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May 3, 2010 

Office of Regulations and Interpretations 

EBSA Room N-5655 

Department of Labor 

200 Constitution Ave. N.W. 

Washington, DC 20210 

Re: RIN 1210-AB33 

Internal Revenue Service 

Room 5205 

PO Box 7604 

Ben Franklin Station 

Washington DC 20044 

Re: REG-148681-09 

Submitted electronically 

Re: Request for Information Regarding Lifetime Income Options 

Ladies and Gentlemen: 

AllianceBernstein L.P. welcomes the opportunity to provide our views and comments on 

the Department of Labor and Department of Treasury request for information regarding 

whether and how the Agencies should enhance the retirement security of participants in 

employer-sponsored retirement plans by facilitating arrangements that provide a lifetime 

stream of income after retirement. 

 

AllianceBernstein is a registered investment adviser and global asset management firm 

with $501 billion in assets under management as of March 31, 2010. AllianceBernstein 

provides investment services to defined benefit (DB) and defined contribution (DC) plans 

in the US and abroad. For DC plans, AllianceBernstein or its affiliates offer mutual funds, 

collective investment funds and separate accounts for a wide range of investment services, 

including more than $9.3 billion in target-date retirement portfolios. 

In lieu of responding to each of the questions in the Request for Information, we would 

like to make the following key points: 

• DB plans, once a cornerstone of secure retirement income for a large segment of 

workers, have become too expensive for many sponsors to continue to offer, 

creating a potential retirement income gap for future generations of retirees; 

• While DC plans offer participants advantages absent in DB plans, including 

ownership of their retirement assets, portability and access to cash, DC plans have 
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traditionally not been designed to deliver secure lifetime income to participants—

and policies have not encouraged such a design; 

• DC plans can be designed to preserve their beneficial aspects while also 

replicating the core benefits of DB plans; we will discuss one example of such a 

design, secure income target-date portfolios; 

• Unfortunately, plan sponsors have little incentive to offer lifetime income 

products within their plans, and actually face significant obstacles to doing so. 

Policymakers can help by enacting policies to motivate employers to offer lifetime 

income products within their plans. We believe the following actions could spark 

widespread use of secure lifetime income strategies within DC plans: 

• Provide plan sponsors with protections, and possibly incentives, to offer welldesigned lifetime income products within their plans—and consider incentives for 

participants to use them; 

• Ensure that current and future policies, including qualified default investment 

alternative (QDIA) protections, clearly address the broad spectrum of lifetime 

income products now available, not just traditional fixed annuities; 

• Clarify rules surrounding qualified joint and survivor annuities (QJSA) and 

minimize the sponsor’s administrative requirements; 

• Encourage participant education by clarifying the extent to which plan assets can 

be used to pay for providing information to participants and clarifying that 

providing certain information would not constitute advice. 

An Overview of the Problem 

For many years, employer-sponsored DB plans have provided an important source of 

secure retirement income for a large part of the population. These plans have provided a 

vital benefit to employees and have been useful for employers to help recruit, retain and 

reward employees. 

Participation in DB plans is easy, when offered: employees just do their jobs, and they 

automatically accumulate valuable benefits over time. Most employees are unaware of 

the sophisticated investment management put in place by the sponsor to support the 

promised lifetime retirement income. 

Unfortunately, the DB model appears to be headed for retirement, at least in the private 

sector. Few new private sector DB plans have been launched over the past three decades, 

and an increasingly large number of companies have closed or frozen existing plans, 

because they found they couldn’t afford them. More recently, financially strapped state 

and local governments have begun to consider freezing or closing their DB plans. 

DC Plans Can Incorporate the Best Attributes of DB Plans 

DC plans are increasingly expected to fill the gap created by diminishing DB plan 

availability. DC plans have many excellent features of their own—most notably 

portability, participant access to funds, participant control and upside potential from their 

investments. Motivated by the desire to offer superior employee benefits and encouraged 
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by the protections and incentives offered in the Pension Protection Act of 2006 (PPA), 

US DC plan sponsors have invested an enormous amount of time and effort to improve 

their plans in recent years. 

