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April 30, 2010

Kevin T. Hanney, CFA

12 Crosby Road

North Salem, NY 10560

Office of Regulations and Interpretations

Employee Benefits Security Administration, Room N–5655,

U.S. Department of Labor

200 Constitution Avenue, NW.

Washington, DC 20210

Attention: Lifetime Income RFI

Subject: Lifetime Income Option Request for Information, RIN 1210‐AB33

To Whom It May Concern:

I write in response to your request for information with regard to lifetime income options for

participants and beneficiaries in retirement plans and individual retirement accounts (the “RFI”).  While I

am employed as an investment professional and responsible for oversight of retirement plans both in

the US and overseas, I wish to address you in my capacity as an individual.  The views that I express here

are my own and should not be construed to represent the views of my employer or any organization

with which I am affiliated.  However, I have the opportunity in my professional capacity to frequently

interact with others in my field as we actively consider the issues that face individuals in the U.S. as they

attempt to save for and fund retirement.  As a consequence of these interactions, I believe that my

views are not unique and much of what you read here may be echoed in other responses to your RFI.  It

is my hope in writing this response that I may share some reasonably well informed perspective on

these issues from the various perspectives of plan sponsor, plan service provider and plan participant

which is not slanted in any one particular direction.

I will attempt to answer many of the questions included in your request for information directly so that

it may be clear as to which questions each point may address.  However, with your indulgence, I would

first like to present a summary of what I believe to be several of the most important aspects of the

problem we face in establishing an environment in this country where it is possible for most people to
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avail themselves of solutions which construct and maintain a reliable stream of income throughout

retirement.

Knowledge, Resources & Incentives

Most individuals do not independently possess the knowledge, resources and/or incentives that are

necessary to construct and implement a savings and investment program in their working years and

subsequently adhere to a drawdown/spending program during retirement which in combination are

sufficient to attain and maintain an acceptable standard of living in retirement.  Left to do this on their

own, many individuals grossly underestimate their needs in retirement and the level of assets which are

necessary to fund them.  Additionally, in spite of efforts to educate and disclose material information to

individuals, few people understand the level of risk inherent in the investment vehicles available to

them through their employer sponsored retirement plans or individual retirement accounts, often

taking excessive risks in the investment of their limited savings and failing to manage these risks as they

approach and enter retirement.  Others may excessively save during their working years only to amass

their savings in investments with such low return expectations that they run a very real risk of shortfall

in spite of their excessive deferrals.  These individuals often suffer the dual misfortune of reducing their

standard of living while employed as well as failing to maintain the purchasing power of their assets

through retirement and seeing that standard of living decline further.

The failure to accumulate a sufficient level of assets and convert them into a flexible and robust stream

of retirement income can itself lead to consumption or deferral decisions which may impact not only

one’s standard of living, but an individual’s own chances for mortality.

Some argue that the solution to this dilemma is to focus on educating people on the risks of failing to

save and invest for retirement and introducing basic concepts of finance and investments such as the

time value of money and the benefits of diversification.  Unfortunately, even professionals in these

areas fail to follow their own good advice and many end up in much the same situation as the general

populace.  Others who are well informed and actively engaged in the effort to manage their retirement

savings are often exposed to factors beyond their control which can devastate a skillfully constructed

strategy simply as a consequence of being in the wrong place of their life cycle at the wrong time in the

market cycle.  (“See Returns on 401(k) Assets by Cohort” by Munnell and Aubry, March 2010)

While I fervently support the notion that our population as a whole must improve its level of economic

and financial literacy, I fear the behavioral and logistical obstacles to achieving the required level of
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sophistication and ubiquity necessary to achieve an adequate level of retirement security in this country

purely through educational efforts are insurmountable.  These efforts must be underpinned by the

development and application of flexible, reliable & cost effective lifetime income defaults by fiduciaries

of the nation’s retirement system.

Clear & Flexible Guidance

Most of the components required to build appropriate lifetime income defaults exist in the market

today and current regulations provide a framework within which they may be applied.  However, the

effort required to piece together product components, integrate them and acquire knowledge of the

regulatory standards governing them in sufficient detail to enable a fiduciary to implement a solution

without fear of undue legal exposure is substantial.  The Agencies are in the unique position today to

provide much needed clarity and guidance which will likely increase the level and speed at which

fiduciaries adopt these solutions.

I would emphasize here that clear and flexible guidance will be most effective at promoting the

development and adoption of suitable solutions.  Overly prescriptive standards will stymie innovation,

reduce competition and most certainly fail to meet the needs of a broad range of plans and participants,

each with their own unique set of circumstances.  While this RFI is clearly a very strong step in the right

direction, the Agencies must continue to solicit and consider feedback from the many stakeholders

impacted by their activities.  Draft guidance and meaningful comment periods will be critical to

successfully addressing the many issues we face.

