SHAPING AMERICA’S RETIREMENT

714 HOPMEADOW STREET, SUITE 3 • SIMSBURY, CT 06070 • (860) 658-5058 • WWW.SPARKINSTITUTE.ORG

Filed Electronically

May 3, 2010 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5669 

U.S. Department of Labor 

200 Constitution Ave., NW 

Washington, DC 20210 

Re: Lifetime Income Solutions Request for Information

Ladies and Gentlemen: 

The SPARK Institute, Inc.1 appreciates this opportunity to respond to the Request for 

Information (“RFI”) that was issued by the Department of Labor (“DOL”) and the 

Department of the Treasury (together, the “Agencies”) on February 2, 2010 regarding the 

availability and use of lifetime income solutions in connection with retirement plans. The 

SPARK Institute’s members include retirement plan service providers and investment 

managers, including record keepers, mutual fund companies, and insurance companies who 

will be among those responsible for developing products and providing services to make 

retirement income solutions more accessible to Americans. Our members will also ultimately 

play a critical role in educating plan sponsors and participants about the various lifetime 

income products and services available to them, both within and outside of employersponsored retirement plans. 

At the outset, we commend the Agencies for issuing the RFI and providing retirement plan 

industry stakeholders an opportunity to share their collective expertise. As a whole, the 

industry is keenly aware of the need for solutions that can provide lifetime income options to 

working Americans. While Social Security provides the foundation for this lifetime income, 

too many Americans are dependent solely on this source. Closing the gap between Social 

 

1

The SPARK Institute represents the interests of a broad based cross section of retirement plan service 

providers and investment managers, including banks, mutual fund companies, insurance companies, third 

party administrators and benefits consultants. Members include most of the largest firms that provide record 

keeping services to employer-sponsored retirement plans, ranging from one-participant programs to plans that 

cover tens of thousands of employees. The combined membership services more than 62 million employersponsored plan participants. 
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Security and personal savings must be an urgent priority to avoid the possibility that an entire 

generation will face poverty in retirement. 

Encouragingly, the retirement plan and investment management industries have provided 

solutions in the past and continue to develop new solutions. All of The SPARK Institute’s 

members recognize that retirement income is a critical component of financial planning, and 

their various business models create a broad spectrum of ideas and solutions to this issue. The 

SPARK Institute believes that the Agencies can and will play an important role in making 

retirement income solutions more readily available and understandable to plan sponsors and 

participants, allowing them to choose what is most appropriate for them. We do not advocate 

any particular product or service and urge the Agencies to maintain a competitive 

environment where a diverse mix of solutions are available, with plan sponsors and 

participants retaining the discretion to voluntarily utilize the option(s) that best meets their 

needs. 

It is important to note that the retirement plan and investment management industries are 

actively working to provide and increase access to lifetime income solutions. For example, 

products exist today that can be record kept and standards are being developed to make 

administration easier and more efficient across the board. The retirement plan industry is 

structured to deliver education, and is collectively learning to do so in ways that are faster, 

easier, and more affordable for plan sponsors and participants. We are also learning how to 

address portability issues. This has already been accomplished with respect to retail lifetime 

income solutions, and some of the lessons learned there are being adapted for the institutional 

side. However, as discussed more fully in our response, a number of barriers exist in 

connection with employer sponsored retirement plans. 

The SPARK Institute is also developing standards that can be used by various lifetime income 

providers in exchanging data with record keepers. This will help mitigate the challenges 

faced by all lifetime income product providers in obtaining and exchanging information from 

plan record keepers (when they are different companies). This initiative is being undertaken 

by a task force of more than 30 companies, including all the major providers of lifetime 

income products, as well as the leading record keepers of defined contribution (“DC”) plans. 

A successful introduction of standard file layouts in this area could have a significant impact 

on reducing the cost and subsequent availability of these types of arrangements to 

participants. 

Despite these strides, as noted above, significant barriers to lifetime income products exist - 

and it is here that we believe the Agencies can have the greatest impact. Plan sponsors are 

reluctant to offer these solutions, creating a lack of access for millions of plan participants, 

largely due to concerns about fiduciary standards. The Agencies can help mitigate plan 

sponsor’s fears by providing broad, permissive and clear guidance. 

Our responses to the RFI and our positions set forth herein reflect the views of the vast 

majority of our members, who collectively service more than 62 million DC plan participants. 

We note that our responses are intended to provide the information requested by the Agencies 

in an impartial manner, and are not intended to advance a position for or against certain 
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products and services. In certain responses we urge the Agencies to provide additional relief 

and guidance in order to facilitate the provision of information and education to participants 

and retirees related to lifetime income solutions, and to assist plan sponsors as they determine 

the best course of action. 

SECTION 1- GENERAL

Question 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? 

A wide variety of lifetime income products are currently available in the marketplace, the 

advantages and disadvantages of which can vary depending on their specific features. The 

specific advantages and disadvantages described below may be more (or less) significant for 

one product than another. Please see our response to Question 3 for a more detailed 

description of major product types. 

A. Advantages

Perhaps the most significant advantage to participants of receiving some or all of their 

plan benefits in the form of lifetime payments is that it can provide a floor amount of 

income that is guaranteed for life. For many American workers, Social Security and 

pension benefits, if available, may not provide enough guaranteed income to cover their 

basic living expenses. Receiving some or all benefits in the form of lifetime payments 

can also help mitigate certain financial and other risks, and protect savers from exercising 

bad financial judgment. The advantages are discussed in greater detail below. 

1. Mitigation of longevity risk by guaranteeing a stream of income to cover basic living 

expenses - Traditionally, this need has been met by pension plans and Social Security 

payments. However, with many employers having terminated or frozen pension plans 

in favor of DC plans, American workers must increasingly rely on DC plan accounts, 

as well as Individual Retirement Accounts (“IRAs”) and personal savings for financial 

security in retirement. Additionally, Americans are living longer, and the average 

worker expects to spend 20 or more years in retirement. The combination of the 

factors listed above has resulted in the potential risk that many participants may 

outlive their savings. Using some or all of the DC savings balance to generate a 

lifetime income stream can provide a layer of financial security throughout the length 

of the retirement period. 

2. Mitigation of market risk by “locking in” investment gains or offering a fixed rate of 

return - Financial markets’ fluctuation over time and recent experiences have 

reminded everyone that severe volatility can occur and can quickly erode retirement 

savings. For retirees and savers who are close to retirement, diminished account 

balances can significantly reduce their retirement income, particularly when 

withdrawals are made during market downturns. Lifetime payment options associated 
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with some products can mitigate these risks by providing a fixed rate of return (fixed 

annuities) or by “locking in” investment gains without exposing participants to the risk 

of investment losses (e.g., “GMIBs” and “GMWBs” as defined in our response to 

Question 3). 

3. Mitigation of asset management risk by effectively managing distributions for 

participants - Retirement plan participants often lack the ability, desire or discipline to 

develop and follow a long term disciplined retirement income distribution strategy. 

The vast majority of participants over-estimate the amount of money that they can 

withdraw from their retirement savings for living expenses and under-estimate the 

length of time that they need their savings to last. The resulting mistaken financial 

decisions can have significant and long-lasting, even permanent, negative consequences 

for retirees. Facilitating access to financial guidance, education and advice may help 

mitigate these risks. 

B. Disadvantages

The disadvantages of participants receiving some or all of their benefits in the form of 

lifetime payments include: 

1. Loss of Flexibility/Access to Assets - For some products, the decision to receive 

benefits in the form of lifetime payments may be irrevocable. In addition, some 

products do not allow the participant to withdraw assets above the scheduled payments 

without significant penalties. If the decision to receive lifetime payments is 

irrevocable and in the form of an annuity, the participant’s estate could be reduced if 

the participant dies prematurely without a sufficient death benefit. The participant’s 

estate would not be similarly reduced if the lifetime payment is not in the form of an 

annuity. However, certain products currently on the market afford a higher degree of 

flexibility, including the ability to access the principal or cancel the guarantee without 

penalty. 

2. Timing - If the timing of the annuity election is not flexible, the participant may find 

that the annuity is not appropriate from tax and long-term planning perspectives. For 

example, if a participant plans to work in retirement the annuity may prove to generate 

additional and unwanted taxable income. Further, the participant may want to defer 

annuitization to increase his payout (much like deferring receipt of Social Security 

benefits). It is important to note that many lifetime income products available today 

allow flexibility with respect to the timing for when payments commence. 

3. Cost - Products which offer guaranteed lifetime income options typically require 

additional fees to cover the cost of the guarantees. In addition, the pricing of lifetime 

income products can be complex with differing methodologies for fee disclosure. The 

cost implications may not be readily apparent to many participants. 

4. Single Carrier Risk - The majority of lifetime income guarantees are currently backed 

by a single insurance company. If the insurance company backing these guarantees 

becomes insolvent or goes bankrupt, the participant could be at risk of not receiving 

their full amount of guaranteed income throughout retirement. Such risk is mitigated 

by protections provided by state life and health insurance guaranty associations. 
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Furthermore, insurer insolvency has historically been a rare event due to strict 

reserving requirements and state monitoring. 

