Alternative Designs of In-Plan and Distribution Lifetime Income 

Options 

Mark Fortier, Head, Product & Partner Strategy 

AllianceBernstein Defined Contribution Investments 

On behalf of AllianceBernstein, I appreciate the opportunity to testify today. 

We’re a global asset management firm headquartered in New York with 

approximately $500 billion in assets under management, and we’d like to 

share our views on how to enhance the retirement security of participants in 

employer-sponsored retirement plans⎯namely, by facilitating arrangements 

that provide a lifetime stream of income after retirement. 

A convergence of powerful forces has triggered the need to address this 

important issue. Defined Benefit plans, once the main source of secure 

retirement income for many workers, have become too expensive for most 

sponsors. 

Meanwhile, DC plans have traditionally not been designed to deliver secure 

lifetime income to participants. This creates a potential retirement income 

gap for future generations of retirees. 

Of course, DC plans do have many excellent features of their own—most 

notably portability, participant control and access to funds. 

And US DC plan sponsors have invested an enormous amount of time and 

effort to improve their plans in recent years. Mostly, that was motivated by 

the desire to enhance employee benefits, but it was also encouraged by the 

protections and incentives afforded through safe harbor, offered in the 

Pension Protection Act of 2006 (PPA). 

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We believe that DC plans can preserve their beneficial aspects while also 

replicating the core benefits of DB plans⎯including widespread employee 

participation, expert investment design, low cost, and provisions for lifetime 

income. I’ll briefly describe an alternative design for an in-plan lifetime 

income option,... outline some of the current obstacles to adoption,... and 

then suggest policy changes to remove these obstacles. 

A DC plan can achieve widespread employee participation by automatically 

enrolling new and existing employees and requiring them to proactively opt 

out of the plan, rather than proactively opt in. 

Expert investment design can be provided by using target-date portfolios as 

the QDIA. Of the available QDIA choices, plan sponsors have already 

shown an overwhelming preference for target-date portfolios. Seeking 

greater flexibility, transparency, investment manager diversification and 

lower cost, sponsors of large DC plans are increasingly adopting custom or 

“open-architecture” target-date portfolios. All of these recent advancements 

are positively impacting participants. 

However,... with so much being done to help participants to save and invest 

until retirement, why has there been so little progress in helping them 

beyond retirement? 

While delivering secure retirement income to participants appeals to many 

DC sponsors, to date they’ve been reluctant to provide such products due to 

a lack of adequate incentives and protections. I’ll discuss this further, but 

first, let’s review what participants might want and need in terms of secure 

lifetime income in their DC plan. 

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Many academic papers make a persuasive case that a traditional annuity 

offers much higher income potential and security than giving participants a 

lump sum at retirement. But when DC plan sponsors offer participants the 

choice between a lump sum with complete control ... and an income stream 

with no control, virtually all participants choose the lump sum. ... Why? 

Academic papers on annuities typically assume that the sole motivation of 

retirees is to maximize their annual income for the rest of their life. But it is 

well documented that retiree needs and circumstances are far from uniform: 

How much retirement income participants require, when they require it, and 

whether they would like to leave money to their beneficiaries vary widely 

from participant to participant. It also varies widely for any one participant 

over time, since unexpected health issues or other life events can radically 

alter a participant’s financial circumstances. 

As a result, most retirees or near-retirees simply don’t want to lose control of 

their investments or access to their cash. Buying a fixed annuity requires the 

participant to make an extremely complicated and difficult emotional 

decision to surrender lifelong savings. ... This is perhaps the most important 

financial decision of their lives ... and one that most are unwilling to make. 

And whether the annuity is purchased automatically or by choice, waiting to 

annuitize until retirement creates enormous timing risk: Participants who are 

unlucky enough to retire just after a market drop or at a time when interest 

rates are low, would obtain much lower guaranteed income than participants 

with similar contribution and investment histories who were lucky enough to 

retire after a period of strong market returns when interest rates are high. 

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Fortunately, it’s not necessary to choose between giving participants full 

control of their savings (with no secure income) ... versus an irrevocable 

annuity (with no liquidity or control). 