One approach to immediately improve clarity for plan sponsors and plan services providers is to update

language in existing guidance to reflect recent product developments and innovations so that fiduciaries

and advisors may understand to which products it applies.  Knowledge and understanding of current

guidance is sufficiently mottled as a consequence of dated and narrow terminology so as to lead many

key stakeholders to believe some of the most promising lifetime income solutions under development

today are not covered by existing guidance and safe harbor provisions.

Additionally, it is critical for the Agencies to promote a standard of care to which all fiduciaries will be

held.  While many in this field will endeavor to develop best‐in‐class practices as it relates to the design,

evaluation, selection and oversight of lifetime income solutions, few will devote valuable resources to

the effort in the absence of a clear and reasonable standard of care.  This is not to say that fiduciaries

should bear no responsibility for performing adequate due diligence and applying prudence that a
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reasonable expert would apply given the facts and circumstances prevailing at the time of making

decisions.  However, there exists a very real risk of being judged, criticized and perhaps censured at

some point in the future in the event that unforeseen, unfortunate and unavoidable conditions should

arise.  The Agencies are in the position to provide the level of confidence to fiduciaries necessary to

explore this area by issuing and periodically updating clear and consistent communication of the

required standard of care for the evaluation, selection and monitoring of lifetime income solutions.

Access to Information on Key Features & Pricing

While many professionals involved with retirement plans maintain expertise in various fields such as

actuarial science, behavioral finance and investment theory, employee benefits administration,

information technology, insurance and options pricing, few organizations and fewer individuals possess

sufficient depth of knowledge in all of these areas to understand and assess many lifetime income

solutions in full.  The Agencies should recognize that, in the current environment, it typically requires a

cross functional team of professionals versed in all of these disciplines to fully evaluate a lifetime income

solution and determine whether or not it is appropriate for the population of participants in a particular

retirement plan.  It is perhaps even more difficult today for an advisor of individuals to properly perform

an adequate level of due diligence in the selection of a solution for their client.  I would argue that it is

nearly impossible for an unaided individual to gather and understand a sufficient degree of information

to completely vet the myriad alternatives available through the retail market at the present time.

I do not suggest that the Agencies can entirely solve this dilemma, as a lifetime income solution is an

inherently complex and long‐lived instrument and there will always be a fair degree of uncertainty

involved with the selection of such products.  However, the Agencies are in the unique position to

establish and maintain a repository of unbiased research and information regarding key features and

pricing of such instruments.  The information collected here may serve as a launching point for the due

diligence efforts of institutions and individuals, providing the basis for critical assessment by fiduciaries

and communications between service providers, sponsors, advisors and participants.

Preserving the Most Effective Features of Defined Benefit & Defined Contribution Plans

Many authors assert that the defined contribution system in the U.S. has failed to meet the objective of

providing retirement security for the majority of our population.  I do not argue for or against this

contention here.  However, I assert that defined contribution plans and individual retirement accounts
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in this country enjoy several important advantages over defined benefit plans which should be

preserved in order to make the most of lifetime income solutions as they develop for the market.

As highlighted in the GAO report of July 2009 Government Accountability Office (GAO) published Report

GAO–09–642 entitled, ‘‘Private Pensions: Alternative Approaches Could Address Retirement Risks Faced

by Workers but Pose Trade‐offs,” individuals are faced with many risks, including but not limited to

longevity risk, investment risk and inflation risk.  Traditional defined benefit plans managed these risks

through a number of channels including the pooling of longevity and investment risk and, in some cases,

inflation risks, the hiring of professional management and the implementation of complex liability driven

strategies designed to align assets and liabilities as each fluctuated with market and economic

conditions.  Organizations often devoted a fair amount of internal resources to the management of

these risks, and when necessary provided additional funding to meet benefit obligations as they arose.  

However, with changes in accounting and investor perception over time, the maintenance of such

benefit plans is no longer tenable for most businesses and many have moved to freeze and eliminate

such benefits preferring instead to focus on defined contribution arrangements where cost and impact

on the enterprise are easier to project and manage.

However, some third party entities remain capable of bearing such risks and providing lifetime income

benefits through defined contribution plans and retirement accounts.  In order for these solutions to

provide maximum utility and potentially garner the broadest degree of adoption, they should preserve

key features of the most common products used in these plans and accounts today; such as liquidity,

portability, price certainty and competitive cost.  Areas which should be improved might include

transparency and disclosure.  Each feature is subject to a cost/benefit that may be valued according to

the unique needs and constrains of its user, whether it be at the level of a large retirement plan or an

individual’s retirement account.  Hence, it should be expected that a wide range of costs and benefits

will develop as products are introduced to this market.

