RIN 1210-AB33 Page i of 10 Pages 

Reply to: 

DEPARTMENT OF LABOR 

Employee Benefits Security Administration 

29 CFR Parts 2509, 2520 and 2550 

RIN 1210–AB33 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

RIN 1545-BJ04 

Request for Information Regarding Lifetime Income Options for Participants 

and 

Beneficiaries in Retirement Plans
 

RIN 1210-AB33 Page i of 10 Pages 

Table of Contents

Reply for RFI : 28Feb10....................................................................................................................2

1.1 Original Deferred Compensation Plan Goals:................................................................2

1.2 Concerns Raised in : 29 CFR Parts 2509, 2520 and 2550: ........................................3

1.2.1 Insufficient Contributions:..................................................................................................3

1.2.2 Investment Knowledge and Expertise:............................................................................3

1.2.3 Payout Options: ..................................................................................................................3

1.3 Proposed Remedy: ............................................................................................................4

1.3.1 Only offer Annuities:...........................................................................................................4

1.3.2 Annuitize funds upon withdrawal: ....................................................................................4

1.3.3 Not Listed : Leave Everything Alone:..............................................................................4

1.4 Comments on Annuity ‘Remedy’: ....................................................................................5

1.4.1 Option One: Annuities Only: .............................................................................................5

1.4.2 Option Two: Annuitize upon Withdrawal:........................................................................5

1.4.3 Option Three: Leave Everything Alone:..........................................................................6

1.5 Thoughts on Better Corrective Action: ............................................................................7

1.5.1 Counter Proposal: ..............................................................................................................7

1.6 Conclusions:........................................................................................................................9
 

Reply for RFI : 28Feb10 

Responder: 

Dennis Worden 

3637 Bernal Ave 

Pleasanton, CA 94566 

I am an individual investor, and am not any of: 

 Employed, contracting, or receiving any financial benefit from investment companies; 

 An individual financial consoler or provide advice in any publication or blog; 

 Interested in this RFI for any reason other than my personal retirement investments. 

1.1 Original Deferred Compensation Plan Goals: 

In general terms, the original goal of the Deferred Compensation plans (401k, 403b, IRA) was 

to incentivize individuals to provide for their own retirement and not rely exclusively on Social 

Security in retirement. With the decline of classic Pension Plans, Social Security was 

changing from the original intent of providing a “supplemental income source" to becoming 

the main retirement income source for the average employee in the US. In 1978, Congress 

changed the relevant IRS code sections providing for increased deferred compensation 

investment as an incentive for individuals to provide for their own retirement. This was to 

contribute to the following: 

 Minimize the proportion of the population that relies solely on Social Security for their 

retirement income; 

 Reduce the alarming growth rate of Social Security costs as a percentage of the 

Federal Budget, especially as the “Baby-boomer” generation begins retiring in 2011. 

There may well have been other subordinate goals and agendas associated with this act 

(both original and subsequent) however, in the terms that this was “sold” to the general 

public, this was the primary goal and was supported by the public.
 

RIN 1210-AB33 Page 3 of 10 Pages 

1.2 Concerns Raised in : 29 CFR Parts 2509, 2520 and 2550: 

As I read the original document and several of the documents referenced in the RIF, I have 

distilled the essence of the concerns into the following key issues: 

1.2.1 Insufficient Contributions:

Department of Labor analysis has shown that the average 401k / IRA contributor is 

not contributing sufficient funds into their accounts to meet their retirement needs; 

1.2.2 Investment Knowledge and Expertise: 

Most Americans lack the sophistication necessary to properly manage their 

retirement funds. Between the high number of investment vehicles and the various 

risk/reward tradeoffs, Americans can not effectively manage their own money. 

1.2.3 Payout Options: 

Even if most Americans managed to retire with sufficient funds, lump-sum payouts 

would still require highly sophisticated investors, and that would result in many 

Americans burning through their savings too quickly; 
 

RIN 1210-AB33 Page 4 of 10 Pages 

1.3 Proposed Remedy: 

The document being commented on proposes requiring 401k and IRA funds to offer in part or 

whole an annuity to ensure a lifetime income stream to the retiree. Part of the “Request for 

Comment” is what would be the correct proportion up to 100%. There are two ways to do 

this, however, the document isn’t clear on which method, or perhaps both, would be favored: 

1.3.1 Only offer Annuities: 

This method eliminates all other investment vehicles within a 401k or IRA (stocks, 

bonds, mutual funds, etc) and only allows one to purchase an annuity. The annuity 

would accept contributions during one’s employment years to guarantee an income 

stream upon retirement; 

1.3.2 Annuitize funds upon withdrawal: 

This method allows the account holder to continue to direct their 401k and IRA 

investments into whatever vehicles they desire (within the 401k / IRA rules) for 

maximum growth. Upon declaring retirement, the funds are used to purchase an 

annuity that would pay out a steady income stream during retirement. The plan 

doesn’t specify who the annuity provider would be. 

