John Hancock Financial Services

601 Congress Street 

Boston, MA 02210-2805 

Hugh McHaffie 

President 

U.S. Wealth Management 

May 3, 2010 

Filed via E-Mail 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, N.W. 

Washington, DC 20210 

Attention: Lifetime Income RFI 

Re: Request for Information RIN 1210-AB33 

Dear Sir or Madam: 

On behalf of John Hancock Life Insurance Company (U.S.A.) and its affiliates we are 

pleased to submit our responses to the Request for Information Regarding Lifetime Income 

Options for Participants and Beneficiaries in Retirement Plans, 75 Fed. Reg. 5253, issued 

by the Department of Labor (the “DOL”) and the Department of the Treasury (the 

“Treasury”) (herein referred to as the “RFI”) and published in the Federal Register on 

February 2, 2010. 

Please do not hesitate to contact me if you have questions regarding our response to the 

RFI. I can be reached at hmchaffie@jhancock.com or (617) 663-2400. 

We appreciate the opportunity to present John Hancock’s views to assist Americans in 

securing a fulfilling retirement. 

Sincerely, 

Hugh McHaffie 

President 

John Hancock Wealth Management 
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REQUEST FOR INFORMATION REGARDING LIFETIME INCOME OPTIONS FOR 

PARTICIPANTS AND BENEFICIARIES IN RETIREMENT PLANS 

FROM DOL AND TREASURY 

John Hancock Life Insurance Company (U.S.A.) and John Hancock Life Insurance 

Company of New York (collectively, “John Hancock”) hereby responds to the Request for 

Information Regarding Lifetime Income Options for Participants and Beneficiaries in 

Retirement Plans, 75 Fed. Reg. 5253, issued by the Department of Labor (the “DOL”) and 

the Department of the Treasury (the “Treasury”) (herein referred to as the “RFI”). 

Introduction:

Paying for retirement is a worry all over the world -- for individuals, employers, public 

policy makers and taxpayers. Ironically, all this anxiety is due to one of the happiest 

developments of the 20th century: much longer life expectancies. Fifty years ago, the 

reasonable expectation was that a worker would spend a few years in retirement. Today, it 

may well be decades. How will we finance those decades? How can we ensure that as 

individuals we don’t outlive our financial resources? 

These are important questions and John Hancock applauds the Departments of Labor and 

Treasury for initiating this study of the retirement income security of Americans. 

Due to well-documented strains in the Social Security system, sharply increased unfunded 

liabilities in public and private pension plans, and longer lifespans, the conclusion seems 

inescapable: a large percentage of the present working population in this country is going 

to have to pay for a substantial portion of their own retirements. 

While guaranteed lifetime income is an important part of the puzzle, it is not in itself the 

solution to solving the retirement income problem in America. We believe the problem 

requires a more fundamental approach – that is, to encourage American workers to save 

more. This includes encouraging more employees to participate in their 401(k) plans and to 

do so at a meaningful deferral rate. 

We believe it is critically important to educate Americans about the reality of how 

much money they will need for retirement, and about how they will make that money 

last for their lifetimes.

Americans need to develop a better understanding of the relative value of a lump sum of 

cash at retirement compared with income that may be structured to last their remaining 

lifetime. Education can be enabling and will facilitate the significant savings that are 

required. We need to increase the understanding, acceptance and use of a variety of 

solutions that may provide Americans with a balance between immediate liquidity, and 

secure streams of lifetime income. 
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We need to encourage all Americans to save more by providing incentives. 

Solving the retirement income dilemma requires the fundamental approach of significantly 

increasing personal savings, both in retirement plans and generally. 

One of the reasons for the current retirement crisis is that not enough is being put into 

retirement savings during the accumulation phase. Other countries have recognized the 

need to accumulate higher levels of retirement savings and have instituted employer and 

employee programs to address the issue. While we don't advocate such mandatory actions, 

it is interesting to review the impact that such programs have had on the retirement savings 

rate. 