It should also be noted that defined contribution plans and individual retirement accounts enjoy a

material advantage over traditional defined benefit plans in that they provide most participants with a

considerable degree of influence over how much retirement income they may enjoy in the presence of

appropriate lifetime income solutions.  The ability to increase the size of deferrals of one’s current

income to an account with access to lifetime income products has a two‐fold effect: it improves the

probability of reaching one’s desired level of income through the accumulation of a larger asset base

and most likely reduces the targeted standard of living in retirement.  While some may have
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unreasonable expectations of life in retirement, most people would consider maintaining the standard

of living they enjoyed before retirement as success.  Those which save more while working and establish

a reasonable reduction in their standard of living will have an easier time maintaining that standard in

retirement.

Financial Stability of Counterparties

Several entities are ideally positioned to stand as counterparties to various forms of lifetime income

arrangements or the financial instruments which underlie them as long as: there are sufficient reserves

in place to back up their obligations at the time they come due, the benefits promised are properly

priced and an appropriate safety net exists to support the system in times of stress.  It is critical to

evaluate and communicate current standards for financial stability of these entities and establish new

standards where necessary.  Entities such as state insurance guaranty associations and clearing houses

provide an extremely valuable backstop at this time. (See Gallanis, The Life and Health Insurance

Guaranty System, and the Financial Crisis of 2008–2009, June 2009 and Chicago Mercantile Exchange

Web site, http://www.cme.com/edu/intro/specs/clrhouse9706.html)  However, they are often poorly

understood and do not receive sufficient attention in the evaluation of lifetime income solutions and the

support they may provide.  I encourage the Agencies to develop a centralized venue where fiduciaries

and individuals may access information on these entities and the backstops they provide as they

evaluate lifetime income solutions which may be appropriate for their needs.

However, it is possible that current systemic protections may not be sufficient to provide stability in

times of extreme stress.  The Agencies must consider the impact on not only retirement security, but the

nation’s financial stability from widespread adoption of lifetime income products.  With retirement

assets in this country on the order of multiple trillions of dollars, deploying even a moderate portion of

those assets to lifetime income solutions could stretch our institutions’ capacity to manage and support

the system in times of crisis.

Suggestions for the Development of New Instruments

It is beyond the scope of this letter to provide a detailed description of the mechanics underneath

various arrangements, but it is possible to establish contracts with insurance companies or use various

products backed by clearing houses which maintain the requisite degree of financial stability and

flexibility to provide a competitive value proposition for the individuals seeking to construct a secure

stream of income based on an underlying base of assets.  The U.S. government is also in a position to
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provide access to reliable income through the issuance of Treasuries and TIPS which may be used

directly by individuals through conduits such as TreasuryDIRECT or indirectly by the counterparties as

hedging instruments underlying the benefits they offer.  The Treasury may further develop instruments

that would have direct application in the development of lifetime income solutions, such as the issuance

of amortizing nominal and inflation‐linked securities.  This idea, promoted by Ralph Goldsticker of

Mellon Capital Management , has tremendous potential to alleviate both the problems of securing

reliable and adequate income for retiring Americans and providing access to a substantial source of

funding for the large debt burden carried by the U.S.  I would strongly encourage the Agencies to

explore this idea and consider the advantages of creating such instruments for use in this country.

Thank you for the opportunity to shares some of my views on lifetime income options and the issues

around their use in retirement plans and individual retirement accounts.  I attach below answers to

several of the questions included in the RFI for your further considerations.  

Sincerely,

Kevin T. Hanney, CFA
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RFI Responses 

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: 

• Provides protection against longevity risk. 

• Enables financial planning and budgeting in retirement. 

• Purchasing deferred products in advance of retirement assists participants with 

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

• Removes burden of appropriately managing and effectively drawing down your 

own assets which is complicated, subject to a high degree of uncertainty and 

exposed to a wide range of risks that even professionals struggle to manage. 

Most individuals are simply unable to do this effectively without some form of 

insurance or risk sharing. 

Disadvantages: 

• Inflation may erode purchasing power in some product designs. 

• Some product designs limit or eliminate the opportunity for growth in assets 

and/or income. 

• Many traditional annuity designs are irrevocable and may pose risks to individuals 

who experience unexpected financial needs. 

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

balance. 

• 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 purchasing power. 

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? 

 

• Poor positioning or lack of in-plan options in DC plans. 

• Herding behavior tends to prevent many participants 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 in part because they lack the 

powerful influence in their decision making process of perceived familiarity. 

Similar factors impact organizations sponsoring plans which defer the introduction 

of such options in part because peers do not offer similar options. 