1.3.3 Not Listed : Leave Everything Alone: 

This option would mean no substantive changes in how the deferred retirement 

accounts are handled. Whatever benefits and drawbacks (actual and perceived) 

exist today will continue as is. 
 

RIN 1210-AB33 Page 5 of 10 Pages 

1.4 Comments on Annuity ‘Remedy’:

Nothing in either proposal addresses the concern that Americans are not saving enough in 

their deferred savings accounts to provide for their retirement. Neither annuitising nor not 

annuitizing the accounts at any time from initial contribution through fund withdrawal 

addresses the savings rate. 

The initial goal was to encourage savings through providing tax-deferred status to the monies 

put into these accounts. With the ever increasing percentage of Americans that do not pay 

Federal taxes (nearly 50% of income earners in 2010) the advantage of tax deferred 

accounts is lost, and the penalty of tying up savings with withdrawal penalties until aged 591⁄2 

outweighs everything else. It would be instructive to see if the proportion of savings has 

shifted from tax deferred to after tax accounts for lower income people because of the lost tax 

benefits. 

1.4.1 Option One: Annuities Only: 

The first option looks very much like Social Security which is the largest “annuity” in the 

country, and perhaps the world. Individuals pay into the system and in return, get a lifetime 

income upon reaching retirement age. However, Social Security differs from private annuities 

in several key ways: 

 There are no “fixed rules” with the US government as there would be under contract 

law with a private Financial Services companies. Congress regularly changes the rules 

affecting both the Social Security contributions as well as the benefits Also well 

known, is that the Social Security funds paid in over decades have been used to 

minimize the federal deficit and only exist in the form of Treasury IOUs; 

 Given that significant Social Security monies have been diverted for general budgetary 

purposes since 1964 and that starting in 2010, Social Security collections no longer pay 

for current Social Security benefits, Social Security is now a Ponzi scheme where 

current “investors” pay for current “beneficiaries”. Without some combination of 

increased FICA taxes and reduced benefits, this is an unsustainable program. 

(Reference preceding comments about changing the rules after the game as started.) 

 If the retiree manages to generate extra retirement income (continued employment, 

outside investment, etc) then Social Security penalizes them by “means testing” away a 

significant portion of the otherwise promised income stream. This “means testing” 

would be extended to the annuity as well. If the means-testing limits aren’t changed, 

virtually ALL of the annuity income could be wiped out due to outside income. 

Essentially, the government would have confiscated the total account. 

 In a private annuity, larger contributions purchase a larger retirement income stream 

while in Social Security, the benefit is limited. Above a certain contribution level, one 

gets nothing more for their increased FICA tax; 

In fact, there is a substantial chance that this action will eventually lead to the absorption of 

ALL deferred retirement accounts into the Social Security and will be used to finance the 

federal budget and not for the benefit of the original savers. 

1.4.2 Option Two: Annuitize upon Withdrawal: 

The second option allows more flexibility and potentially greater principal grown than an 

immediate conversion to annuities would allow, however, they still require a certain savvy 

ness in the account holder to manage the risk/reward. 

 The second option still requires a certain savvy-ness in managing the monies invested 

in the retirement account prior to withdrawal. Depending on how the resultant funds 

are converted to an annuity upon withdrawal, it might also suffer from some or all of the 

drawbacks of the first option as well. For instance, should the annuity be “purchased” 

by the Treasury and paid out in a “Social Security” fashion, it would probably still be a 

means tested and subject to the dictates of Congress; 
 

RIN 1210-AB33 Page 6 of 10 Pages 

 It is interesting to note that while this plan is targeted toward “preventing substantial 

market losses” in retirement accounts, it ignores the fact that it also prevents 

“substantial market gains” at the same time. In fact, for non-savvy investors that invest 

over the long term (20 years or more out of a potential 45 working years) the market 

always gains. 

1.4.3 Option Three: Leave Everything Alone: 

What are the implications for these Annuity options for American retirees? This depends 

almost totally on the type of “plan” that would be instituted. Unfortunately, the original 

document is very light on details. 