5. Point-in-time Risk - Certain fixed annuity income options will be impacted by the risk 

that annuity rates change on a weekly or daily basis. Participants who purchase a 

distribution annuity in a low interest rate environment will receive lower long-term 

payments than participants who do so when interest rates are higher and annuity rates 

are more favorable. This risk can be mitigated by incremental purchases of either 

traditional annuities or annuities with living benefits. We note that this risk does not 

apply with respect to products that allow participants to benefit from market gains 

during both the accumulation and distribution phases. 

6. Inflation - Some guaranteed income products do not offer inflation protection. 

Without a cost of living adjustment (“COLA”) or inflation adjustment feature, 

retirees’ purchasing power will erode over time. However, some guaranteed income 

products offer the option of a COLA or inflation protection and many variable 

annuities offer market participation and potential growth, while still providing 

minimum withdrawal and or income benefits for life. We note that this risk does not 

apply with respect to lifetime income products that adjust for market gains. 

It is important to note that product providers continue to innovate and create new products 

that are specifically designed to address and further mitigate many of the disadvantages 

described above. The descriptions above may not necessarily apply to all products 

available in the market today. 

C. Non-Guaranteed Products and Services

We note that, in addition to annuitizing retirement savings, other financial products and 

services are available. For example, some investment firms have introduced income 

replacement funds and managed payout funds that generate regular, but non-guaranteed 

payments for retirees. Further, systematic withdrawal programs can also be established to 

generate non-guaranteed retirement income payments. Although these products and 

services do not provide guarantees they can provide participants greater flexibility and 

control over their retirement savings compared to annuitized products. 

Question 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? 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.)? 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? 
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Many of the DC plan participants who do have access to a plan’s lifetime income option take 

their balance in a lump sum and roll that lump sum over to an IRA, often to consolidate 

multiple accounts, as well as gain access to a broader array of options and more flexible 

distribution arrangements. Additionally, IRA owners may take partial distributions, as they 

need the money, take systematic withdrawals, or simply leave the money to accumulate and 

ultimately take required minimum distributions. It is estimated that in 2010, $515 billion in 

qualified plan account balances will be available for lump sum distributions. Approximately 

$265 billion are projected to be rolled over into IRAs.2 To the extent those assets are 

ultimately used to purchase annuities, participants may be paying a higher price for receiving 

guaranteed lifetime payments than they may otherwise pay for receiving the same benefit 

directly through their DC plan. 

Other factors that may lead to DC plan participants declining to utilize lifetime income 

arrangements include the following: 

 

1. Desire to Maintain Greater Flexibility - Many participants want to maintain flexibility to 

respond to unexpected financial needs or to leave bequests for their heirs. Such 

participants are less willing to make an irrevocable decision with their retirement savings, 

even if it offers a competitive long-term investment return. We note, however, that some 

lifetime income products provide flexibility for participants to take excess withdrawals or 

provide a death benefit (e.g., lump sum payment to the contract owner’s heirs). 

2. Lack of Understanding - Many participants do not understand retirement income products 

and the features that are available, especially as the “next generation” of retirement 

income options enter the market. While many participants have become educated about 

how to save for retirement, they are generally less knowledgeable about how much 

income they will need to generate from their savings and how to do so. A wide variety of 

retirement income product features, coupled with differing naming conventions and 

descriptions of these features make it more difficult for participants to understand their 

retirement income options. Research shows that annuities are widely misunderstood and 

often have a negative perception in the marketplace, with the majority of participants 

unaware of how broadly features may differ between different types of lifetime income 

products and among different providers. Additionally, financial advice from professionals 

who understand retirement income products is generally not readily available to plan 

participants when they retire or leave the plan. 

3. Costs - Products that offer guaranteed lifetime income distribution options typically 

require additional fees relative to non-guaranteed options and many participants do not 

understand the value of the guarantee that they receive for the added costs. 

4. Counterparty Risk of Seller Insolvency - Participants are uncertain about trusting a single 

financial institution to guarantee their income, and are generally unaware of what would 

happen to their assets and guarantees if the guarantee provider were to become insolvent 

or go bankrupt. Such risk is mitigated by protections provided by state life and health 

insurance guaranty associations. Insurer insolvency has historically been a rare event due 

to strict reserving requirements and state monitoring. Additionally, for participants with 

 

2

Brightwork Partners, "Distributions from Qualified Plans, Projected to 2010.”
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larger balances, the risk can be further mitigated by splitting the lifetime income among 

multiple insurance carriers. 

5. Poor Financial Judgment - Unfortunately, many plan participants may disregard the need 

for lifetime income and spend savings inappropriately. 

Question 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? 

Traditionally, the types of lifetime income options available to participants directly from plans 

included distributions from defined benefit plans (which by definition provide lifetime 

income), or potentially the option to annuitize DC plan assets at retirement. Some DC plans 

make systematic withdrawals or installment distributions available, in addition to making 

Required Minimum Distributions (“RMDs”) available, as required by law. However, very 

few DC plans offer any type of in-plan lifetime income option.3

 

Recent innovations have increased the types of lifetime income options that are currently 

available to DC plan participants. Among the most significant innovations are in-plan options 

that allow participants to guarantee a level of lifetime income before retirement. These 

products typically utilize fixed annuities or variable annuities (with “GMWB” or “GMIB” 

features) to provide the lifetime income benefit. However, these products are not yet widely 

available to DC plan participants because a relatively low number of plan sponsors have 

added them as options in their plans. 

The following is a summary of in-plan options that are available to DC plan participants. 

1. In-Plan Deferred Fixed Annuities - Under this option, participant contributions are

allocated to a deferred fixed income annuity. That means that the participant purchases 

guaranteed pieces of future income with each contribution. In effect, the purchases are 

laddered together to create a future income stream. Generally, transfers are also allowed 

into the program. Contributions are typically invested in an insurance company general 

account. Under this option the participant’s income potential is maximized at the time of 

their investment but the participant has no upside appreciation potential based on financial 

market gains. 

At retirement, the participant receives a guaranteed lifetime income stream through an 

annuity. The participant must annuitize their account at retirement (i.e., turn over their 

 

3

 DC plans, that are not money purchase pension plans, are the only qualified plans that do not include a lifetime 

income option, largely because they were not originally intended to be a primary source of retirement savings. 

As a result, access to lifetime income options under DC plans has been limited. 
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account balance in exchange for the lifetime income stream). However, depending on the 

program design, the participant may be able to liquidate his or her income benefit either 

during accumulation or at retirement. 

This option also includes “In-Plan Deferred Fixed Annuities as an Asset Class within a 

Target Date Series of Funds.” Under that particular option, one of the underlying funds 

provides guaranteed future income. 

2. In-Plan Guaranteed Minimum Income Benefit (“GMIB”) - Under this option, the 

participant buys into a fund (typically, an insurance company separate account) that 

provides a minimum income benefit with the potential for upside appreciation. The 

upside appreciation would come from the investment performance of the fund that is 

associated with the annuity; typically, this is a balanced fund (mix of equities and fixed 

income assets). The minimum (floor) income benefit is determined by using a 

conservative annuity purchase rate, which is the current or present cost of the annuity 

based on such factors as the age and gender of the contract owner and the features/ 

benefits of the annuity. 

Upon retirement, the participant receives the higher of the minimum income guarantee 

floor or the income generated by the current annuity purchase rate applied to the market 

value of the account. Payments are typically made over the participant’s lifetime with a 

period certain (i.e., a minimum number of years of payments). The participant must 

annuitize their account at retirement. Once the annuity is purchased, generally there is no 

liquidity. However, the participant may also choose to withdraw the market value of his 

or her account in a lump sum. 

3. In-Plan Guaranteed Lifetime Withdrawal Benefit (“GLWB”) or Guaranteed Minimum 

Withdrawal Benefit (“GMWB”) - Under this option, participants generally accumulate 

assets in a target-date or target risk (conservative, moderate or aggressive) fund (typically, 

an insurance company separate account), and at a specified age (e.g., 50) the assets are 

moved into the guaranteed fund component. The market value of the assets is used to 

determine the benefit base. A percentage withdrawal rate is then applied to the benefit 

base to determine the guaranteed withdrawal amount. For example, an account with a 

market value of $100,000 and a withdrawal rate of 5% would generate a guaranteed 

annual income of $5,000. Each year, often on the participant’s birthday, positive 

investment performance will result in a reset or “step up” of the asset base to the increased 

current value of the assets; however, the benefit base is kept unchanged at the prior level 

in the event of a market decline. 

Under this option the participant does not have to annuitize his account upon retirement. 

Instead, the participant is eligible to withdraw the guaranteed withdrawal amount, while 

leaving the remaining assets in the market. For example, if the asset base was $100,000 

and the guaranteed withdrawal percentage was 5%, there would be a $5,000 guaranteed 

annual withdrawal amount. Withdrawals in excess of this amount are permitted but could 

reduce future guaranteed withdrawals. In the event that the participant dies before their 

account has been depleted to fund guaranteed payments, any remaining account balance is 
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passed to their plan beneficiary. There is no guarantee of the participant’s principal. 

Instead, the income stream is guaranteed. 

The foregoing is a general summary and we note that within each of these product categories, 

product structures and features may vary further based on factors such as the underlying 

portfolio selected (especially if target date funds are utilized), age of eligibility to contribute 

to the product, age at which the guarantee is implemented, the age lifetime income becomes 

available, withdrawal options, death benefits, and use of single/multiple insurer guarantees. 