• Misunderstanding of associated costs. 

• Lack of control and the concern that most traditional options, such as immediate 

or deferred annuities, typically require that participants make an irrevocable 

decision to relinquish control. While broad statistics may suggest that people can 

afford to relinquish some degree of control on average, individuals live in a “fat 
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tailed world”. In other words, anyone may experience some extreme personal 

event with far reaching financial ramifications at any time. The conditions that 

enable institutions such as insurance companies to bear such risks are primarily 

due to the presence of large populations of clients whose pooling of premiums 

and individual circumstances improve the odds that insurers will only see a subset 

of their clients experience these events on a relatively infrequent basis. 

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

• A lack of education around lifetime income options. Most individuals and 

organizations do not understand these products and even with sufficiently 

available education, 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, 

• Very limited experience with large scale insurance company failures and the risk 

they pose to policyholders. 

• 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. 

• People tend to underestimate the length of retirement and their financial needs. 

• 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. 

• 

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 root causes may contribute more than others: 

o Low levels of financial literacy 

o Most current plan designs implicitly default to forego lifetime income because 

it is not offered as an option, or it is an opt-in feature in the few cases where it 

is 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’s virtually impossible for most people to equate the present value of a 

stream of future payments to a single lump sum particularly when the 

collection of the stream of future payments is subject to the uncertainty 

represented by the examples given above. The inability to make this 

distinction typically leads to inaction. 

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. 

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 
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products without clear and simple guidance. There are few sources of such guidance 

available to participants or plan sponsors. 

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? 

• Create salient incentives for lifetime income over other forms of distributions, such 

as tax advantages in retirement or during an individual’s working years or perhaps 

tax advantages for couples electing to utilize a lifetime income option over 

systematic or ad hoc distributions from an unprotected balance. 

• 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 distribute directly to plan participants. 

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? 

• Some DC plans offer annuities or other guaranteed products, but the vast majority of 

these are offered as out-of-plan options and are designed as opt-in choices. 

Consequently, they tend to see very low usage among participants. 

• Some DC plans offer systematic distribution programs which draw down assets 

based on a formula, fixed percentage of assets or fixed dollar amount. However, 

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

participant and will end when assets are depleted from the account. 

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 plans offer annuity purchase platforms which function something like an 

“annuity supermarket”, enabling a participant to compare the costs and features 

of institutionally priced annuities as they approach and enter retirement. 

• Several lifetime income 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. 

The form of contract used in most of these designs under consideration are 

known as guaranteed minimum withdrawal benefits (“GMWB”) or guaranteed 

lifetime withdrawal benefits (“GLWB”) 

• 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. Like traditional annuities, payouts of GMWB/GLWB products may be 

adjusted for joint survivor arrangements and for early or deferred withdrawals for 

those wishing to retire before or after a pre-defined normal retirement age. 

• 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 
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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. 

• At least one proposed design has a feature that may allow for some form of cost 

of living adjustment. However, this is done one a flat percentage basis as 

opposed to explicit inflation linking. Inflation protection is typically a very 

expense feature to include in lifetime income options, partly due to the relative 

lack of securities available which may be used to hedge against inflation risk. 

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, this 

product has not been adopted by any plans as of this date. 

• 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 and most behavioral finance researchers would 

suggest that designing default actions to include such contributions would lead to 

wider adoption among plan participants. 

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? 

• Several annuity and variable annuity products are in wide use through individual 

retirement accounts. 

• Features of these products vary widely along with their attendant costs. 

• Some products currently being designed for use in dc plans are being design 

with companion IRA products which will enable dc participants to roll over their 

assets and preserve the benefits they accumulated while in plan. These IRA 

products will likely have higher expenses associated with them in comparison to 

their in-plan counterparts. 

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? 

• Most product features a priced in the manner of financial options and as such the 

price of each option is generally driven by the following factors: 

o Market conditions, especially volatility 

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

but 10-year nominal Treasuries in particular 
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o Riskiness of underlying investments’ asset allocation and the availability 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 

when compared to products that do not offer such “liquidity” features. This is 

primarily due to the lack of forfeitures which exist in illiquid or irrevocable 

products like traditional fixed annuities. Forfeitures describe annuitants who die 

earlier than average mortality assumptions would project and consequently do 

not collect the full value of their expected benefits based on that mortality 

assumption. Insurance companies can increase the payout (i.e., reduce the 

cost) of traditional annuities based on estimates of the level of forfeitures they 

expect to experience across their customer base. Therefore, liquidity features 

tend to increase the cost of some lifetime income products in comparison to 

irrevocable products like traditional fixed annuities. 

