Testimony of 

Charles P. Nelson 

President 

Great-West Retirement Services®

Before the 

United States Department of Labor 

Employee Benefits Security Administration 

and the 

United States Department of the Treasury 

Joint Hearing on 

Lifetime Income Options for Retirement Plans 

September 15, 2010 
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Good Morning. My name is Charles Nelson, and I’m President of Great-West Retirement Services®, a 

division of Great-West Life & Annuity Insurance Company, and a part of the Great-West Lifeco group, 

one of North America’s largest insurance complexes. 

Great-West is the fourth-largest defined contribution (DC) provider and record keeper. We serve over 

24,000 plans and 4.4 million participants. Our clients comprise a variety of DC plans, including 401(k), 

403(b) and 457 as well as defined benefit plans. 

In 2008, the rollover total from DC plans to IRAs was an estimated $270 billion industrywide. That same 

year, total variable annuity sales were almost $155 billion – of which 65 percent were IRA rollovers. 

Seventy-nine percent of participants purchasing an IRA in a variable annuity went into a guaranteed 

lifetime income product. Clearly, there’s a demand. 

We don’t think participants should have to leave their DC plan to access these products. That’s why we 

introduced an in-plan investment option often referred to as a Guaranteed Lifetime Withdrawal Benefit, 

or GLWB, for our DC clients this past April. Our goal was to create a guaranteed lifetime income product 

designed for the unique characteristics of a DC plan. Guaranteed lifetime income products inside DC 

plans need to take into consideration vesting, loans, hardship, multiple money types and many other plan 

rules. Our GLWB, called SecureFoundationSM, is designed both to accommodate these unique DC-plan 

characteristics and to provide the benefits of a GLWB product. 

While you may hear differing opinions about participants’ interest in these products, our research and 

experience indicate there’s significant, growing demand. For example, in the short 100 business days 

since we introduced our guaranteed lifetime income product, almost three plans a day have added it, and 

we’re seeing increasing demand and acceptance by additional plan sponsors. This is consistent with the 

popularity experienced in the individual variable annuity and IRA markets. 

Our results have been encouraging; however, we believe that by addressing a few concerns, even more 

plan sponsors will make guaranteed lifetime income products available to participants. With that as 

background, there are four points I would like to make. 

First, the Agencies can help resolve key fiduciary concerns that employers face when selecting these 

products. 

Second, the Agencies can clarify application of the qualified joint and survivor annuity rules to 

guaranteed lifetime income investments. 

Third, the Agencies can help change the mindset of plan participants by requiring participant statements 

to display benefits as monthly lifetime income payments. 

Fourth, the Agencies can create default mechanisms that will increase the number of participants who 

retire with guaranteed lifetime income benefits while protecting participants who don’t want or need this 

option. 

Let’s start with resolving fiduciary concerns 

Thirty-nine percent of our new 401(k) plan sales have selected our guaranteed lifetime income product as 

their default investment option. The remaining 61 percent who don’t select it mention unease about their 

responsibility to sort out portability and insurance company solvency – this, despite Great-West Life & 

Annuity’s being one of the highest-rated insurance companies in North America. 

You heard representatives from SPARK testify regarding the portability solution that Great-West and 34 

other SPARK members are creating. We believe this industry-generated solution is a practical response, 

and it will go a long way in resolving portability concerns. 
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We believe fiduciary concerns with insurance company solvency can be addressed by amending the 

DOL’s safe harbor rule for selecting annuitiesi

 or by creating a new safe harbor – specifically intended for 

in-plan guaranteed lifetime income products. We urge the Agencies to allow plan fiduciaries to rely on 

their traditional sources of help – DC plan advisors, consultants or third-party administrators – and not 

require them to seek the help of an “insurance company solvency expert” in applying the safe harbor. 

My next point – clarify application of qualified joint and survivor annuity rules 

The qualified joint and survivor annuity rulesii are designed to ensure that employees’ spouses have 

access to retirement plan benefits. While the goal is laudable, a review of our business showed 77 percent 

of plan sponsors in DC plans opt out of the QJSA requirement due to the cost and complexity of 

compliance. 

For example, any time there’s a loan, hardship withdrawal, or other distribution from the plan, a special 

notice must be provided, the spouse’s consent to the transaction must be obtained, and the consent must 

be notarized or witnessed by a plan representative. The QPSA rules also require plan administrators to 

track when participants turn age 35 and obtain new beneficiary designations from those participants. All 

of this involves cost and time for a benefit that’s not appreciated or used by the majority of participants or 

their spouses. For instance, our records show that even in plans where the QJSA must be made available, 

only about one-half of one percent (.5 percent) – or only a few thousand participants out of our total 4.4 

million – take advantage of this distribution election. 