 Whatever details are included in this proposal and/or the final act only define how the 

initial program would operate. Once anything gets into the Federal government’s 

control, it is subject to the political winds of Congress. Rule changes and 

“clarifications” will change the original act into something completely different. The 

best “guarantees” of one Congress are worthless when the next Congress or 

Administration comes of age; 

 Nobody can protect someone from themselves. If an investor chooses to make risky 

investments with or without adequate knowledge, the only way to “protect” them is to 

confiscate their money and dole it out them later when they need it, less the 

obligatory Federal duty. Unfortunately, this has two drawbacks: 

 Penalizes the diligent investor that understands that risks sometimes entail a 

loss and plan accordingly. The penalty prevents those diligent investors from 

controlling their own future, and eliminates the opportunity to successfully 

invest for their own future; 

 Any reduction in investment yield (either by the government or by forced use of 

substandard investment vehicles) represents a loss to the investor. When 

averaged over the general public, this will represent a lowering of the average 

American’s life standard. 

 Annuitizing deferred investments doesn’t solve the safety problem. Annuities are 

sold as a guaranteed benefit very similar to the Defined Benefits programs like the 

classic Pensions. Annuity providers will do one of the following: 

o Fully fund the annuity. This entails providing a lower than market return rate 

using the safest securities (US Treasuries less operating expenses) to ensure 

the final payoff, or 

o Use overly optimistic growth estimates / under fund the annuity. 

Should the first option occur, the annuity owner receives less than they otherwise 

would have received. Simply investing half in US Treasuries and half in major market 

index mutual funds will yield better than US Treasuries over a longer term. (Note that 

anyone can pick a specific year range to conclude anything about market 

performance. The “lost decade” of 2000 to 2010 looks very different if a slightly 

different decade is used: 1995 to 2005 yielded 165% gain.). 

If the second option occurs, the more aggressive annuity providers will fail and we’re 

back to the government bailing out the annuity providers to avoid the political fallout. 

After all, investors will have been sold the idea that annuitizing their savings would 

guarantee the promised payoff, and they won’t let the political leaders off the hook for 

that promise. 

 The inevitable endpoint of this process is to move all independent investor’s deferred 

accounts into the Social Security system. This is the only way the government can 

“guarantee” the promise of an annuity’s payout. Note that the government 

guarantees this by changing the rules on both contributions and benefits as their 

funding assumptions prove inadequate. This represents the confiscation of monies 

carefully set aside and managed by an estimated 80 million Americans as of 2008. 
 

RIN 1210-AB33 Page 7 of 10 Pages 

1.5 Thoughts on Better Corrective Action: 

The thrust of this proposal is that individual Americans can’t be trusted with their own futures. 

The hidden agenda is that by absorbing these deferred funds into the Federal government, 

some or all of this money would be available for funding the federal budget (forget about debt 

reduction, at best it might slow debt growth). History has shown that NO government can 

safeguard a “pot of money” without spending it today in the hopes of replacing it before the 

owner shows up. However, with huge federal deficits for the indefinite future, the chance of 

replacing ANY funds is zero. Therefore, if the Federal government gets hold of any of these 

funds, it represents the confiscation of those funds from the legal owners. 

The starting point must NOT be a belief that the American public can’t take care of itself, it 

must be that if sufficient education is provided to Americans, they can take care of 

themselves. No matter how much the government pretends that it can safeguard citizens 

from themselves, the promises made will be unsustainable, and eventually a very upset 

public will realize they’ve lost again. 

1.5.1 Counter Proposal: 

Ensure that ALL deferred savings plans offer a full range of “qualified” investment 

vehicles and brokers:

 Create a list of “qualified investment vehicles” as suggested below (non-inclusive): 

 US Treasuries (considered safest investment). This would provide the same 

“security” as a Social Security takeover of funds while maintaining proper 

ownership rights. Investors get the same security without the rule change risk 

which always ends up with more premium for less benefit; 

 Money-Markets (considered highly safe, some additional risk) as very liquid 

investments allowing one to move money quickly without charge. This provides the 

ability to adjust for major economic conditions; 

 Mutual Funds (domestic & foreign) (considered higher risk but greater reward so 

some individual fund qualification might be needed). 

 Individual Stocks & Bonds (higher risk than Mutual Funds since there is no 

diversification within a given stock). 

Remember, anyone can invest in any “non-qualified” investment with their non-deferred 

savings. The goal is to limit risk to the tax deferred accounts. 

 Create a list of “disqualified investment vehicles” that represent either too much risk, or 

too difficult to monitor (non-inclusive): 

 Derivatives more than one step removed from an underlying asset (this would allow 

Mutual Funds, but not CDS’s or CMO’s, etc). Individuals can always invest with 

non-deferred funds if they want to; 

 Investments in the employer’s stock (ala Enron). If an individual wants to invest in 

their employer’s, there are non-deferred investment opportunities; 

 Investments whose relative value (stock prices or Mutual Fund NAVs as examples) 

can’t be readily verified; 

 Highly illiquid investments which can’t be readily traded. This locks in investments 

with little change of active management. 