• 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. For example, a 

product may offer to recalculate the income benefits for a person each year in 

retirement on their birthday using a previously established rate multiplied by the 

“greater” of their account balance at that time or a previous account balance 

“rolled up” by a minimum percentage, say 5% or 6%. This form of guarantee 

became problematic during the Financial Crisis when some account values fell 

by 20-50% and insurers were still obligated to increase the notional account 

basis by a minimum percentage. 

• 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 for 

several reasons. One important consideration is that account balances tend to 

plateau early in retirement due to withdrawals from the account (participant 

distributions and fees) outpacing the investment growth of the underlying assets. 

Most value from a ratchet feature accrues before participants retire and begin 

taking withdrawals from their accounts. Consequently, the presence of a ratchet 

tends not to increase the cost of providing such features in these products. See 

Milliman’s discussion of Actuarial Guideline 43 for helpful case studies which 

compare the reserve and capital requirements for various combinations of roll up 

and ratchet features. 

• As mentioned above, inflation-linking features are extremely expensive and 

difficult to evaluate from a cost-benefit perspective. Consequently, few products 

are offered with these features today. 
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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 

• Fiduciary oversight by qualified professionals with proper incentives to maintain a 

sufficient standard of care 

• Ease of use through payroll deduction 

• Default status may avert 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. 

Disadvantages: 

• Individuals with unique financial needs may not be as well served by an in plan 

option as they would by a bespoke solution. 

• Opt in design which include lifetime income will result in lower adoption, in the 

absence of other incentives, specifically because of behavioral biases. 

Outside of Plan, After Distribution or Rollover:

Advantages: 

Broad array of choices 

Disadvantages: 

• Potentially more expensive due to retail pricing, surrender charges and 

commissions. 

• Requires a proactive selection process which entails a considerable amount of 

time and effort on the part of the individual. 

• Individual is responsible for seeking information and advice on their own. 

• Lack of reliable benchmarks or reference points for comparison 

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: 

• Provides the ability to continue to offer competitive retirement benefits in the 

absence of a defined benefit plan. 
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Disadvantages: 

• 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. 

• A lack of understanding with regard to current safe harbor guidance. 

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

lifetime income designs. 

• Lack of broad consensus among plan sponsors and product providers on 

standards. While most products should continue to provide choice among features 

to remain suitable and meet the unique characteristics of each plan, some degree 

of standardization for a basic feature set will enable plan sponsors to evaluate 

lifetime income products on a relative basis. In the absence of some consensus, 

most plan sponsors will continue to wait for others to take first steps. 

Out of Plan Option:

Advantages: 

• Reduced fiduciary requirements. 

Disadvantages: 

• Less control and transparency. 

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 primarily due to 

the benefits it provides for budgeting in retirement, the form of diversification 

provided by income from the partial annuity and the potential for a participant’s 

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. 

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

annuitization over full annuitization due to the uncertainties that surround 

retirement income adequacy. However, it should be noted that some annuity 

providers argue it is not appropriate for most individuals to annuitize all of their 

retirement assets due to the reduced ability to meet unforeseen expenses in the 

future. 

• It is very important to note that participant-directed DC plan participants enjoy a 

valuable design benefit in the freedom they have to make choices and 
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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. However, the risk profile of 

each individual in a plan is different than that of a hypothetical average of a 

plan’s participants. Real people far more often subject to extreme outcomes in 

their personal financial circumstances than conventional risk measurements 

would imply. Therefore, the benefits of maintaining the freedom to make changes 

at any point in the future may be worth the cost of maintaining that freedom. 
16 | Page

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? 

• Establishing lifetime income solutions as default options within retirement plans 

will lead to wider adoption 

• 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 in their plan designs for fear of 

censure and/or legal exposure. 

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? 

• Flexibility must be preserved in order to meet the needs of all participants. 

• Individuals must be aware of any limitations on the liquidity or revocability of their 

decision before making the choice to annuitize. Most traditional designs have 

severely limited or no liquidity. 

• Irrevocable products should only be used for basic living expenses and care 

should be taken to estimate what those might be both at the time of annuitization 

as well as how those may change in the future. 

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 DC plan and its population of participants are subject to unique 

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

appropriate vehicles to offer lifetime income to participants. Therefore, it would 

be ill advised to force the introduction or use of lifetime income options through 

regulation. 