Finally, we note that some plans allow participants to elect to have their account balances paid 

to them during retirement in installments or a systematic distribution approach. These 

arrangements involve no guarantees of principal or income and the account balances are 

subject to market fluctuation. 

Question 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? 

Providing future guaranteed income through an in-plan investment option can be a viable 

alternative to annuitization at the retirement date. There are essentially two in-plan product 

designs – Guaranteed Living Benefit (“GLB”) riders attached to group annuities and fixed 

Deferred Income Annuities (“DIAs”). 

GLB riders offer an income guarantee via either a GMIB or GMWB rider. These products 

allow participants to invest in approved subaccounts and guarantee a future income benefit 

based on a separate stepped up value (“benefit base”). Participants can access the stepped up 

value only by initiating the withdrawal or income benefit. The benefit base cannot be 

accessed for the single sum cash value, although the market value of the subaccounts remains 

accessible subject to reductions in the benefit base, plan and Internal Revenue Code (“IRC”) 

restrictions. 

DIAs allow a participant to purchase a future income guarantee while saving in the DC plan. 

Each contribution purchases a future income guarantee payable at retirement or at a specific 

age. Essentially, the future income guarantee purchased is based on the age at contribution 

and projected retirement age (which determines the deferral period), annuity pricing 

considerations (e.g., interest rates at the time of contribution, mortality and expenses), and the 

anticipated annuity option at retirement. These may be offered on a standalone basis or 

integrated into a target date/risk fund. 

Under these options plan participants are able to: 
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1. Invest in guaranteed income incrementally while saving for retirement that can create a 

dollar-cost-averaging benefit that cannot be achieved via a single point in time purchase. 

This is particularly true when utilizing fixed DIAs or GMWBs. 

2. Create an income floor that can replicate the benefit of a traditional defined benefit plan. 

3. Purchase guaranteed monthly income incrementally without the “sticker shock” that many 

retirees sense when comparing the monthly income benefit provided by a Single Premium 

Immediate Annuity (“SPIA”) to the cash outlay required to purchase such a benefit. 

4. Benefit from GLB riders that provide a form of “portfolio insurance” that can reduce the 

impact of large investment losses immediately prior to retirement. 

5. See the income guarantees they have purchased over time which can serve to show 

participants their progress and remind them that their retirement savings need to be used 

efficiently to generate income for a long time horizon. 

Question 5

No Response. 

Question 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? 

There are a number of guaranteed and non-guaranteed or portfolio-based options available for 

participants outside of the plan. These include: 

1. Immediate Income Annuities - Most insurers offer a variety of immediate lifetime income 

options that offer a stream of fixed (or guaranteed), variable, or a combination of fixed 

and variable income payments during retirement. 

2. Income from a Portfolio - An investor (typically using taxable rather than tax-deferred 

assets) can choose to receive income from a portfolio of bank deposits, bonds, mutual 

funds or other securities. 

3. Systematic Withdrawals from a Portfolio - An investor may establish a program that 

automatically withdraws a dollar or percentage amount on a monthly, quarterly or annual 

basis. Most retirement plan record keepers already offer this service. A plan participant 

can set up a systematic withdrawal strategy on their own, or work with a certified 

financial planner to develop one. 
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4. Guaranteed Minimum Withdrawal Benefits - Some variable lifetime income products are 

designed as IRA rollover vehicles that can preserve the GWMBs provided by in-plan 

GWMB products. 

5. RMDs - Participants remain in the plan and begin to receive RMD payouts required after 

age 70 1⁄2. Plan and IRA service providers will calculate and distribute the amounts 

required. 

6. Payout Funds - Payout funds combine an investment portfolio along with a distribution or 

payout strategy. Some payout funds expect to pay regular distributions over a fixed 

period, such as 10 years. Other payout funds expect to make regular payments over time, 

in perpetuity, like a college endowment. Like all mutual funds, the payments are not 

guaranteed and are subject to various risks. They also provide daily liquidity. 

Significant innovation continues to take place in this area of the marketplace in an effort to 

develop lifetime income products and solutions that are responsive to the varying needs of 

retirees in a wide variety of circumstances, similar to the GMIBs, GMWBs, and DIAs 

described earlier. 

Question 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? 

The cost of lifetime income products can be considered in two distinct categories: (1) Costs of 

the features of a lifetime income product based on its design (“design costs”), and (2) Costs of 

administering the lifetime income product as an investment option for a DC plan 

(“administration costs”). 

A. Design Costs - Lifetime income products are available in many forms, and the design of a 

lifetime income product has a direct impact on its cost. The design cost of a product to a 

participant is expressed explicitly as the combination of the administrative fee, mortality 

fee, discount rate, or implicitly as a reduction in the fixed rate of return of the product. 

The following attributes of lifetime income products may affect design costs. 

1. Timing

• Costs will vary between lifetime income products purchased at a single point in 

time and income features that are purchased over a period of time. 

• Interest rate fluctuation can have a significant impact on the cost of these products. 

• Point-in-time purchases may have dramatically different costs depending on 

whether the product selected is intended to provide an immediate benefit or to 

generate income at some future date. However, price does not vary over time or 

due to interest rates for all products such as GMWB products and systematic 

withdrawal products. 
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• The availability of early benefit elections for a life-contingent payment also carries 

pricing implications. 

2. Nature of Income Provided

• Products with features such as inflation protection or floor guarantees will cost 

more than products that simply distribute the existing balance over a period of 

time. 

• Ratchet features, in which the guaranteed amount is evaluated periodically, and 

adjusted upwards to reflect asset growth, add more cost to a product. 

3. Accessibility

• Products in which a participant makes an irrevocable commitment to receive an 

income stream are priced differently (and generally more modestly) than products 

that allow continued access to the account balance, either through increased or 

non-scheduled withdrawals or through distribution of the balance remaining at the 

time of death. 

• Lifetime income products, in which the election is irrevocable, but survivor 

benefits may be available for a death that occurs either pre- or postcommencement of benefit payments, have different pricing considerations, as do 

products that allow for additional deposits to the account once the benefit has 

commenced. 

4. Investment Structure

• Product pricing is affected by the investment structure. Some products are simply 

structured withdrawals, with a specified distribution withdrawal amount each 

period. Others are true annuities, while others provide a guaranteed income stream 

based on an initial amount and then convert to a lifetime income product once the 

account has been exhausted. 

• Some products use a dedicated fund that is expressly designed for purposes of 

providing an income stream. Others utilize an insurance wrapper for an existing 

fund in the plan. 

5. Portability

• Some in-plan products offer a rollover option so that participants who have been 

paying for the feature can retain access to it even after terminating and leaving the 

plan. In some cases, moving the product outside of the plan can result in a 

different fee structure than was associated with the in-plan option. 

• Some products do not offer an option to roll over, and the participant will be faced 

with the opportunity costs and potential administrative burdens associated with 

having to keep the balance in the plan in order to retain access to the product. 

6. Insurance Company Risk Management - Insurance companies use various strategies to 

ensure that sufficient assets will be available to fund promised lifetime income 

payments, consistent with obligations under governing state insurance laws, and these 

strategies can involve costs. For example, in living benefits products (e.g., GMWBs) 

where participants remain invested in the capital markets and receive the benefit of 
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market gains while being protected against market losses, a hedge fund strategy might 

be used and there are costs associated with managing the hedge fund. 

B. Administration Costs - Adding insurance products to the investment line-up of a DC 

plan requires the identification and compliance with a number of additional requirements, 

including state insurance laws, and additional compliance infrastructure. The 

responsibility for compliance and other administrative costs will be the subject of 

negotiation between insurers, record keepers and plan sponsors, and may ultimately be 

borne by plan participants if applied against plan assets. The following insurance product 

design features and state insurance law requirements will result in new or additional 

administration costs: 

1. Sales Process

• Insurance products may generally be sold only by agents or brokers who are 

licensed by the applicable state insurance department(s) and appointed by the 

insurance company to sell its products. Non-insurance company record keepers 

may need to have their sales employees obtain and maintain licenses, which would 

require additional employee training, state insurance department paperwork and 

licensing and appointment fees. 

• Because insurance licensing requirements are based on the state residence of the 

plan participants who might be purchasing the insurance products, 50-state 

insurance licensing could be required. 

• In order for participants to get information about products, they would have to call 

the insurance company directly, or be transferred by the record keeper. That 

would require additional representative training and call routing. 

• The Employee Retirement Income Security Act (“ERISA”) imposes fiduciary 

responsibilities on entities that manage and control plan assets (e.g., holding assets 

in trust and bonding requirements) at the federal level, with specific rules 

governing insurance company general and separate accounts. ERISA generally 

does not preempt state insurance licensing requirements that may apply to third 

party administrators that make insurance products available to plans. 

2. Free Look Period

• State insurance laws mandate that certain insurance policy owners be provided 

with a “free look” period, which is generally a short period of time (e.g., 10-30 

days) during which the purchaser can cancel his or her policy and receive a refund. 

• Some insurance products offered to retirement plan participants include a free look 

period, which is not compatible with the processes of many record keepers (i.e., 

record keepers that are unaffiliated with an insurance product provider), cannot 

easily be automated and is not necessarily scalable. 