Hong Kong’s Mandatory Provident Fund: 

In 2000, the Mandatory Provident Fund (MPF) was established in Hong Kong. The MPF is 

a compulsory, defined contribution program for employees where the level of contributions 

is currently five percent of salary by the employee and five percent by the employer, with a 

cap on the relevant income used for the contribution calculation of around US $30,000 per 

year (roughly the median earnings level). There are essentially no tax incentives for 

participating (but no penalties either). Hong Kong is a low tax environment so there are 

limitations to the extent that the government can use tax incentives as a policy lever. 

The clearest example of the success of the MPF is the fact that prior to 2000; roughly 35 

percent of the population was covered by a retirement program. Today, this coverage ratio 

stands around 97.3 percent - i.e., practically full coverage for employees and self-employed 

people. All in all, the introduction of the MPF has created a framework for forced savings 

for retirement and a system where additional savings can be readily injected by individuals. 

The Australian Superannuation System: 

This system is often looked at by other countries as an interesting model to learn from. 

There is about US$852b of assets under management now in the system covering around 

32 million member accounts, pre- and post-retirement. In contrast to the MPF, in 

Australia, only the employer contributions are mandatory. In 1992, the government 

enacted the “superannuation guarantee” program. This entailed legislation whereby 

employers would pay a “superannuation guarantee charge” if they did not make 

contributions on behalf of employees. This charge is set at a level much higher than the 

cost of contributing and essentially created a mandatory defined contribution system. The 

employer contribution rate was increased from the initial three percent rate over time to the 

current nine percent which it reached in 2002. 

Personal income tax rates are relatively high in Australia and over time numerous tax 

incentives have been put in place to encourage voluntary participation in superannuation by 

the community. The incentives have generally been used to raise the level of contribution 

during the accumulation phase as well as to encourage the use of retirement income 

streams during retirement. The emphasis on income streams is to reduce the use of the 

government provided Age Pension. 
3

Similar to the Hong Kong experience, coverage of the work-force increased from 40 

percent in the early 1980s to currently around 93 percent. 

We must pursue initiatives to encourage Americans to save more overall, in order to 

increase the probability that a greater percentage of workers will accumulate enough 

resources to fulfill their actual retirement income needs. We must do this, in part, to 

avoid a burdensome societal liability extending well into the future. 

Some specific initiatives for consideration are: 

• Consideration should be given to increasing the current maximum deferral 

percentages and limits, providing further incentives to increase retirement savings, 

particularly at older ages that face a significant shortfall. 

• Increase the Saver’s Credit for low and middle income earners who put additional 

money into lifetime income products. Enhancing the credit is currently included in 

the President’s Middle Class Task Force policy. We suggest increasing credit limit 

(currently $1,000 for individuals, $2,000 for joint filers) by 50 percent or increasing 

the credit rate (currently at 50 percent) to perhaps 75 percent, if additional money is 

directed to a lifetime income option. 

• Extend specific benefits (e.g. exclusion of first $10,000 in annual income) to 

payouts from employer-sponsored or IRA plans taken on a lifetime basis. 

• Extend specific benefits (e.g. preferential tax deductions) to plan participants who 

elect and contribute a minimum qualifying amount to lifetime income option. 

• Extend specific benefits (e.g. tax credits) to plan sponsors who provide, encourage 

and/or achieve greater adoption of lifetime income options. 

We need to promote greater awareness and understanding of products that already 

exist in order to address longevity risk (the risk of outliving one’s assets in 

retirement). 

In recent years, retirement plan providers have begun addressing the issue by creating 

methods to provide participants with lifetime income guaranteed benefits other than 

through a traditional annuity. Such products are vital to providing retirees with security in 

their retirement years. 

Both employers and participants in 401(k) and other types of retirement savings plans need 

to understand the advantages of such new products as guaranteed minimum withdrawal 

benefits (GMWBs), guaranteed minimum income benefits (GMIBs) and deferred lifetime 

income annuities, and the role those products can play in structuring a secure retirement 

income. Participants should have the option of including a lifetime distribution option in 

their retirement plans. 

John Hancock has led this innovation by offering a lifetime income option in the 401(k) 

plans we provide. Our Guaranteed Income for Life (“GIFL”) Select optional feature, which 
4

is more fully described in our response, provides plan participants the ability to secure a 

guaranteed income for their lifetime and has been readily accepted by the marketplace. 