 Create a list of qualified investment companies. All retirement deferred accounts must 

be registered and administered through these qualified companies (no Bernie Madoff’s 

here). (I suspect there’s already some level of control here.) These investment 

companies would meet certain investment practices (non-inclusive): 

 Trade on Public Exchanges. These brokers meet reporting standards such as 

listing funds on publicly traded exchanges that report fund NAVs daily; 

 Publicly Owned with an independent Board of Directors; 
 

RIN 1210-AB33 Page 8 of 10 Pages 

 Companies that undergo annual audits and SEC reviews. 

Provide better education for individual investors: 

 Create a simpler preface to the Prospectus that explains the investment goals and risks 

for any particular investment. Leave the detailed accounting information in the main 

following sections, and target this preface to risk/reward tradeoffs. Provide some kind 

of comparison against other risk categories. Much of this already exists with most 

major investment companies. The most difficult part is to set Prospectus standards 

that make sense; 

 Create an investment strategy booklet that is distributed as part of the 401k/403b/IRA 

investor signup package. All of this information is already available online from the 

larger investment companies, so it wouldn’t be difficult. (The best option would be to 

require an investment and money management course requirement in high school so 

the US doesn’t continue to graduate fiscally ignorant citizens.) Lacking public school 

education, an industry website monitored by the SEC for accuracy that explains 

investment risk/reward and strategy (but not advertise either investment companies or 

vehicles) would help prevent ignorant investment strategies. 

Prevent Unethical or Unsustainable Investments:

 Start all contribution allocations in US Treasuries or Money Markets. Though the yield 

is small, it is very safe. For those investors that don’t understand the market, they can 

just leave it there, and it will provide the same growth opportunities as an annuity; 

 Better SEC monitoring of investment companies. As is well know, the SEC had over a 

decade of clues, allegations, and proof handed to them about Bernie Madoff but failed 

to follow-up on any of it. This begs two questions: 

 Why should the American public’s deferred funding be put at risk for the SEC’s 

failure? 

 If this is the best the SEC can do, why would we trust the Treasury (another 

government agency) to do better? 

Fix the SEC first before confiscating private funds. 

 Prohibit investment in derivatives or any investment vehicle removed more than one 

step from the underlying security. Investing in pools of swapped agreements 

concerning what-if scenarios isn’t investing, it’s speculating. With Mutual Funds, the 

investor owns funds of the Mutual Funds but not directly in the underlying stock or 

bond. This is the “one step removed” limit. If an investor really wants to get involved in 

the more arcane investments, they can do so with their own after-tax investment 

money; 

 Prohibit the Federal Government from getting involved in ANY of the tax deferred 

retirement accounts. There’s no difference between a criminal such as Bernie Madoff 

stealing one’s retirement account and that same account disappearing into the US 

Treasury never to be seen again. In the end, the funds have been stolen from the 

investor. 
 

RIN 1210-AB33 Page 9 of 10 Pages 

1.6 Conclusions: 

No policy can force people to save for retirement, so that is not a valid justification for any 

changes to the existing system. This whole subject of inadequate savings rates needs to be 

removed from RIN 1545-BJ04 as it is irrelevant. 

Any attempt to “fix” the deferred retirement accounts (401k, 403b, IRA, etc) is based on the 

false assumption that the government can protect the typical American from themselves while 

providing “better” financial security. Based upon both the RIN 1545-BJ04 document, other 

political documents (Ghilarducci’s paper for the Economic Policy Institute on Nov. 22, 

2007), and the current economic situation, it is clear that the real motivation behind this action 

is to begin the process that will result in the movement of privately held retirement funds into 

the Treasury to help cover the immense Federal deficits now being spent. With Social 

Security now paying out more that it collects (an ever increasing problem with the retirement 

of the baby-boomer generation) it will become a more politically attractive alternative to 

confiscate private funds to minimize the combination of reduced benefits and increased FICA 

taxes. Hence, there is NO benefit to any investor whatsoever from this plan. 

While there are educational enhancements and better SEC oversight opportunities to 

minimize investor loss through either ignorance or fraud, nothing any government can do will 

provide a better retirement funding vehicle for the average investor. 

The conclusion here is NOT to implement any changes that would annuitize accounts or 

anything that would move the system toward a merging with Social Security. 

Thanks You 

Dennis Worden