3. Data Sharing 

• Lifetime income products vary in terms of how the guaranteed benefit is calculated 

and reported to the contract owner. Data interfaces are required in order to pass 

contribution information and, potentially, a calculated guarantee amount, between 

various parties associated with tracking the value of the benefit and reporting it to 

the participant. 
SHAPING AMERICA’S RETIREMENT

14

• The complexity and number of data interfaces required between the record keeper 

and the insurance company issuing the product can have a significant impact on 

the administration cost of the product. We note that The SPARK Institute’s 

information sharing and data standards project, described at the beginning of this 

letter, is intended to help mitigate these costs.

4. Changing Providers - Additional costs may be incurred if the plan sponsor opts to 

change recordkeeping providers. Changing to a new record keeper may result in 

unanticipated costs if development is required to implement an existing lifetime 

income option that is not currently supported by the new record keeper. 

5. Full Integration with Planning and Guidance Tools - Many proprietary planning and 

guidance tools currently offered to plan participants may not have the capability to 

adequately incorporate lifetime income products. This is primarily because the value 

of the guaranteed aspect of the income product is determined and maintained by the 

insurance product provider, rather than the record keeper who often provides the 

planning tools. Additionally, lifetime income products are not currently categorized in 

terms of asset classes, which is necessary in order for them to be taken into account 

under many of the tools. To integrate these products into the tools would require 

development efforts, and cost, to share the necessary data, and the development of a 

methodology to assign lifetime income products into asset classes or otherwise 

account for them. We note that The SPARK Institute’s information sharing and data 

standards project, described at the beginning of this letter, is intended to help mitigate 

the data sharing costs. In addition, we understand that at least one investment 

planning and advice provider is preparing new tools that will incorporate lifetime 

income products into its guidance and advice products and services. 

6. Communication and Education - Plan sponsors that include lifetime income products 

within their plans may wish to educate their plan participants on the nature of the 

products, how they work, and when it might be appropriate for a plan participant to 

use them. Given the complexity and relative newness of some of these products, the 

initial effort to educate participants will add costs. 

Question 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)? 

Lifetime income options, both within and outside of a retirement plan, offer a number of 

advantages to participants. Regardless of whether lifetime income is delivered in or outside 

of a plan, it is essential that these solutions be accessible to American workers. The Agencies 

should help encourage employers and plan sponsors to make these distribution choices 

available, as well as help workers to understand their importance. 

On a comparative basis, in and out-of-plan options have advantages and disadvantages: 
SHAPING AMERICA’S RETIREMENT

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A. In-plan Advantages:

1. Institutional or Group Pricing - Institutional or group pricing is generally used when 

products are made available through retirement plans. This could result in higher 

monthly income for participants than comparable out-of-plan products. 

2. Commissions - Commissions may be reduced or eliminated on products that are sold 

on a group basis. 

3. Unisex Mortality Tables - For women, the use of unisex mortality tables (required for 

employment based plans to comply with the Equal Pay Act) generally would provide a 

greater benefit than a comparable out-of-plan product. For men, the use of unisex 

tables would increase their cost but this might be offset by the use of group rates. 

4. Fiduciary Oversight - A plan fiduciary or other plan representative (i.e., in the case of 

a non-ERISA covered plan) selects and monitors lifetime income options and thereby 

relieves participants of the need to conduct extensive due diligence. 

5. Commission-free Rollovers - There is the potential that a participant could roll over an 

in- plan product commission free and preserve the associated benefit upon termination 

of employment. 

6. Dollar Cost/Interest Rate Averaging - The risk that participants will be exposed to low 

interest rates or market corrections when a lifetime income product is purchased in its 

entirety at retirement (i.e., sequence of return risk) is addressed by the potential to use 

dollar cost/interest rate averaging by incremental purchases of lifetime income over a 

number of working years. 

B. In-plan Disadvantages:

1. Fees for Unused Guarantees - If participants decide they don’t want or need 

guaranteed income after a period of participation/contributions to a product, they may 

incur fees for guarantees they may never use. 

2. Limited Options - The number of in-plan products offered to participants may be 

limited to one or just a few. 

3. Lack of Involvement in Product Selection - Since a plan fiduciary or other plan 

representative selects the product provider, the participant may not be as fully engaged 

in the selection process. 

4. In-plan Products may not be Portable - This creates substantial administrative and 

record keeping challenges in the event an employer decides to replace the current plan 

record keeper. Many record keepers do not currently have the capability to service 

and maintain records with respect to many of the lifetime income products that are 

available. However, as noted above, The SPARK Institute is working to address this 

issue by developing data sharing standards that can be used by various lifetime income 

providers and record keepers. 

5. Complexity of Multiple Accounts - Due to job mobility, participants may accumulate

only a small benefit or have the added complexity of accumulating several small 

lifetime income benefits from each of several employers’ plans in which they 

participated over their working careers. 
SHAPING AMERICA’S RETIREMENT

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6. Administrative Burdens - The additional administrative burdens and spousal consent 

requirements necessary to comply with the qualified and joint and survivor annuity 

rules causes sponsors of most DC plans to avoid offering in-plan lifetime income 

options. 

C. Out-of-plan Advantages

1. Unisex Mortality Tables - When products are made available outside of an 

employment based retirement plan, the Equal Pay Act rules do not apply. This results 

in the use of sex- distinct mortality tables, which is advantageous for men since it 

could lead to greater (less costly) benefits for them; however, it is disadvantageous for 

women, since sex-distinct tables provide lesser (more costly) benefits for them. 

2. Greater Product Choice - Individuals with the inclination and motivation may be able 

to find a product that is more customized to their needs. The universe of lifetime 

income products, choice of providers, and forms of distribution that are available 

outside of the plan is significantly greater than what is available in the plan. 

3. Retirement Account Consolidation - Individuals with accounts in multiple retirement

plans are able to consolidate their retirement savings in one lifetime income product. 

D. Out-of-plan Disadvantages

1. Sequence of Return Risk - Individuals are less likely to purchase lifetime income 

products out-of-plan on a sequential or incremental basis, thereby increasing their 

sequence of return risk. Therefore, at the time they make a purchase, they are more 

exposed to investment and interest rate risk. 

2. Individual Decisions - Unless they employ the services of a financial advisor or these 

services are available under the plan, individuals are faced with making long term 

financial decisions about products requiring substantial sophistication and expertise 

without assistance. This could discourage individuals from making these choices. 

Even if an advisor is consulted, individuals may feel uncomfortable or challenged in 

making these types of decisions. 

3. Costs - Participants may pay higher costs, including purchasing retail priced 

investment options outside of a plan. 

Question 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? 

A plan that offers features and benefits that are important to employees can help build 

employee goodwill and loyalty. To the extent that participants are interested in learning about 

lifetime income strategies, providing education about various strategies, products and services 

may be considered an advantage from a plan sponsor standpoint. 
SHAPING AMERICA’S RETIREMENT

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There are a number of potential disadvantages and issues for plan sponsors that can be 

grouped into three categories as discussed below. 

A. Product Complexities - The plan sponsor of an ERISA covered plan serves as a fiduciary 

to the plan, and therefore must fulfill a number of specific responsibilities when choosing 

a guaranteed income provider, including using plan assets to pay for necessary and 

reasonable plan expenses, and minimizing the risk of large investment losses by offering a 

diversified menu of investment options. 

These are difficult issues for a plan sponsor to address when choosing a retirement income 

guarantee. All the products on the market have different guarantee levels, different 

participant options and different prices. Choosing the product with the appropriate 

guarantee for the price level, while assuring that only “necessary and reasonable” 

expenses are incurred, can be challenging. 

B. Regulatory Uncertainties - There are a number of regulatory uncertainties that are 

discussed here and in other parts of our response. Some of the uncertainties relate to the 

ERISA Section 404(c) fiduciary safe harbor, the Qualified Default Investment Alternative 

(“QDIA”) safe-harbor, choice of a guarantee provider, and the applicability of the 

Qualified Joint and Survivor Annuity (“QJSA”) and Qualified Pre-retirement Survivor 

Annuity (“QPSA”) rules to certain lifetime income options. 

1. Lack of Clarity Regarding Section 404(c) Safe Harbor - ERISA Section 404(c) 

requires that a plan must provide a variety of investment options, and also that the 

participants be provided “sufficient information to make informed investment 

choices.” The safe harbor was not written with lifetime income products in mind, so it 

is unclear how the products and their features are covered by 404(c) and what is 

required to leverage its protection. 

2. QDIA Issues - The Pension Protection Act (“PPA”) specifies three types of QDIAs 

including target date funds, target risk funds and a dynamic asset allocation process. 

However, the QDIA regulations do not address products that convert savings into 

guaranteed income streams and whether these may be used as a QDIA. Please see our 

response to Question 35 for additional information about this issue. 

3. Safe Harbor Protection for Selection of Lifetime Income Providers - Plan sponsors do 

not fully understand what they must do to satisfy the safe harbor for the selection of 

lifetime income providers. The current rules are perceived to be too onerous for a plan 

to consider lifetime income options. The safe harbor requires that plan sponsors make 

a very long-term forecast on the viability of the insurance company, but most plan 

sponsors lack the expertise and access to information needed to make such judgments. 

