronic Media for Providing Employee Benefit Notices and Making Employee Benefit Elections and

Consents, 71 Fed. Reg. 61,877, 61,882–83 (Oct. 20, 2006) available at

http://edocket.access.gpo.gov/2006/pdf/E6-17528.pdf; 26 C.F.R. § 1.401(a)–21(d)(6) (2009), available at

http://edocket.access.gpo.gov/cfr_2009/aprqtr/pdf/26cfr1.401(a)-21.pdf.

22 5 U.S.C. § 8435(a)(1). Again, the undersigned believe that this could be accomplished by regulation and

that legislation would not be necessary.

23 In 2005, , only 1.3% of workers with a family income between $20,000 and $29,999 and making a

contribution to a 401(k) type plan made the maximum contribution while 14.6% of those with incomes of

$75,000 did so. Craig Copeland, Ownership of Individual Retirement Accounts (IRAs) and 401(k)-Type

Plans, EBRI Notes (Employee Benefit Research Inst., Washington, D.C.), May 2008, at 2 fig.3, available

at http://www.ebri.org/pdf/EBRI_Notes_05-2008.pdf. In 2010, individuals 50 and over can contribute a

maximum of $22,000 a year.

24 Copeland, supra note 23, at 2 fig.3.

25 In 2008, the median tenure for all wage and salary workers age 25 or older was 5.1 years. The median

tenure for male wage and salary workers was 5.2 years and for women 4.9 years. Craig Copeland,

Employee Tenure, 2008, EBRI Notes (Employee Benefit Research Inst., Washington, D.C.), Jan. 2010, at

2, available at http://www.ebri.org/pdf/notespdf/EBRI_Notes_Jan-10.Tenure.pdf.

26 The average person born in the later years of the baby boom (individuals born from 1957 to 1964) held

10.8 jobs from age 18 to age 42. Press Release, Bureau of Labor Statistics, Number of Jobs Held, Labor

Market Activity, and Earnings Growth Among the Youngest Baby Boomers: Results from a Longitudinal

Survey (June 27, 2008), available at http://www.bls.gov/news.release/pdf/nlsoy.pdf.

27 26 U.S.C. § 408(d)(3)(A). Workers can also withdraw some or all of the account balance, subject to a

tax penalty if they are not yet of retirement age. 26 U.S.C. § 72(t)(1).
8

or she may have retirement savings in one or more employer-based retirement savings

accounts, and/or in one or more IRAs.

Many women have saved enough throughout their careers to provide for a

modest, but not insignificant, supplement to Social Security. The median 401(k) and/or

IRA account balance for women near retirement age in 2004 was $34,000.28 One annuity

calculator estimated that a 64-year-old female in the District of Columbia who purchased

a fixed immediate single-life annuity with $34,000 from an insurance company could

expect monthly annuity payments of $207.29 Joint-and-survivor annuities purchased by

this hypothetical woman, if she were married to a 64-year-old male, would result in

monthly payments of $182.30 Although it would be difficult to live off these monthly

payments alone, they would provide an important boost to Social Security payments,

which average about $1,000 per month.31 Even such a modest annuity could allow many

low- and moderate-income participants to feel more secure in their retirement.

Unfortunately, unless an individual could aggregate his or her accumulated

retirement savings in the 401(k) account that offered a lifetime income payout, he or she

would be unable to maximize his or her lifetime income payments. Under current law, a

DC plan may, but is not required to, accept rollovers from other qualified retirement

accounts.32 We therefore recommend that the Secretaries of Labor and Treasury consider

requiring plan administrators to accept such rollovers, to give low- and moderate-income

workers an opportunity to receive larger lifetime income payments.33 In particular, the

Secretaries should conduct a joint study to determine whether requiring employersponsored DC plans to accept rollovers would benefit participants seeking to receive their

distributions in the form of lifetime income, with a particular focus on low- and

28 Leslie E. Papke, Lina Walker, & Michael Dworsky, The Retirement Security Project, Retirement

Security for Women: Progress to Date and Policies for Tomorrow 4 tbl.1 (2008), available at

http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Retirement_security/RSPPB_Women_FINAL_4.2.2008.pdf. The average account balance for women aged 55-64 was $91,700. Id.

In 2004, the median account balance in current or former DC plans, including rolled-over retirement funds,

was $50,000 for workers aged 55 to 64, and $60,600 for those aged 60 to 64. U.S. Gen. Accounting Office,

GAO-08-8, Private Pensions: Low Defined Contribution Plan Savings May Pose Challenges to Retirement

Security, Especially for Many Low-Income Workers 15–16 (2007), available at

www.gao.gov/new.items/d088.pdf. The average account balance for workers aged 60 to 64 was $135,300.

Id. at 15 fig.3.

29 ImmediateAnnuities.com, Instant Annuity Calculator, http://www.immediateannuities.com (search run

by NWLC Apr. 28, 2010).

30 ImmediateAnnuities.com, Instant Annuity Calculator, http://www.immediateannuities.com (search run

by NWLC Apr. 28, 2010). Note that the joint-and-survivor annuity described on ImmediateAnnuities.com

offers a 100% benefit to the survivor, meaning that the same monthly payment received by the couple

during their joint lives would be received by the surviving spouse. Joint-and-survivor annuities offered in

defined benefit plans offer survivor annuities of not less than 50% of the benefit received by the couple

during their joint lives. 26 U.S.C. § 417(b)(1). This would result in a higher monthly payment during the

couple’s joint lives, but a lower payment for the surviving spouse.

31 The average monthly Social Security retired worker benefit for women in March 2010 was $970. See

Soc. Sec. Admin., Beneficiary Data, Benefits Awarded by Type of Beneficiary,

http://www.ssa.gov/OACT/ProgData/awards.html (search run by NWLC Apr. 28, 2010).