In fact, sponsors of large DC plans are increasingly interested in adopting the best 

practices honed from years of experience in DB plan management. We see four core 

attributes of DB plans that stand out in this context, illustrated in the center four boxes in 

the display, below: 

• Effortless employee participation 

• Expert investment design 

• Flexible and low-cost management 

• Secure lifetime retirement income 

AllianceBernstein.com

A DC Plan Can Be Designed around the Best Attributes of a DB Plan

Flexible

and

Low Cost

Secure 

Lifetime 

Income

Effortless 

Participation

Expert 

Investment 

Design

Integrated 

Insurer-Provided

Guarantees

Auto-Enrollment and 

Participant

Communications

Research-Driven

Target-Date

Construction

Open-Architecture 

Institutional 

Structure

DB Plan Benefits

Three of these benefits—effortless employee participation, expert investment design and 

flexible and low-cost management—are readily replicable in today’s DC plans and fit 

together nicely. 

A DC plan can achieve simple, widespread employee participation by automatically 

enrolling new and perhaps existing employees and requiring them to proactively opt out 

of the plan, rather than proactively opt in. Endorsed by the PPA, automatic enrollment of 

new employees has rapidly become standard practice among DC plans. Furthermore, 

many plan sponsors are, or are considering, automatically escalating participant 
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contributions in order to increase savings rates, which can have a significant positive 

impact on accumulated assets at retirement. 

With effortless participation achieved through automatic enrollment, the remaining DBlike attributes must be provided through the plan’s default option—and innovations are 

moving DC default options closer to replicating the best features of DB plans. 

We believe one of the best ways to provide expert investment design in a DC context is 

through target-date retirement portfolios, which offer a complete asset allocation within a 

single portfolio and automatically adjust the allocation over time to remain age 

appropriate. Of the available QDIA choices, plan sponsors have shown an overwhelming 

preference for target-date portfolios. 

Sponsors of large DC plans—particularly those that have experience in DB plan 

management—are increasingly adopting custom target-date portfolios as their default 

investment options. Custom, or “open-architecture,” target-date portfolios are flexible 

and efficient—and tend to be less expensive than mutual funds for large plans since they 

are delivered in institutional vehicles offering asset-based pricing. The trend to custom 

target-date portfolios shows little sign of abating: a recent study suggests that over $1 

trillion in DC assets are likely to be invested in custom target-date portfolios over the 

next decade.1

 

The fourth characteristic of DB plans—delivering secure retirement income to 

participants—also appeals to many DC sponsors, but to date they have been reluctant to 

provide such products to participants due to a lack adequate incentives and protections, 

which we will discuss below. But first, let’s review what participants might want and 

need, and different ways in which a DC plan could provide secure retirement income. 

Lifetime Income in DC Plans: What Do Participants Want and Need? 

Since DB plans generally provide lifetime income by purchasing annuities for 

participants, it certainly seems reasonable for DC plans to at least offer participants the 

chance to buy them.

Many academic papers make a persuasive case that a traditional annuity offers much 

higher income potential and security than giving participants a lump sum at retirement. 

For plan participants, the advantages would seem to be appealing: they will be assured of 

income and won’t have to the worry about investing. But when plan sponsors offer 

participants the choice between a lump sum and an income stream, the overwhelming 

majority of participants choose the lump sum. Why? 

Academic papers on annuities typically assume, with mathematical convenience, that the 

sole motivation of a retiree is to maximize their own annual lifetime consumption in the 

form of level annuity income. But it is well known and documented that retiree needs and 

circumstances are far from uniform. How much retirement income participants require, 

 

1

 Casey Quirk, “Target-Date Retirement Funds: The New Defined Contribution Battleground,” October 

2009. 
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when they require it and whether they would like to leave money to their beneficiaries 

vary widely from participant to participant—and for any one participant over time, since 

unexpected health issues or other life events can radically alter a participant’s financial 

circumstances. 

The fact is: many retirees or near-retirees simply don’t want to lose control of their 

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

make an extremely complicated and difficult emotional decision to surrender lifelong 

savings—perhaps the most important financial decision of their lives and one that most 

are unwilling to make. 