4. Applicability of QJSA and QPSA Rules - As discussed in our responses to Questions 

26 and 27, it is not clear to plan sponsors what aspects and types of lifetime income 

products are considered life annuities triggering survivor annuity rules. 
SHAPING AMERICA’S RETIREMENT

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C. Administrative Challenges

1. Information Sharing - As noted throughout this response, information sharing between 

the lifetime income product provider and record keeper is a significant challenge that 

we are trying to mitigate by developing industry standards. 

2. Communicating Transfer Restrictions - Plan sponsors must communicate restrictions 

on transferring into and out of investment choices. In the case of lifetime income 

products, presumably this could require that the plan sponsor clearly communicate the 

impact, if any, on the underlying guarantee. 

3. RMD Rules - Depending on a lifetime income product’s guarantee structure, current 

RMD rules may require a retiree to take payments that exceed the guaranteed amount 

available to them. The guarantee might be structured around a design that provides 

payments that increase over time, or the insurer may take a different view on longevity 

than that reflected in the RMD tables. This creates added complexity that the plan 

sponsor must consider. 

4. QJSA and QPSA Requirements - The notice, waiver, revocation and spousal consent 

requirements under the QJSA and QPSA rules impose significant administrative 

burdens and expenses on plan sponsors. 

Question 10

No response. 

Question 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? 

The PPA allows DC plan sponsors to automatically enroll employees in plans, and to default 

their investments into QDIAs, such as target-date funds or managed accounts. These PPA 

provisions have led to a significant increase in enrollment in plans that take advantage of 

auto-enrollment. Hewitt Associates reports that plans that implement auto-enrollment 
SHAPING AMERICA’S RETIREMENT

19

increase participation rates of new hires from an average of 78% to 90%.4 In addition, 67% of 

new hires in automatic enrollment plans allocate their entire contribution to the default 

investment, versus 21% of new hires who are not in automatic enrollment plans.5

 Target-date 

funds have been the main beneficiary of this trend, in part, because the value proposition of 

these products, a ready-made diversified portfolio with automatic re-balancing, is easy for 

most DC plan participants to understand and appreciate. In plans that have elected to use 

QDIAs, more than 80% are using target-date funds as the QDIA.6

 The example of PPA’s 

auto enrollment features demonstrates that behavioral strategies, such as auto-enrollment, can 

work effectively if applied in a manner that has appeal to participants. Accordingly, we 

recommend that the Agencies facilitate access to a wide range of lifetime income solutions so 

that employers can select the one(s) that best fit the needs of their employees. Specifically, 

the Agencies should: 

1. Clarify the types of lifetime income solutions that could qualify for QDIA status. Please 

see our response to Question 35 for additional information. 

2. Encourage employers to provide flexible lifetime income solutions with opt-out features 

and full fee transparency to increase adoption. 

3. Educate employers about allowing participants to use less than their entire account 

balance to purchase guaranteed lifetime income (partial annuitization).

Question 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? 

These questions are the subject of recent industry discussion and studies that continue to 

evolve. Additionally, it is likely that the theories and practices on these issues will change as 

the retirement plan industry, lifetime income products and services, and the regulatory 

environment evolve. Ultimately, what portion of an individual’s account balance, if any, 

should be annuitized is a personal decision that participants should be allowed to make for 

themselves, and not dictated by any legal mandate. 

We note however, that at least one recent study on these questions suggested a plausible “rule 

of thumb” for participants to annuitize sufficient wealth immediately upon retirement to at 

least secure a household’s required minimum standard of living. “Given the difficulties in 

managing the decumulation of unannuitized wealth and the severe consequences of missteps, 

 

4

 Hewitt Associates, “Trends & Experience in 401(k) Plans,” 2007, and “Automatic Enrollment Boosts 

Participation and Retirement Savings,” 2007.

5

 Vanguard Center for Retirement Research, “Measuring the Effectiveness of Automatic Enrollment,” 

December 2007.

6

 “Improving Plan Diversification Through Re-enrollment in a QDIA,” Vanguard Strategic Retirement 

Consulting, September 2008.
SHAPING AMERICA’S RETIREMENT

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all households approaching retirement should consider annuitizing sufficient financial assets 

to secure at least their minimum required standard of living.”7

As noted in our responses to other questions in the RFI, we recommend that the DOL adopt 

policies and issue guidance that will encourage and enable service providers and plan 

sponsors to provide education and retirement planning tools with information such as that 

noted above to help participants make decisions about how much to annuitize. 

Question 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? 

The SPARK Institute supports the Agencies’ efforts to improve retirement income adequacy 

through a variety of strategies, including making lifetime income distribution options more 

available to participants in DC plans. This is a time of tremendous innovation in the 

retirement income industry. Product providers and record keepers are aggressively working 

together to develop new products and services that meet plan participants needs, and that can 

be made readily available in and outside of employer sponsored plans. We recommend that 

the Agencies allow investment managers, product providers, record keepers, plan sponsors, 

and others in the retirement plan community to continue to develop products, services and 

tools for participants before further considering a mandate. 

Question 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? 

There are a number of real or perceived impediments that plan sponsors currently face when 

considering in-plan lifetime income options. Many of these products are new and some can 

be fairly complex. Plan sponsors must become familiar with them and then determine 

whether or not their details are readily comprehensible to participants. Since participant 

demand has historically been low, sponsors may be reluctant to make a commitment of time 

and money to introduce a lifetime income product. 

 

7

“Making Your Nest Egg Last a Lifetime,” Anthony Webb, Center for Retirement Research at Boston College

(September 2009). 
SHAPING AMERICA’S RETIREMENT

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In discussing these products, plan sponsors have also expressed concern about their fiduciary 

risk in offering lifetime income products. Not only are they faced with the prospect of 

ensuring due diligence in connection with the initial selection of a vendor, they are faced with 

administrative challenges should they later decide that an active vendor is no longer a prudent 

selection. In such a situation, the costs incurred by the participant (e.g., benefit guarantee 

costs) could be lost or forfeited before they receive the benefit that they had paid for because 

the IRC does not currently provide that this situation constitutes a distributable event, which 

otherwise would permit a rollover distribution to an IRA designed to preserve the 

accumulated income guarantee. 

Until the new generation of lifetime income products gains increased acceptance in the 

marketplace, the administrative infrastructure required to support them won’t become fully 

developed. Costs associated with the introduction and ongoing support of lifetime income 

products impact the overall administrative costs for the plan, which are often passed through 

to participants. Sponsors may not want to increase plan costs for a product that may be 

underutilized. However, as more sponsors adopt such programs, the costs to implement them 

will be amortized over a larger base. That increase could drive the economies of scale that 

would make the costs associated with lifetime income products more palatable to both 

sponsors and plan participants. 

Question 15

No response. 

Question 16

No response. 

Section II – Participant Education

Question 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? When and how (i.e., in what form) should 

it be provided? What information currently is provided to participants, who typically 

provides it, and when and how is it provided to them? 

For the typical household, creating a comprehensive retirement income plan is a complex but 

critical process that includes many of the same considerations that a household faces while 

saving for future retirement (e.g., understanding investment alternatives, creating and 

implementing an investment strategy, and choosing investment and tax advisors), but also 

includes additional questions such as: 
SHAPING AMERICA’S RETIREMENT

22

1. How much can they afford to spend without running out of money too soon? 

2. How to manage or payoff any outstanding debt? 

3. What portion of expenses is already covered by lifetime sources of income such as Social 

Security and pensions? 

4. How to protect against inflation? 

5. How to cover expenses that are difficult to predict (e.g., health and long-term care)? 

6. Will income needs and sources of income change substantially during different phases of 

retirement (e.g., working part-time for a period in retirement, a few years remaining on a 

mortgage, downsizing of a residence, and extensive travel in the first couple of years of 

retirement)? 

7. Should home equity be used to help sustain income, and how? 

8. How to ensure that income lasts as long as needed, particularly if the participant and 

spouse are in good health or have a history of longevity in the family? 

9. How do legacy objectives, if any, fit with the retirement income plan? 

Each participant’s plan balance is likely to be just one of several potential sources of 

retirement income. Most households will have Social Security benefits, and some may also 

have one or more pensions, accounts in more than one plan, IRAs and other investments, 

continuing income from full or part-time jobs, or assistance from family members. 

Determining how best to utilize these multiple sources of income, including which to draw on 

first and which products or approaches to use to provide that income, can be complex and 

very different for each participant. Ultimately, a well constructed retirement income plan is 

developed at the household level, rather than at any given plan, account or even the individual 

level. 

Just as most plans provide education and many provide advice as to how to save for 

retirement and an investment strategy to meet individual goals, we urge the Agencies to 

encourage plan sponsors to provide education and advice to help participants with retirement 

income planning and provide information about lifetime income arrangements. The education 

provided should address how these arrangements (and other alternatives) can fit into an 

overall financial plan and what role they can play in helping to achieve specific objectives in 

the plan. The Agencies could encourage this type of educational assistance by issuing 

guidance that is comparable to Interpretive Bulletin (“IB”) 96-1. 

Α. What Information do Plan Participants Need? - The following is a list of examples of 

the types of information that participants need: 

1. An overview of all available income options and how they work. 

2. The advantages and disadvantages of each income option available under the plan and 

how they could fit into a retirement income plan. 

3. For each option, the underlying investments and whether the investment is guaranteed 

or can fluctuate. 
SHAPING AMERICA’S RETIREMENT

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4. Specifics as to any other guarantees offered and who provides the guarantee. 