32 26 U.S.C. § 401(a)(31)(E); 26 C.F.R. § 1.401(a)(31)-1, Q&A 13 (2009).

33 We believe that this could be accomplished through regulation, but may be easier if effectuated through

legislative changes.
9

moderate-income participants; whether this requirement would significantly increase

administrative burdens on retirement plans; and whether particular incentives would be

effective in encouraging employers to offer lifetime income options.

Conclusion of Recommendations (401(k) and other defined contribution plans)

In sum, the undersigned recommend that (1) employer-sponsored defined

contribution plans be required to offer lifetime income options to participants; (2) lifetime

income options should not, however, be made a default form of benefits, at least not until

participants have had some experience with defined contribution plans offering lifetime

income options and unless structures are put in place that recognize and account for the

significance of irrevocably converting a participant’s accumulated savings, by default,

into lifetime income; (3) the spousal protections that currently attach when participants in

defined contribution plans select life annuities should apply without alteration; (4) the

Secretaries consider requiring plan administrators to accept rollovers from qualified

retirement savings accounts.

IRAs

A significant amount of retirement assets are deposited in IRAs as rollovers from

401(k) or other DC accounts when individuals leave a job before retiring.34 Individuals

may have more assets with which to purchase lifetime income payments in an IRA than

in their current 401(k) or other DC plan.

But even if women have enough assets in an IRA to purchase an annuity that

would meaningfully boost their retirement security, they face disadvantages when

seeking to do so on the open market. (Question 8) As discussed above, annuity products

are expensive, although they provide an important guarantee of lifetime income in return.

Also, as discussed above, insurance companies generally charge similarly situated

women more than men for an annuity. In addition, many annuities offer the option to

provide death benefits to a beneficiary or for the annuitant to opt out of the annuity at a

certain point, which increases costs and further reduces retirement income. Moreover,

many products on the market are called annuities, but are actually investment vehicles

rather than sources of secure lifetime retirement income. Further, individuals who

purchase annuities on the open market face the risk of the insurance company offering the

annuity going out of business or filing for bankruptcy, and thus becoming unable to fulfill

its obligation, in full or in part, to provide the annuitant with lifetime income.35

Commentators and policymakers have raised other reasons for which many individuals,

including women, may be unwilling to purchase annuities on the private market, in

34 In 2008, $3.61 trillion dollars in retirement assets were held in private-sector IRAs, mostly as a result of

rollovers from 401(k)s or other defined contribution accounts. Craig Copeland, Employee Benefit

Research Inst., EBRI Issue Brief No. 333, Individual Retirement Account Plans: An Analysis of the 2007

Survey of Consumer Finances, with Market Adjustments to June 2009, at 4 fig.1, 24 fig.12b (2009),

available at http://www.ebri.org/pdf/briefspdf/EBRI_IB_8-2009_No333_SCF.pdf.

35 State insolvency guaranty funds provide some relief from that risk, up to certain levels of liability. See

AnnuityAdvantage.com, State Guarantee Funds, http://www.annuityadvantage.com/stateguarantee.htm

(last visited Apr. 28, 2010).
10

addition to price.36 Some of these reasons may be particularly significant for lower- and

moderate-income workers.

For all of these reasons, we recommend that before encouraging IRA account

holders to purchase lifetime income options, the Secretaries consider a number of policy

changes with regard to annuity products offered by insurance companies. These could

take the form of recommendations to state insurance industry regulators, or changes in

federal law to ensure that protections are available to individuals purchasing annuities in

every state. These could include prohibiting discriminatory pricing and creating

standard, low-cost alternatives (whether offered under the auspices of a government

clearinghouse, retirement savings bonds, or other low-fee, reliable lifetime income

options) to the annuity products currently available to individuals on the market. Without

affordable, reliable annuity products, encouraging individuals, especially low- and

moderate-income individuals, to purchase lifetime income products could have little

practical positive impact. Other changes to the laws governing IRAs, including adding

spousal protections to rollover accounts, should be considered. Given the amount of

rollover assets in IRAs, failing to address the barriers to obtaining lifetime income from

IRAs in the private insurance market, under the current legal framework, would create a

significant policy gap.

Conclusion

The undersigned organizations thank the Secretaries for making expanded access

to lifetime income a policy priority, and appreciate the opportunity to comment. As the

foregoing comments demonstrate, the ability to convert retirement savings into lifetime

income is extremely important for women. In order to increase access to lifetime income

options, especially for women, the undersigned recommend that the Secretaries

(1) require employer-sponsored defined contribution plans to offer lifetime income

options; (2) maintain the spousal protections that currently attach when married

participants in defined contribution plans select life annuities; (3) consider requiring plan

administrators to accept rollovers from qualified retirement savings accounts; and (4)

consider recommending significant policy changes related to the sale of annuity products

by insurance companies.

If you have any questions pertaining to these comments, please contact Amy

Matsui, Senior Counsel, at the National Women’s Law Center at (202) 588-7615 or

amatsui@nwlc.org.

Sincerely,

American Association of University Women (AAUW)

American Federation of State, County and Municipal Employees

National Consumers League

National Organization for Women (NOW)

36 See generally, e.g., Jeffrey R. Brown, Univ. of Ill. and Nat’l Bureau of Econ. Research, Financial

Education and Annuities (2008), available at http://www.oecd.org/dataoecd/38/0/44509379.pdf.
11

National Women’s Law Center

Older Women and Economic Security (OWES) Task Force of the National Council of

Women’s Organizations

OWL - The Voice of Midlife and Older Women

Pension Rights Center