Giving participants a “trial period” of, say, two years after retirement, in which they 

would receive a monthly check before automatically annuitizing unless they opt out, as 

some have suggested, does not solve these problems. In fact, it actually creates an 

additional issue: retirees would get a tangible sense of the benefit and convenience of a 

monthly income check, but may not be given a tangible sense of what it is like to lose 

control, unless they happen to need access to their savings during the trial period. 

Retirees who need access to cash after the trial period and discover they have been 

automatically annuitized, with no access to their saving, are likely to be quite unhappy. 

Moreover, waiting to annuitize until retirement—whether the annuity is purchased 

automatically or by choice—creates enormous timing risk: Participants who are unlucky 

enough to retire just after a sharp market drop has reduced the value of their assets, or at a 

time when interest rates are very low (or both), would obtain much lower guaranteed 

income than participants with similar contribution and investment histories who were 

lucky enough to retire after a period of strong market returns and when interest rates are 

high (or both). 

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

savings (with no secure income) versus an irrevocable annuity (with no liquidity or 

control). A range of annuity contracts exist that offer varying degrees of control, typically 

at the cost of a reduction in the level of guaranteed benefit provided. This would seem a 

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

secure retirement income but also value control and cash access. 

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

(GLWB), is particularly appropriate for use in DC plans. A GLWB provides annual 

lifetime income, preserves participant control and allows participant assets to remain 

invested in the capital markets, providing the potential for capital appreciation. 

Furthermore, gradual investment in GLWBs over, say, the 10 to 15 years before 

retirement, could greatly reduce timing risk while providing participants with peace of 

mind, as they systematically build a lifetime income stream. GLWBs are also ideally 

suited for use within the default investment option in DC plans, where they can help 

participants automatically establish secure retirement income while providing complete 

control and revocability. 
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We illustrate below our solution, which embeds insurer-backed GLWBs within a targetdate portfolio. Other providers are actively developing or offering other guaranteed 

income products that may also be suitable solutions to providing DC plan participants 

with secure retirement income while preserving control. 

Secure Income Target-Date Portfolios 

Dubbed “secure income target-date portfolios,” the combination of a target-date portfolio 

with income guarantees could provide secure lifetime income similar to that offered by a 

traditional DB plan or annuity, but with the control and upside potential of a DC plan. 

The guarantee is built into the target-date portfolio’s asset allocation, starting at around 

midlife. Gradually, more and more of the portfolio’s assets are automatically covered by 

guarantees. The guarantees can be backed by multiple insurers to promote price 

competition and to address the risk that that one insurer might default or run out of 

capacity to guarantee more assets. 

Establishing guaranteed income before retirement can foster a sense of retirement 

security. Quarterly statements for participants could include the annual income for life 

that has accrued so far, as well as estimates of the annual income they might accrue by 

retirement, along with the actual account balance. DC plan investing and communications 

would move from a focus on account value alone toward focusing on both retirement 

income and account value. 

As with a traditional target-date portfolio, account values would go up and down with 

market returns, but the secure retirement income would only go up: The display below 

illustrates a secure income target-date portfolio’s account value and guaranteed lifetime 

income for a hypothetical 50-year-old participant over 15 years starting in 1993. The 

account value and guaranteed retirement income amount at that point are $150,000 and 

$3,000, respectively; both values would appear on the participant’s quarterly statement. 
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AllianceBernstein.com

0

100

200

300

400

500

600

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

0

5

10

15

20

25

Securing Income Target-Date Portfolios Can Provide Peace of Mind

Hypothetical Example of a Portfolio with 4% Guaranteed Lifetime Withdrawal

53 56 57 58 59

$3K

Participant’s 

Guaranteed

Retirement Income*

Account Value (Thousands)

Year

$9K

$12K

$20K

Age 50 51 52 54 55 60 61 62 63 64 65

Guaranteed Income (Thousands)

$5K

*Hypothetical example assuming from 50% to 100% allocation to 4% Guaranteed Lifetime Withdrawal Benefit (GLWB) with birthday ratchet from ages 50 to 60 invested in a 60/40 stock/bond mix. 

Past performance does not guarantee future results. Investors cannot invest directly in an index and its results are not indicative of any AllianceBernstein product. 