There’s a range of annuity contracts that offer varying degrees of control ... 

typically with some reduction in the level of guaranteed benefit. This would 

seem a sensible balance to meet the needs of DC plan participants who 

desire a baseline of secure retirement income but also value control and cash 

access. 

We believe that one such benefit, known as a Guaranteed Lifetime 

Withdrawal Benefit, is particularly appropriate for use in DC plans. A 

withdrawal benefit provides annual lifetime income, preserves participant 

control and allows participant assets to remain invested in the capital 

markets, providing the potential for capital appreciation. 

We believe that combining a target-date portfolio with a withdrawal benefit 

can create an attractive QDIA ⎯ one that provides secure lifetime income 

similar to what’s offered by a traditional DB plan, but with the control and 

upside potential of a DC plan. I’ll refer to this alternative design as a “secure 

income target-date portfolio.” 

Here’s how it works: 

In “secure income target-date portfolios”, the guarantee is a component of 

the target-date portfolio’s asset allocation. Starting at around midlife, more 

and more of the portfolio’s assets are automatically covered by guarantees. 

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And the guarantees can be backed by multiple insurers. 

What this helps do is promote price competition. ... It also addresses the risk 

that any one insurer might default or run out of capacity to guarantee more 

assets. 

In our conversations with sponsors, they felt that having the guarantee 

backed by multiple insurers was more than nice ... it was a necessity. 

Also, quarterly statements for participants could include two other items 

along with their current account balance: the annual lifetime income they’ve 

accrued so far ... and estimates of the annual income they might accrue by 

retirement. DC plan investing and communications would move from a 

focus on account value alone toward focusing on retirement income. This 

could help participants gain a sense of retirement security. 

We believe DC plans should consider automatically enrolling employees 

into a QDIA that incorporates lifetime income guarantees ⎯ such as secure 

income target-date portfolios. We believe this can offer workers the best 

attributes of DB plans within a DC plan framework 

Despite these potentially transformative advantages for DC participants, 

very few plans today offer investment strategies with lifetime income 

guarantees as their plan default option. 

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We believe there are two primary ways that policymakers could help 

promote wider use of lifetime income strategies within DC plans: 

First, concerning safe harbor provisions: It’s unlikely that plan sponsors will 

adopt in-plan lifetime income solutions without safe harbor protection 

should an insurance provider fail. Of course, this safe harbor would require 

that the fiduciary who selects the annuity provider conducted appropriate 

due diligence in selecting the insurer. 

Right now, the safe harbor that protects fiduciaries who select annuity 

providers for DC plans only seems to apply to traditional annuities ... and it 

doesn’t clearly extend to other types of guaranteed lifetime income products. 

We feel the rule should be revised to explicitly incorporate a broader class of 

guarantees. 

Along with this, policymakers should clarify that QDIAs can include a 

broader class of guarantees. We recognize that current regulations 

contemplate the incorporation of guarantees within a QDIA, but the DOL 

could remove any uncertainty by clarifying the various forms of guarantees 

that a QDIA could provide, and also that safe harbor extends through the 

payout phase of such a QDIA. 

Second, the rules related to qualified joint and survivor annuities and spousal 

consent need clarification. When retired participants make irrevocable 

decisions to annuitize benefits over their lifetime, the qualified joint and 

survivor annuity rules ensure that surviving spouses have a meaningful 

opportunity to protect themselves against loss of income. But with the type 

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of secure income target-date portfolios I described, participants retain 

control and therefore don’t make irrevocable elections. 

We feel the Department should remove any ambiguity in the qualified joint 

and survivor requirements when providing secure income target-date 

portfolios and other guarantees that do not entail irrevocable decisions. 

Critically, the administrative requirements for sponsors should be clear and 

simple. For example, it would help if the regulations clarified that a simple, 

one-time waiver with no additional elections or waivers be required. 

We’ve seen extraordinary advances in DC plans over the past decade, 

especially since the PPA and your department’s further clarifications. The 

next step is to help Americans achieve sustainable sources of income 

through retirement. 

We believe that the actions we’ve outlined offer significant and meaningful 

ways to help DC participants ... and AllianceBernstein would be happy to 

assist the Agencies in any way to further advance the retirement security of 

US workers. 

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