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: 

• While work is currently underway to assess various designs to offer lifetime 

income through DC plans, many products that do exist continue to evolve and 

have only limited operating history 

• Current safe harbor provisions are imprecise as they apply to various products 

currently under consideration, specifically guaranteed lifetime/minimum 
17 | Page

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 

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

states, but not others. Standard design features should be agreed 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. While there is clearly some 

value to the obligation as evidenced by insurer capital requirements and reserves 

they are required to maintain in relation to the obligations, state guaranty 

associations may not have a prescribed method for calculating a present value 

for these contracts prior to insurer payout. The Agencies would provide 

invaluable assistance to plan sponsors by working with various GA’s 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. There should also be an explicit 

recognition on the part of state guarantee associations that GLWB/GMWB 

contracts represent obligations of any insurance company from the point of 

purchase and fees are collected and that these obligations must be preserved 

under any remedies coordinated by a state guarantee association for a troubled 

insurer, such as an assumption reinsurance or extended payout arrangement. 

• 

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? 

• Few, if any, combined solutions are currently being promoted in the institutional 

marketplace which touch on these various aspects of a retiree’s potential needs. 

• A combined product may overcome behavioral biases which would otherwise 

prevent an individual from securing potentially useful products like long-term care 

insurance. 

• The products currently available as standalone options in these areas need more 

development to be appropriate for the institutional marketplace. 

• Transparency and disclosure needs to be improved for fiduciaries to consider 

introducing these options. 

• Such products would appear to involve an even higher degree of complexity and 

risk to the individual by potentially concentrating their exposure to a single insurer 

or group of related companies. 
18 | Page

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? 

• How an accumulated asset base may be converted into income, for example, 

systematic withdrawal programs, purchase of individual annuities, the purchase 

of a laddered government bond portfolio and various forms of other lifetime 

income solutions. Description of timing risk as it applies to the sequence of 

returns one may experience in the years leading up to and after retirement. Few 

people understand how the sequence of returns will impact the value of an 

account in the presence of cash flows and a clear explanation of how different 

investors may have very different experiences depending on their need to access 

their retirement assets at different times. 

• Education about longevity risk, investment risk and inflation risk and approaches 

to mitigating it 

• Modeling tools and advice resources. 

• An example of output from a tool which uses historical market returns and bond 

yields to simulate hypothetical guaranteed income levels and the value of such 

guarantees for participants retiring between 1969 and 2009 is included with this 

response. Access to the tool may be provided at the Agencies’ request. 

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? 

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? 

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? 

• Questions 18, 19 & 20 may be partially addressed by updating existing guidance 

to modernize terminology so that it reflects many of the product innovations 

developed over the last several years and provides a clear and reasonable 

standard of care in the evaluation, selection and oversight of lifetime income 

solutions. 
19 | Page

• The establishment and maintenance of a repository of information and research 

on lifetime income options would be extremely helpful to fiduciaries in developing 

their understanding of these products and such material may serve as a basis for 

communications with participants and clients. 

• The collection and sharing of best-in-class practices may provide models for 

fiduciaries to emulate in the establishment and maintenance of their own 

programs. 

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? 

• Accrued benefits may be helpful to participants, but this information should be 

supplemented with meaningful projections which illustrate various scenarios 

under which a participant may improve the probability of reaching a desired level 

of income and/or purchasing power in retirement. 

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? 

• Income illustrations should be age-appropriate. The information needs of a 

young saver differ dramatically from someone nearing retirement. 

• Younger savers will need to understand how the level of income they may secure 

for retirement will change under various savings patterns as well as under 

various market environments. 

People nearing retirement should see illustrations of how their assets would create 

income and be subject to risk under different scenarios such as a laddered government 

bond portfolio, traditional annuities, GLWB/GMWB solutions and systematic withdrawal 

programs. 

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? 

• Payments should be illustrated in whatever periodicity is available through 

products offered in the market. Monthly & annual would be helpful along with 

weekly so as to enable people to compare these amounts to the take home pay 

they enjoy during their working year. 

• Income illustrations could be in the form of a “retirement paycheck”, as per the 

concept promoted by Financial Engines of Palo Alto, CA. 

• Income illustrations should include inflation scenarios which highlight the damage 

inflation may cause to purchasing power over time. Inflation scenarios should 
20 | Page

take into account extreme scenarios, such as the inflation experienced during the 

1970s as well as more typical levels experienced since then. 

• Both single life and J&S forms could be shown as well as the impact of taking 

early and deferred retirements due to the material reduction and increase in 

benefits which may result from such actions. 

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 same assumptions as the underlying lifetime income option is using 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? 

• Some tools are currently promoted in the market for the evaluation of metrics 

such as income replacement ratios. 

• These tools can be used to evaluate retirement plans in aggregate or sub-sets of 

the population based on various participant-level data tracked by record keepers. 

• It’s possible these would be useful for communicating such information to 

participants. 

• Most plan service providers would likely develop services for projecting income 

illustrations and including them on participant statements similar to those 

available today. At least two large record keepers are currently offering this 

service to plans. 