Participant’s 

Target-Date 

Account Value

$11K

The account value and the guaranteed income go up steadily through the 1990s as a result 

of ongoing contributions and favorable capital markets, with the account value reaching 

about $350,000 in 1999. The account loses value in the bear market of 2000 to 2002, but 

the guaranteed income level increases slightly as contributions continue and more assets 

are covered by the guarantee—rising to $12,000 in 2002. As the market recovers, the 

account value and the guaranteed income start rising again. A year before retirement, in 

2007, the account is worth just over $500,000, and the guaranteed retirement income is 

$20,000. 

In 2008, however, the hypothetical account value plunges 25%, just as the participant was 

about to retire. But the guaranteed income doesn’t go down; it’s still $20,000. When the 

market recovers in 2009, the account value rises. The guaranteed income would continue 

to grow if and when the account value passes $500,000 again. 

 

Note that secure income target-date portfolios also have a significant implication for asset 

allocation. The security of guaranteed income gives participants greater risk capacity to 

maintain a higher exposure to stocks through retirement than what otherwise might be 

prudent without such a guarantee. This can provide the growth needed to help combat 

inflation. Secure income target-date portfolios can provide a simple and effective lifetime 

asset allocation and income solution within DC plans. 
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How Policymakers Can Help 

We believe DC plans featuring automatic enrollment and using default investment 

strategies that incorporate lifetime income guarantees, such as the secure income targetdate portfolios described above, can offer workers the best attributes of DB plans within a 

DC plan framework. In fact, many plan sponsors have told us they would be interested in 

the possibility of changing their default option to a secure income target-date portfolio 

when such products become more widely available. These products would be good for 

the participants who chose them, they say, by enabling them to build secure income prior 

to retirement while preserving control and choice prior to—and through—retirement. In 

addition, with retiree assets remaining in DC plans longer, participants would benefit 

from greater pricing power, which would likely decrease fees. 

Despite these potentially transformative advantages for DC participants, few plans today 

offer investment strategies with lifetime income guarantees, and even fewer offer them as 

their plan default. Why? Historically, DB plan sponsors had little reason to offer lifetime 

income strategies in their DC plans, and therefore service providers—insurers, record 

keepers and asset managers alike—had little impetus to develop appropriate guaranteed 

income solutions for use in DC plans. 

More recently, however, as DC plans have supplanted DB plans as the primary retirement 

savings vehicle, service providers and sponsors alike have been acutely focused on 

providing higher-quality accumulation products in DC plans. Intense competition has led 

to rapid innovation in a short amount of time, and service providers are now offering 

higher-quality solutions at a lower cost. DC plan sponsors have acted quickly to adopt 

innovative investment strategies for their participants, such as custom open-architecture 

target-date portfolios, which were just made available in the past few years. 

Thus, we believe it is essential for policymakers to avoid stifling innovation or 

promulgating rules that favor one type of secure lifetime income arrangement over others. 

There are several positive ways, however, that policymakers could help promote wider 

use of lifetime income strategies within DC plans. 

Safe harbor provision 

Widespread adoption of products that offer lifetime income is unlikely without a safe 

harbor provision protecting plan sponsors from liability in the event that an insurance 

provider fails, as long as the plan sponsor conducted appropriate due diligence in 

selecting the insurer. 

The safe harbor under 29 CFR 2550.404a-4 appears to relate directly only to traditional 

distribution annuities and does not clearly extend safe harbor protection to other types of 

guaranteed lifetime income products. We believe it would be appropriate to revise the 

regulation to clarify that the safe harbor protection would also apply to the selection of 

lifetime income products that incorporate a broader class of guarantees provided by 

insurance companies. 

Clarifying that QDIAs can include a broader class of guarantees 
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We also believe that the Department of Labor regulation (29 CFR 2550.404c-5(e)(4)(vi)) 

contemplates the incorporation of guarantees within a qualified default investment 

alternative (QDIA). Nonetheless, it would help remove uncertainty for DC plans if the 

Department would clarify the various forms of guarantees that a QDIA could provide, 

such as guaranteed lifetime withdrawal benefits, and if the Department clarified that the 

safe harbor protection under ERISA Section 404(c)(5) extends through the payout phase 

of a QDIA that provides guaranteed lifetime income. 