We’ve heard from plan sponsors and third-party administrators that the risk of triggering QJSA 

requirements is a deterrent to adoption of guaranteed lifetime income products by plans that have chosen 

not to support QJSA benefits in their plan. The purpose of the triggering rule is to provide protection to 

spouses where the 100 percent death benefit alternative has been rendered moot because a participant has 

converted their account balance into an annuity, so there’s no longer any death benefit available to a 

surviving spouse. This protection isn’t appropriate in guaranteed lifetime income products where the 

participant’s account balance remains available as a death benefit to the spouse until the account’s been 

depleted through withdrawals. 

Therefore, we recommend the QJSA rules be amended to clarify that a QJSA isn’t triggered by virtue of a 

participant receiving lifetime payments as long as the participant’s account balance remains available as a 

death benefit to the surviving spouse until depleted through withdrawals. 

Next, the Agencies should require participant statements to include account balances expressed as 

monthly lifetime income payments 

We recommend the participant statement rulesiii be amended to require that, at least annually, 

participants’ account balances be displayed as a monthly, “lifetime income” benefit. We also encourage 

the Agencies to facilitate discussion between participants and advisors/consultants about the need for 

guaranteed lifetime income and the features of guaranteed lifetime income products that are available to 

them by clarifying that these discussions don’t constitute fiduciary advice.iv

We also encourage the Agencies to promote effective participant communication by working with FINRA 

and the SEC to eliminate regulatory barriers, such as prohibitions against using certain phrases. We 

believe part of our success in getting plan sponsors and participants to choose a guaranteed lifetime 

income product comes from incorporating lessons taught by behavioral finance research. 

For example, Professor Jeffrey Brown, Director of the Center for Business and Public Policy at the 

University of Illinois College of Business, did research on “Framing Annuities.” Notably, his research 

showed the importance of word selection when describing investment decisions. Keeping this in mind, we 

need the Agencies’ help in letting us “speak the language of participants” so they can make more 

informed decisions. Today, regulations limit how we can communicate these products – making them 

more complex and confusing than they are. For example, we wanted to use the term “retirement 
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paycheck” to describe lifetime income in a manner that participants could easily understand, but FINRA 

told us we couldn’t use “paycheck”v

 and had to use retirement “income” instead. This nuance may seem 

minor, but presenting concepts in a language that speaks to participants is important if we’re to help them 

make informed decisions. 

Last, default strategies should be encouraged to mitigate the risk that employees will outlive their 

retirement savings 

Behavioral scientists have produced volumes of studies validating what we’ve seen and experienced in 

DC plans over the years.vi,vii,viii, ix Congress and the Agencies have listened to the scientific evidence and 

addressed participant inertia by promoting automatic enrollment and automatic deferral increases, as well 

as by sanctioning qualified default investment alternatives. We encourage the Agencies to deploy these 

same default strategies to guaranteed lifetime income products. 

As mentioned earlier, since we introduced our guaranteed lifetime income product, 39 percent of new 

plans have selected it as a default, but only 9 percent of plans have mapped their participants to 

guaranteed lifetime income products. We know we still must address a few issues when plan sponsors 

change providers if default strategies are to be more widely used to encourage the use of guaranteed 

lifetime income products as a default and mapping alternative. We also believe these strategies should 

allow participants to opt out. For example, we recommend the Agencies use the same “three-strike” 

concept that DC plans use for other auto-plan features. This initiative provides three notices to 

participants. If – after the third notice – a participant takes no action to opt out of the auto feature, then he 

or she automatically is enrolled in it.

That concludes my prepared remarks. Thank you again for the opportunity to testify on this important 

topic. We support the Agencies’ efforts to improve retirement income security and remain available to 

assist with information or other support at your request. I would be happy to address any questions you 

may have. 

i

 ERISA §2550.404a-4 

ii IRC § 417(b); Treas. Reg. § 1.401(a)(20) 

iii ERISA § 105(a) 

iv DOL Reg. § 2509.96-1 

vRule 2210(d)(1)(B) 

vi Brown, Jeffrey, Ph.D, “Lifetime Income as Path to Retirement Income Security”, August, 2009 

vii Bernatzi, S. and Thaler, R., “Save More for Tomorrow: Using Behavioral Economics to Increase Employee 

Savings”, Journal of Political Economy, 2004 

viii Madrian, B. and Shea, D., “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior”, 

Quarterly Journal of Economics, 2001 ix Choi, J., Laibson, D., Madrian, B. and Metrick, A., “For Better or for Worse: Default Effects and 401(k) Savings 

Behavior”, Perspectives in Economics of Aging, University of Chicago Press (2004)