5. Detail regarding how contributions (premiums) are invested, such as the underlying 

investment portfolio and whether a participant will participate in the investment 

results. 

6. The main risks associated with purchasing an income option, such as: 

• Credit risk 

• Mortality risk 

• Interest rate risk 

• Inflation risk 

7. The costs/fees associated with lifetime income with details, such as: 

• The amount or rate of the fees (may include how the fees are calculated). 

• Whether fees are guaranteed or subject to change. 

• Whether fees are implicit or explicit. 

• Any restrictions or conditions for getting access to guarantees or the income 

stream, such as: 

– Holding the income option within the plan throughout the payment phase. 

– Withdrawals will reduce the guaranteed benefit and may be subject to a 

liquidation adjustment/fee. 

8. The following information and awareness of certain considerations would also be 

useful to help participants determine if a particular income option is right for them. 

• Their personal need for guaranteed monthly income to supplement Social Security 

and other sources of guaranteed income. 

• The need for protection against outliving their retirement savings. 

• The need for predictable income in retirement to cover essential expenses. 

• General health and history of longevity in the family and how that might impact 

the choice of one option over another. 

• The possibility of having to use retirement savings for unexpected expenses. 

Β. What Information Currently is Provided to Participants? - While individual practices 

vary depending on the product and service provider involved, the information that is 

provided may include some or all of the following: 

1. Product information - Basic disclosure and product information in the employer’s or 

record keeper’s plan materials and participant website intended to provide the 

information a participant needs to make an informed decision to invest, such as risks, 

costs, conditions, and limitations. 

2. Educational material - General information that describes how lifetime income options 

and strategies fit into an overall retirement plan. 
SHAPING AMERICA’S RETIREMENT

24

3. Transaction information - Transaction activity (e.g., contributions, withdrawals, 

transfers) and the impact of the activity on the value of the income option are detailed 

on participant statements. 

C. Who Typically Provides It? - Product provider and plan sponsor websites provide 

information and educational materials that outline the need for lifetime income, lifetime 

income options, and income planning tools including income gap calculators and income 

projection tools. However, practices can vary depending upon whether the provider of the 

income option is also the plan record keeper. 

1. In-plan Lifetime Income Options - Generally, the plan sponsor or its record keeper

typically provides the information to participants. The product issuer typically creates 

the disclosure document and educational materials, and may provide on-site 

enrollment assistance at the plan’s initial enrollment meeting. Financial 

representatives (i.e., registered representatives of broker/dealer firms, registered 

investment advisers or insurance producers) and group enrollment specialists 

employed by record keepers or investment providers may provide periodic enrollment 

assistance to the plan sponsor on an ongoing basis.

2. Out-of-plan Lifetime Income Options - Generally information is provided by a 

financial advisor or financial services firm that offers the option. The information is 

often provided within the context of a range of retirement and investing solutions. 

Such information is regulated by various government agencies, e.g., the Securities & 

Exchange Commission (“SEC”) and state insurance departments, and by the Financial 

Industry Regulatory Authority (“FINRA”). In addition, some plan sponsors may make 

participants aware that options are available outside of the plan through rollovers to an 

IRA or IRA annuity and include some basic information. 

D. When and How is it Provided to Them?

1. In-plan Lifetime Income Options

Participants may be provided this information in the same manner as the other 

investment options, including enrollment material, within investment line-up detail, 

upon initial contribution into the option, via employer communications, and through 

the record keeper’s participant website. Transactions impacting the in-plan option 

(e.g., contributions, withdrawals, transfers) are reflected in quarterly or annual 

participant benefit statements. 

2. Distribution Income Options

Participants may be provided with income information as part of their plan overview 

materials and retirement income educational materials. In particular, participants who 

are nearing retirement should be provided with retirement distribution options, 

including an income option. 
SHAPING AMERICA’S RETIREMENT

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3. Delivery Options 

Information may be delivered in the form of hard copy, via the internet and in-person 

meetings. Participants may have access to on-line tools that demonstrate income 

projections, as well as real-time income quotes, to assist them in understanding how an 

income option can fit into their overall retirement plan. Requiring participants to 

receive information in paper format adds significant cost to the educational process 

and overall plan administration. We encourage the Agencies to review their electronic 

disclosure rules to make it easier for service providers to communicate with 

participants in electronic formats. 

Question 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? 

The SPARK Institute requests that the DOL clarify that plan assets can be used to pay for 

providing information to help participants make informed decisions about in-plan 

arrangements, and information about out-of-plan options available to them upon separation 

from service or a change in provider by the plan sponsor. While it is generally understood 

that plan assets can be used for education regarding in-plan options, there is considerable 

uncertainty with respect to out-of-plan options. In order for plan participants to fully 

understand their options and what may be most appropriate for them, plan sponsors should be 

permitted to educate participants about both options and to pay for such education using plan 

assets. Absent broad, permissive and clear guidance that using plan assets to pay for 

providing such information is permitted, plan sponsors are likely to be reluctant to assume this 

role. 

Question 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? 

As mentioned throughout this response, there are substantial regulatory constraints under 

ERISA, federal securities laws and state insurance laws that can make it challenging for plan 

sponsors and providers to communicate effectively in “plain English” to participants about 

lifetime income solutions. Existing rules and regulations require that plan sponsors and 

providers use very technical language about the products and services that are available to 

participants. As a result, participants may be less likely to understand and use the lifetime 

income options that are available to them. 
SHAPING AMERICA’S RETIREMENT

26

 

Plan sponsors are also concerned about crossing the line from providing participant education 

to providing advice and becoming an investment fiduciary. The SPARK Institute 

recommends that the DOL provide additional guidance specifically stating that providing 

information about lifetime income options, available both inside and outside of the plan, is not 

investment advice. Without clear and permissive guidance, plan sponsors will most likely be 

unwilling to provide participants with any information that could cause the plan sponsor to 

assume additional fiduciary responsibility with respect to participant decisions about 

retirement income products. 

Additionally, as noted in our response to Question 18, plan sponsors are concerned about 

being able to use plan assets to provide education about out-of-plan options. We request that 

the DOL provide the guidance noted in our response to Question 18. 

 

Plan sponsors are also concerned that participants who do not fully understand the features, 

limitations, costs, benefits and other details of in-plan options may assign blame to the plan 

sponsor for results that they do not like or cannot control even though the plan sponsor acted 

properly. For example, if a plan sponsor makes a fiduciary assessment that a particular 

product is no longer appropriate and must be removed from the plan, participants would be 

faced with the prospect of losing the guarantee for which they have been paying. Since 

switching providers does not constitute a distributable event, participants would not have the 

option to retain the guarantee by rolling it over. Such a situation would place the sponsor in 

an impossible position and potentially expose them to litigation. 

In addition to the requests and suggestions made above, The SPARK Institute requests that: 

1. The DOL issue guidance that is comparable to IB 96-1 to explicitly cover educational 

materials related to lifetime income options, and to clarify that the person or entity that 

provides education does not become a fiduciary with respect to the plan and plan 

participants as a result of providing education. 

2. That the DOL clarify that information about life expectancies, historic investment returns, 

the impact of various withdrawal rates, longevity risk, market sequence risk, and other 

similar information is “education” and not advice. 

Question 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?

See answer to Question 19. 
SHAPING AMERICA’S RETIREMENT

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Section III - Disclosing the Income Stream 

That Can Be Provided From an Account Balance

Question 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? 

The SPARK Institute recommends that as a DC plan “best practice,” participants’ accrued 

benefits should be expressed annually on individual benefit statements as both an account 

balance, and as a lifetime income stream. Presenting the balance as a lifetime income stream 

will help participants understand where they stand today, how much income they might 

expect in retirement, and will give them a more realistic understanding of how much they 

need to save to cover their retirement income needs. 

Plan sponsors should be encouraged to provide this information and should have the ability to 

decide when and how it is provided to best suit the needs of each plan’s population. In order 

to encourage plan sponsors to express accrued benefits as a lifetime income stream as part of 

a voluntary program, a fiduciary safe harbor should be designed. More details regarding our 

recommendations for a safe harbor are contained in our response to Question 23. 

Question 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? Should benefit amounts 

be projected to a future retirement age based on the assumption of continued 

contributions? 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? 

The SPARK Institute believes it is important to strike a balance between showing lifetime 

income in a manner that is consistent across retirement accounts so participants with more 

than one retirement account can understand and compare them, and allowing plan sponsors 

the flexibility to show the benefits in a manner that is most relevant to their population of 

participants. 
SHAPING AMERICA’S RETIREMENT

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Question 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? 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? 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? 

The SPARK Institute recommends that the DOL create a safe harbor that will protect plan 

fiduciaries that provide participants with information on lifetime income payments. Our 

recommendations for a safe harbor are as follows: 

1. The safe harbor should protect all plan fiduciaries and service providers from claims 

brought by plan participants, beneficiaries, or others arising from reliance on any 

information contained in a lifetime income projection that meets the conditions of the safe 

harbor. The safe harbor should also protect plan fiduciaries and service providers from 

potential liability for including additional illustrations and projections that may be more 

relevant to a particular population of participants (e.g., participants who also are covered 

by a defined benefit plan, or who have access to an in-plan-option) as long as reasonable 

assumptions are used. Additionally, the safe harbor should provide protection for 

illustrations based on a systematic withdrawal approach whereby participants would 

receive income payments based on earnings generated from their account and would have 

a principal balance available to beneficiaries upon the participant’s death. 