Clarifying the rules related to qualified joint and survivor annuities and spousal consent 

We believe that the rules and procedures for complying with the qualified joint and 

survivor annuity requirements pose significant burdens on sponsors of 401(k)s and other 

types of profit sharing plans. 

The qualified joint and survivor annuity (QJSA) rules are intended to serve an important 

policy objective: to ensure that surviving spouses have a meaningful opportunity to 

protect themselves against loss of income when retired participants make irrevocable 

decisions to annuitize benefits over their lifetime. But for the secure income target-date 

portfolio we described above, and other solutions that provide participants with control, 

the participants do not make an irrevocable election when they begin to receive 

distributions from the plan. In our view, the secure income target-date portfolio we 

describe should not be considered an annuity that would trigger QJSA requirements for 

several reasons: 

• The participant is able to make withdrawals from his or her account invested in 

the secure income target-date portfolio at any time and in any amount, or make 

none at all; 

• Upon the death of the participant, payments do not simply cease. The participant’s 

designated plan beneficiary (his or her spouse, unless the spouse has consented to 

another beneficiary) would be entitled to any balance remaining in the 

participant’s account; 

• The participant retains the ability to simply transfer any or all of the account value 

invested in the secure income target-date portfolio to any other investment option 

available under the plan; 

• The insurer will never make a payment if the participant does not outlive his/her 

account or if the participant transfers to another plan investment option or takes a 

lump sum distribution. 

We believe it would be extremely beneficial and promote the use of secure income targetdate portfolios and similar products if Department of the Treasury regulations clarified 

that such products are not annuities for the purpose of the QJSA. However, if the 

Department believes such products should trigger the QJSA rules, it would be beneficial 

if the regulations clarified that no additional elections or waivers would be required after 

the initial waivers and consents are obtained. 

Clarifying the extent to which plan assets can be used to pay for providing information to 

help participants make informed decisions 
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We believe that expenses related to providing information to help participants make 

informed decisions about lifetime income options are, arguably, already legitimate 

expenses of the plan under current law and Department of Labor guidance, so such 

expenses should be payable out of plan assets. However, specific guidance from the 

Department of Labor that confirms this understanding would be helpful. 

Clarifying that providing certain information is not advice

When plan sponsors provide information or education to plan participants about plan 

benefits, investments, distribution options or other matters, they are often uncertain what 

would cause actions to “cross the line” and become advice for which they will be deemed 

responsible as an ERISA fiduciary. 

The DOL’s Interpretative Bulletin 96-1 has been helpful because it helps define what 

plan sponsor activities would be considered investment education rather than investment 

advice. But IB 96-1 does not specifically address the extent to which plan sponsors can 

provide education to participants about lifetime income options. 

We think it would be helpful if the Department were to clarify that furnishing the 

following categories of information and materials to participants about lifetime income 

options will not constitute rendering investment advice: 

• General information about longevity risk and how lifetime income options help 

mitigate that risk, including a discussion of the benefits of choosing such options; 

• Descriptions of lifetime income options; 

• Information and materials (e.g., graphs, charts or case studies) that illustrate how 

lifetime income options work, including information and materials that show 

sample projections based on hypothetical participants, contribution rates, earnings 

assumptions and other relevant factors; 

• Projections on participant benefit statements or elsewhere that illustrate the 

amount of annual (or other period) benefit the participant has accrued based on 

the participant’s account balance and other assumptions, such as the rate of the 

participant’s future contributions; 

• Interactive materials (e.g., worksheets, software programs or websites) that allow 

participants to model the projected income they could derive from lifetime 

income options based on specific information the participant provides, such as 

account balance, future contributions, assumed earnings rates and assumed life 

expectancy. 

The enactment of the DC provisions in the Pension Protection Act of 2006 led to plan 

sponsors’ rapidly adopting a host of practices that have helped improve the retirement 

security of participants. We think that similarly well-designed new regulations and 

protections pertaining to lifetime income could have a similarly positive impact. 

We look forward to working with both Agencies as they continue to explore this topic. 

Please don’t hesitate to contact us at if you have any questions or need additional 

information. You can reach me at (212) 969-2242. 
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Cordially yours, 

Daniel A. Notto 

Senior Vice President 

Senior Retirement Plan Counsel