Should caveats be required so that participants understand that lifetime income 

payments are merely estimates for illustrative purposes? Should the assumptions 

underlying the presentation of accrued benefits as a lifetime income stream of 

payments be disclosed to participants? 

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? 

• Yes, assumptions should be disclosed and caveats for the uncertainty should be 

included, particularly as it relates to the various levels of confidence one may 

attach to obtaining income from various channels. In other words, caveats should 

distinguish between the risks of relying on a systematic withdrawal program from 

a balanced portfolio versus the risk of collecting income from an insurance 

company of from a laddered portfolio of U.S. government bonds. 

It would be helpful to issue clear and concise guidance on assumptions, but this should 

not be prescriptive or forced by any form of regulation. 

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 
21 | Page

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

individualized basis? 

• Income replacement ratios are helpful to some participants, but may be 

confusing to others. If included, replacement ratios should be supplemented with 

cash income illustrations as described above. 

• Inflation estimates should be explained clearly. 

• Inflation scenarios should be included in income illustrations as described above. 

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? 

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? 

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? 

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. 
22 | Page

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? 

Some DC plans offer annuity options as out-of-plan options for distributions. Fiduciaries 

generally rely on the protections afforded under 404a-4 when selecting the annuity 

providers for this option 

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? 

• It is very important that the Agencies clearly communicate this guidance and 

clarify how it applies to various forms of lifetime income solutions. Terminology 

and product designs in this area may be confusing and difficult to compare. Plan 

sponsors and participants would benefit from updated guidance. 

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? 

• I believe the safe harbor applies to products which are considered annuities at 

some point in their lifecycle (generally in payout and potentially before that time). 

The Agencies should provide clarification to plan sponsors that safe harbor would 

apply to products which represent annuities when a contingent event occurs, 

such as the issuance of certificates, whether notional or physical, by an 

insurance company or at the point of purchase for a contract which includes 

annuity provisions at some point in the future. 

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? 

Qualified Default Investment Alternatives 
23 | Page

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? 

• At least 150 plans in the U.S. currently use lifetime income options with 

GLWB/GMWB features embedded in the product. 

• Several large plan sponsors are currently evaluating existing products and others 

under development. 

• Features in these products include: 

• Longevity protection, payments extend for the life of the participant and joint 

recipient 

• Underlying assets are fully liquid and accessible at any time by participants 

and beneficiaries without surrender charges or other fees for liquidity 

• Most include a benefit base “ratchet” which creates the opportunity for income 

levels to increase in the event that the market value of a participant’s assets 

should exceed a previous “high watermark” set by the account value at an 

earlier date. 

• Fees & benefits are set for the life of the product and cannot change in the 

future. 

• Benefit levels for protection purchased in the future may vary based on 

changes in economic conditions, but benefits purchased are not subject to 

change. 

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, 
24 | Page

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. 

• Plan sponsors are faced with additional communications costs and the selection 

and oversight of such options requires additional resources. However, these 

vary considerably from plan to plan. It is extremely difficult to quantify them. 

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? 

• Small plans have limited access to internal knowledge and/or unbiased external 

advice regarding the intricacies of these products. 

• Small plans typically do not have sufficient resources to fully assess the costs 

and benefits of the wide range of product options available in the marketplace. 

• Small plans typically do not have sufficient negotiating power to secure 

sufficiently equitable pricing to make Lifetime Income products practical for most 

plan participants 

• It would be beneficial to most small plan sponsors if the Agencies were to issue 

and update from time to time clear and practical guidance on: 

o Which product features tend to drive costs, impact liquidity/flexibility of the 

participants, and impact portability, 

o How they might best communicate the features and benefits of such 

products to participants in their plans, and 

o Disclosure requirements for such products 

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 DC plan would likely 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, because participants would 

interpret the information available to them regarding the amount of income they 

could expect in retirement in different ways. 

• Some would potentially 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 comparison to that which they enjoy during their 

working years. 

• Others, however, might conclude that they have saved enough (and/or their 

investment returns have supplemented their savings sufficiently) to establish an 

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

of their savings to other consumption decisions during their working years. I.e., 

the purchase of a new home or repairs to an existing one, funding education for 

themselves or others, travel, charitable pursuits, etc. 
25 | Page

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? 