2. The safe harbor should require that participants be provided with information with respect 

to their benefits in the form of an account balance and a lifetime income stream using 

consistent assumptions and methodologies defined in the safe harbor. Participants should 

be provided with information about the assumptions used and should also be given general 

information to assist with understanding the projections (e.g., an abbreviated mortality 

table and definitions of key terms such as “guarantee”.) 

3. The DOL should issue a safe harbor notice along with the safe harbor. 
SHAPING AMERICA’S RETIREMENT

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Question 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 

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

individualized basis? 

The SPARK Institute does not recommend requiring individual benefit statements to include a 

participant-specific income replacement ratio. In order to be meaningful, this calculation 

requires incorporating information that is unique to each participant and that is not maintained 

on retirement plan record keeping systems. For example, any such illustration should 

incorporate the availability of other income or assets (e.g., spousal income or assets), the 

opportunity for inheritance, health, and other factors. Further, the concept of a replacement 

ratio based on current income levels is not relevant to all age groups. For example, a 22-year 

old may expect to be earning 2 to 3 times their current rate of pay in their peak earning years 

so an income replacement ratio based on their current rate of pay would not be meaningful. 

Many plan sponsors already provide general information about income replacement ratios or 

participant-specific ratios generated through individualized communication about the 

participant’s unique financial circumstances. The SPARK Institute believes that this practice 

should be encouraged by clarifying that providing this information is education and is not 

fiduciary advice, and including in the safe harbor referenced in our response to Question 23, 

protection for fiduciaries that use reasonable methods and assumptions when illustrating 

income replacement ratios. 

Section IV - 401(k) and Other Plan Qualification Rules

Question 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? 

As noted in our responses to Questions 14 and 19, the potential lack of portability of the 

lifetime income option when a plan sponsor switches investment providers can deter plan 

sponsors from including lifetime income options in their plans. Plan sponsors are concerned 

about the impact on participants’ ability to maintain their income guarantees from an in-plan 

option if the sponsor switches product providers. Plan sponsors are also concerned about 

potential claims brought by participants as a result of making a provider change. The SPARK 

Institute urges the Agencies to work with the regulated community to address these concerns 

and develop a solution. 
SHAPING AMERICA’S RETIREMENT

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Additionally, the QJSA and QPSA rules impact plan sponsors’ decisions. Plan sponsors 

would be more likely to offer lifetime income options that are not life annuities triggering 

QJSA and QPSA rules which are seen as burdensome to them. For a more detailed discussion 

of these rules, please see our response to Question 26. 

Question 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? 

The QJSA rules present significant administrative burdens and complexities. The vast 

majority of 401(k) plans today take advantage of the option under IRC Section 

401(a)(11)(B)(iii) and Treas. Reg. Section 1.401(a)-20, Q&A 3(a), to provide for a 100% 

spousal death benefit (unless waived) in lieu of offering QJSA or QPSA benefits. Under this 

option, if a participant elects to receive a distribution in the form of a life annuity, it triggers 

application of the QJSA and QPSA rules. Complying with these rules imposes a significant 

administrative burden and expense on plan sponsors due to the notice, waiver, revocation and 

spousal consent requirements. 

The SPARK Institute recommends that the IRC and regulations be amended to clarify that inplan lifetime income products that allow participants to freely move in and out are not life 

annuities for purposes of the survivor annuity rules. The result should not vary based upon 

the fact that at some point during the payout phase (after the supporting account balance is 

depleted) the lifetime income payments will have the characteristics of a traditional lifetime 

annuity. 

 

Clarifying that certain lifetime income products are not life annuities triggering compliance 

with the survivor annuity rules will not diminish spousal protections enjoyed under the current 

structure. The vast majority of 401(k) plan distributions today are made to participants in the 

form of a lump sum distribution upon separation from service with no spousal protections. 

Lifetime income and annuity products are almost universally offered in the form of either a 

single or joint and survivor payout structure and, with respect to guaranteed minimum 

withdrawal type products, any account balance remaining at the time of a participant’s death 

is paid to their beneficiary, which typically is the spouse. Therefore, even without the QJSA 

and QPSA rules applying, spouses are likely to receive a larger portion of 401(k) plan 

distribution amounts if a lifetime income product is selected than they do when benefits are 

paid in the form of a lump sum distribution upon separation from service. 
SHAPING AMERICA’S RETIREMENT

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Question 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 inplan insurance annuities accumulate over time with increasing plan contributions and 

earnings? 

Plan sponsors may continue to be reluctant to add in-plan deferred insurance annuities 

because of the lack of certainty surrounding these rules – both as to whether and when they 

apply and what must be done to comply with them. Although the Internal Revenue Service 

(“IRS”) issued Private Letter Ruling (“PLR”) 200951039 (December 2009), as discussed 

below, uncertainty remains with regard to many of these new in-plan lifetime income benefits. 

Our members have differing views with respect to the issues, as is discussed more fully 

below. It is likely that most plan sponsors will generally take the most conservative approach 

available to avoid potential plan disqualification. The lack of guidance for lifetime income 

products offered within DC plans as in-plan “accumulation” vehicles under which participants 

can make ongoing contributions and reallocations serves as a real impediment to employers 

offering these products. 

In the IRS PLR 200951039, the insurer had sought a ruling that the QJSA requirement only 

applied when the contract converted to full annuitization. However, the IRS held that the 

QJSA requirements applied at the time the annuity option was elected, prior to the beginning 

of ongoing periodic payments from the annuity account balance, even though the account 

balance could be fully surrendered (or partially withdrawn) at any time. The IRS also held 

that the required QJSA payment form only applied to the actual periodic payments made after 

full (irrevocable) annuitization. 

Part of the IRS’s analysis may have been based upon the fact that the transition from the first 

phase to the second phase was automatic – no further election was needed for the contract to 

become annuitized. This ruling seems to leave a great deal of uncertainty regarding the 

applicability of the QJSA requirement for the treatment of GMWB products where the 

ongoing contributions purchase a defined future income stream but which can be cashed out 

(and reallocated to other plan investment options) at any time. Again, this uncertainty is 

likely to cause employers to be reluctant to adding these new income options under their 

plans. 

Some of our members believe that the rules should be clarified to confirm that the QJSA and 

QPSA rules only apply to in-plan accumulation annuity products offering lifetime income 

guarantees at the time that the participant's investment in the contract (i.e., their account 

balance invested in the lifetime income product) is irrevocably annuitized, and only if the 

payout form is over the participant’s lifetime. That is, the QJSA and QPSA rules only apply 

if and when a participant's account balance in a lifetime income product is irrevocably 

converted to lifetime income payments and the participant no longer has any control over 

their account balance, such as the right to take distributions in excess of the guaranteed 

payment amount, or to leave any remaining account balance to heirs in the event the 

participant dies before their investment in the contract is depleted. 

 
SHAPING AMERICA’S RETIREMENT

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These members believe the fact that lifetime income payments may be made by the insurance 

company guaranteeing the contract in the event the participant’s account balance is not 

sufficient to fund all guaranteed lifetime income payments should not trigger application of 

the survivor annuity rules at that juncture. The costs of applying the survivor annuity rules 

(both administrative and underwriting costs) and supplying a joint and survivor annuity to 

people who are of advanced age would be significant. Further, since the participant would 

have already paid for the lifetime income benefit out of their account balance, any conversion 

to a new lifetime income product would involve additional and unnecessary costs. 

A different viewpoint held by some of our members is that the QJSA rules become applicable 

to a participant's account at the time the participant elects any annuity benefit form, even 

though annuity distributions may be deferred. This is consistent with the conclusion in PLR 

200951039. However, in the case of a deferred annuity, it is not clear when a participant's 

annuity starting date occurs for the purpose of delivering and executing QJSA notices, 

waivers and spousal consents. Clarification from the IRS should apply to all deferred 

annuities offered under a retirement plan, including annuities that include features such as 

GLWBs and GMWBs. In addition, under this viewpoint, the use of these types of annuities 

would be encouraged by confirmation that a spouse’s consent that is structured as a general 

consent under Treasury Regulations Section 1.401(a)-20 Q&A-31(c), permits a participant to 

subsequently accelerate and modify payments without obtaining additional spousal consents. 

Question 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? 

The IRS has two separate sets of rules for determining the amount required to be distributed 

from a qualified retirement plan to a participant after the later of the year he or she attains age 

701⁄2 or retires. Which set of rules applies depends on whether the participant’s accrued 

benefit is in the form of an individual account under a DC plan or is annuitized. It is 

important to clarify which set of rules applies to the different payout phases of a lifetime 

income product. 

Additionally, we request that the Agencies issue guidance regarding the following: 

1. Permit a participant in a DC plan who has a distribution/payout annuity (subject to the 

1.401(a)(9)-6 RMD rule) and investments with an account balance (subject to the 

1.401(a)(9)-5 RMD rule) to aggregate the two for RMD purposes under 1.401(a)(9)-5 

RMD rule using the fair market value of the payout annuity. 
SHAPING AMERICA’S RETIREMENT

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2. Issue a “waiver” of the RMD requirements for a Pure Longevity Annuity (lifetime payout 

starting at an advanced age at or near life expectancy (e.g., age 80 or 85)) to encourage 

people to provide for a means to avoid outliving their assets. This should not present a 

policy issue as it does not result in hoarding retirement assets for one’s heirs but rather 

encourages use for retirement needs. 

3. Raise the RMD age to at least age 75. Since the current rule was established, life 

expectancy has increased significantly and many people choose to work beyond age 701⁄2. 

Question 29

No response. 

Section V – Selection of Annuity Providers

Question 30

No response. 

Question 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? 

The safe harbor currently requires the fiduciary to conclude “at the time of the selection” that 

the product provider is financially able to make all future payments under the contract. The 

safe harbor permits fiduciaries to make this determination either at the time the provider is 

selected for distribution of benefits to a specific participant or, alternatively, when the 

provider is selected to provide contracts at future dates provided that the fiduciary periodically 

reviews the continuing appropriateness of the conclusion. 

In-plan lifetime income features are complex and sponsors are concerned that participants 

who do not fully understand the workings of these products may attribute a breach of 

fiduciary duty to events that they do not like or cannot control. For example, if a plan sponsor 

makes a fiduciary assessment that a particular product is no longer appropriate and must be 

removed from the plan, participants would be faced with the prospect of losing the guarantee 

for which they have been paying. Since switching providers does not constitute a 

distributable event, participants would not have the option to retain the guarantee by rolling it 

over. As noted above, we are concerned that this exposes plan sponsors to potential litigation 

which is a significant disincentive to usage of these lifetime income products. 
SHAPING AMERICA’S RETIREMENT

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We believe that the DOL could increase use of the safe harbor by providing additional 

guidance regarding the selection of a lifetime income product provider to provide contracts at 

future dates. We request that the DOL: 

1. Confirm that when a fiduciary initially selects a provider to provide lifetime income 

contracts at future dates, and when a fiduciary later reviews the continuing 

appropriateness of that decision, the fiduciary’s actions will be judged based on the 

circumstances prevailing both at the time of the initial selection and the subsequent 

review. 

2. Issue guidance that expressly authorizes a fiduciary to rely on public information available 

at the time of review unless the fiduciary has non-public information indicating that the 

provider’s public information includes material misrepresentations. 

3. Clarify that a plan sponsor can switch providers resulting in the loss of a lifetime income 

option previously selected by a participant. This could be addressed through amendments 

to DOL Reg. Section 2550.404a-4 by extending the safe harbor to a broad array of 

lifetime income products and clarifying that as long as the decision to select a lifetime 

income investment product was prudent at the time it was made, plan fiduciaries will not 

be held liable in the event the financial institution backing the product is unable to fulfill 

its obligation to pay promised benefits in the future. 

We also would urge the DOL to undertake a review of the regulation to determine whether it 

would be appropriate to simplify the conditions or considerations that must be taken into 

account so as to enable small employers to utilize the safe harbor without engaging an 

independent expert. 

Question 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? 

If the safe harbor is extended beyond distribution annuities, it should broadly cover the new 

array of products that have been developed, for example, GMWBs and GMIBs. 
SHAPING AMERICA’S RETIREMENT

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Question 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? 

The following is a combined response for Question 33 and 34. 

A. Extent of Usage - While not yet in widespread use, there are a number of lifetime income 

products offered as DC investment alternatives in plans utilizing ERISA Section 404(c). 

These products are offered through fixed deferred income group annuity contracts or 

group variable annuity contracts with minimum withdrawal/income guarantees. Their 

values typically can be re-allocated to other investments at a participant’s election. The 

specifics of these options are covered in another section of this response. 

B. Use as Core Alternatives - Typically, lifetime income options are used as non-core 

investment options. One of the barriers to their use as a core option is the fact that there 

is usually only one fund in a plan with a guaranteed option. Consequently, the conditions 

for a core fund, in particular the diversification requirement, may not be satisfied. It is 

unclear how lifetime income options can satisfy the core fund requirements when there is 

only one such option in a plan. 

C. Advantages and Disadvantages - The advantages and disadvantages of fixed deferred 

lifetime annuities are discussed in responses to other questions in the RFI. 

D. Information Disclosure - Disclosure regarding fixed deferred lifetime annuities is 

discussed in responses to other questions in the RFI. 

E. Amending ERISA 404(c) - In-plan lifetime income options should be covered under 

ERISA Section 404(c), just like any other in-plan investment option made available in a 

DC plan. In-plan annuities typically can have a lifetime payout feature but are otherwise 

simply a traditional accumulation investment option. While some unique restrictions may 

apply, these in-plan annuities can be cashed out and reinvested in the same manner as 

other plan investment options. 

We urge the DOL to clarify that such in-plan lifetime income options are not subject to 

any additional level of fiduciary review, since plan sponsors meet their appropriate 

fiduciary responsibility through the appropriate due diligence for these products at initial 

purchase and ongoing monitoring. Additionally, we request that the DOL clarify that if 

risks arise with a provider of lifetime guarantees, there is no fiduciary liability if the plan 

sponsor has followed the due diligence and monitoring process. 
SHAPING AMERICA’S RETIREMENT

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Question 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? 

Please see our response under Question 33 above. 

Section VI – Qualified Default Investment Alternatives

Question 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? 

Although industry-wide utilization data is not readily available, based on the information 

provided to us by our members, it appears that only a small percentage of DC plans that make 

guaranteed income products available are using them as the plan’s QDIA. In part, this is 

because these alternatives are early in their product evolution. 

The growth of target date funds in recent years supports the power of the QDIA concept. 

Given the tendency of many participants to take a passive role with respect to complex 

retirement planning decisions, we believe that if lifetime income options are only made 

available as an investment that requires a participant’s affirmative investment election, the 

usage rate by participants may remain low. 

The Agencies should consider the following issues with respect to lifetime income solutions 

and the QDIA safe harbor rules: 

A. Guarantees as an “Ancillary” Feature - New arrays of products that provide guaranteed 

lifetime income (such as GMWBs and GMIBs) have been designed to address 

participants’ concerns about traditional annuity products. In most cases, these new 

products have underlying investments that meet current QDIA definitions. 

However, there is some confusion whether insurance guarantees that are offered in 

conjunction with these products represent an “ancillary” feature of the investment vehicle. 

The DOL should determine whether this type of guarantee is considered an “ancillary” 
SHAPING AMERICA’S RETIREMENT

37

feature of an investment fund product or model portfolio. If considered to be “ancillary,” 

the DOL should provide clarification or guidance that would assure employers that the 

product would not fail as a QDIA. 

B. QDIA Protection In Participant Distribution Phase - To the extent that QDIA 

protection is available for lifetime income products, it is important that such protection 

extends into the participant distribution phase. 

C. Disclosure Requirements - Lifetime income products can be complex, so full disclosure 

to plan sponsors and participants is extremely important. Additional information 

regarding disclosure is provided in our responses to the questions in Section II regarding 

participant education. 

Section VII - Comments Regarding Economic Analysis, Regulatory Flexibility Act, 

and Paperwork Reduction Act

Question 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. 

Many of the cost drivers for including lifetime income products in DC plans have been 

identified in previous answers. Industry-wide reliable quantifiable data on these costs are not 

readily available. However, we believe that it is critical for accurate cost data to be included 

in any analysis of changing the regulatory structure to facilitate the use of lifetime income 

products, particularly any changes that would involve mandates. The SPARK Institute is 

willing and able to develop quantifiable data on record keeper costs for implementing 

regulatory changes and will do so upon request of the Agencies in connection with any 

contemplated regulatory changes. 

Question 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? 

As noted throughout this response, one of the most significant issues facing lifetime income 

product providers and plan record keepers is the ability to share information with each other 

in a cost effective electronic manner. Although the standards we are developing will make 

the information process more cost effective, small plans will likely incur higher relative costs 

than will large plans because they generally have less internal resources and expertise 

available to deal with the complexities. Additionally, smaller employers’ plans will generally 

not have asset levels that will qualify them for the same breakpoint pricing that larger 

employers’ plans with larger asset bases are able to use to help defray costs. 
SHAPING AMERICA’S RETIREMENT

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The cost and pricing issues for small plans are not unique to lifetime income solutions. As the 

Agencies know, these issues and potential fiduciary liability are among the impediments to 

greater access for American workers to employer-sponsored retirement plans. The SPARK 

Institute recently developed the Universal Small Employer Retirement Savings Program 

(“USERSP”) concept to create a simplified and cost-effective savings plan for small 

employers. The program will help solve the retirement plan coverage issue for tens of 

millions of American workers who currently don’t have access to employer-sponsored plans. 

We encourage the Agencies to consider the USERSP concept. Copies of the USERSP 

concept summary were provided to the Agencies when it was originally introduced. We are 

happy to provide additional copies upon request. It can also be downloaded from our website 

at www.sparkinstitute.org. 

Question 38

No response. 

Question 39

No response. 

* * * * * 

We thank you for the opportunity to comment on this very important effort and for your 

consideration of our views. The SPARK Institute is available to provide additional 

information and clarification to the Agencies regarding these matters. Please do not hesitate 

to contact us at (704) 987-0533. 

Respectfully, 

Larry H. Goldbrum 

General Counsel