• Anecdotally, a very low percentage of participants choose to annuitize their 

assets in DC plans. Similarly, a large percentage of DB plan participants take 

lump sums rollovers when provided the option. This is true in other countries as 

well. For example, pension members in the UK will often take lump sum 

distributions at retirement in spite of the fact that many pensions use punitive 

commutation factors in the calculation of the lump sum values. In other words, 

participants take lump sums even though they know the present value of their 

pension payments is larger than the lump sums. 
12.00% 

Accumulated Guaranteed Rate & Annual Income At Retirement

Accumulated Rate (cohort 1) (Left Axis) Accumulated Income (cohort 1) (Right Axis)

10.00%

8.00%

6.00%

4.00%

2.00%

0.00% 

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Source: AllianceBernstein & Kevin T. Hanney, CFA
6.00%8.00%

10.00%12.00%

Accumulated Guaranteed Rate & Annual Income At Retirement

Accumulated Rate (cohort 3) (Left Axis) Accumulated Income (cohort 3) (Right Axis)

0.00%2.00%4.00%

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: AllianceBernstein & Kevin T. Hanney, CFA
40 00%

Benefit Base vs. B Ratio

(cohort 3)

1975

25.00%30.00%35.00%40.00%

Benefit Base vs. GRIP Ratio

(cohort 3)

1975

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

Benefit Base vs. GRIP Ratio

(cohort 3)

1975

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 51.25 52.25 53.25 54.25 55.25 56.25 57.25 58.25 59.25 60.25 61.25 62

25 

Benefit Base vs. GRIP Ratio

(cohort 3)

1975

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 

51.25 

52.25 

53.25 

54.25 

55.25 

56.25 

57.25 

58.25 

59.25 

60.25 

61.25 

6225 

Benefit Base vs. GRIP Ratio

(cohort 3)

w/o init investment with init investment

1975

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 

51.25 

52.25 

53.25 

54.25 

55.25 

56.25 

57.25 

58.25 

59.25 

60.25 

61.25 

6225 

Benefit Base vs. GRIP Ratio

(cohort 3)

w/o init investment with init investment

1975

Source: AllianceBernstein & Kevin T. Hanney, CFA
40 00%

Benefit Base vs. GRIP Ratio

(cohort 3)

2003

25.00%30.00%35.00%40.00%

Benefit Base vs. GRIP Ratio

(cohort 3)

2003

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

Benefit Base vs. GRIP Ratio

(cohort 3)

2003

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 51.25 52.25 53.25 54.25 55.25 56.25 57.25 58.25 59.25 60.25 61.25 62

25 

Benefit Base vs. GRIP Ratio

(cohort 3)

2003

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 

51.25 

52.25 

53.25 

54.25 

55.25 

56.25 

57.25 

58.25 

59.25 

60.25 

61.25 

6225 

Benefit Base vs. GRIP Ratio

(cohort 3)

w/o init investment with init investment

2003

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 

51.25 

52.25 

53.25 

54.25 

55.25 

56.25 

57.25 

58.25 

59.25 

60.25 

61.25 

6225 

Benefit Base vs. GRIP Ratio

(cohort 3)

w/o init investment with init investment

2003

Source: AllianceBernstein & Kevin T. Hanney, CFA
40 00%

Benefit Base vs. GRIP Ratio

(cohort 3)

2009

25.00%30.00%35.00%40.00%

Benefit Base vs. GRIP Ratio

(cohort 3)

2009

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

Benefit Base vs. GRIP Ratio

(cohort 3)

2009

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 51.25 52.25 53.25 54.25 55.25 56.25 57.25 58.25 59.25 60.25 61.25 62

25 

Benefit Base vs. GRIP Ratio

(cohort 3)

2009

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 

51.25 

52.25 

53.25 

54.25 

55.25 

56.25 

57.25 

58.25 

59.25 

60.25 

61.25 

6225 

Benefit Base vs. GRIP Ratio

(cohort 3)

w/o init investment with init investment

2009

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

50.25 

51.25 

52.25 

53.25 

54.25 

55.25 

56.25 

57.25 

58.25 

59.25 

60.25 

61.25 

6225 

Benefit Base vs. GRIP Ratio

(cohort 3)

w/o init investment with init investment

2009

Source: AllianceBernstein & Kevin T. Hanney, CFA
120 000

Benefit Base minus GRIP at 65

(across vintages, w/o init investment)

60 00080,000

100,000120,000

Benefit Base minus GRIP at 65

(across vintages, w/o init investment)

20,00040,00060,00080,000

100,000120,000

Benefit Base minus GRIP at 65

(across vintages, w/o init investment)

0

20,00040,00060,00080,000

100,000120,000

Benefit Base minus GRIP at 65

(across vintages, w/o init investment)

0

20,00040,00060,00080,000

100,000120,000

Benefit Base minus GRIP at 65

(across vintages, w/o init investment)

BB-GRIP (cohort 1) BB-GRIP (cohort 3)

0

20,00040,00060,00080,000

100,000120,000

Benefit Base minus GRIP at 65

(across vintages, w/o init investment)

BB-GRIP (cohort 1) BB-GRIP (cohort 3)

Source: AllianceBernstein & Kevin T. Hanney, CFA