The feature offers the ability to secure, as early as age 65, a guaranteed five percent income 

stream for life based upon the higher of a) contributions accumulated at three percent 

annually, or b) the market value of the portfolios available under the GIFL Select options at 

that time (assuming that no withdrawals are taken prior to retirement at 65). The guarantee, 

which comes at a fee to the participant, protects the participant from downward investment 

returns in the calculation of their available guaranteed income, allowing for retirement 

planning with a degree of certainty. John Hancock has developed both in-plan and out-ofplan offerings, which allow a participant to retain guarantee of income upon a distribution 

event from their plan through a roll-over program to an IRA. GIFL Select is an optional 

income program, which provides flexibility for the participant to access the remaining 

account balance if they choose to forego current or future guaranteed income payments. 

There are, of course, many other ways to assist in augmenting lifetime income in 

retirement. Various types of annuities may be suitable at different points in an individual’s 

lifetime: 

• Immediate payout annuities may be most valuable at or after retirement when the 

individual can shift an appropriate portion of their retirement plan assets into a 

stream of income, presumably for life. 

• Deferred annuities, including fixed and variable annuities, can play an important 

role for pre-retirees or individuals whose income horizon is in the future. In effect, 

deferred annuities can be used to project a predictable future value from which 

income may be generated that can be insulated from future stock market or interest 

rate changes. 

We believe the Government Agencies should take an advocacy role to promote education 

on longevity risk and lifetime income options through actions that include, but are not 

limited to: 

• Media campaigns. 

• Publications distributed by retirement plan sponsors to plan participants, and by 

government agencies to Social Security participants. 

• Encouraging plan sponsors to include lifetime income options in their plans with 

associated educational materials at enrollment and/or on plan websites. 

We need to solve the problem of fiduciary challenges for plan sponsors. 

Life insurers and other financial services providers have varying roles to play in offering 

solutions to employers and individuals. One of the most meaningful ways to encourage the 

utilization of existing and development of new solutions to the lifetime income problem 

would be to solve the fiduciary challenges that plan sponsors face. 
5

Plan sponsors are often concerned about their fiduciary responsibilities in offering lifetime 

income solutions to participants. We need to focus on educating plan sponsors about the 

various features, if we are to encourage greater utilization. Changes in regulations and tax 

policies will need to be considered. 

Life insurers such as John Hancock are uniquely positioned to assist in solving the 

problem of longevity risk by helping to develop innovative lifetime income solutions: 

• Life insurers have studied longevity for years and have the ability to write 

mortality-based guarantees to provide solutions to the longevity risk. 

• John Hancock is investing heavily in research and development so that we may 

design effective retirement products to help participants plan and save for their 

retirement needs. 

Who We Are: 

• John Hancock is the US division of Manulife Financial Corporation of Toronto, 

which is the fifth largest publicly held life insurance company in the world and the 

largest in North America.1

• Approximately 96 percent of U.S. consumers are aware of the John Hancock brand 

for financial services. John Hancock provides solutions for eight of consumers’ top 

10 financial concerns, including: the need to plan for retirement, the cost of 

healthcare/medical expenses, outliving savings, and financial security after 

retirement. 

• John Hancock holds top market rankings in many insurance and investment 

products designed to help Americans build and protect wealth. The company ranks 

#1 in Variable Life and Survivorship Life insurance, #1 in Group and Individual 

Long Term Care insurance, #1 in 401(k) plan sales to smaller companies. In 

addition, the company is ranked #2 in Total Life insurance sales and #2 in Universal 

life sales.2 

• John Hancock provides a variety of 401(k) retirement plan services, including 

recordkeeping, plan administration, providing annuities and lifetime income 

benefits, investment selection assistance, and mutual fund investments. John 

Hancock currently serves over 42,000 401(k) plans throughout the United States, 

covering 1.7 million participants. 

• John Hancock’s financial strength ratings are among the strongest in the life 

insurance industry. The company is rated AA+ by Standard & Poor’s (2nd highest of 

 

1

 As of 12/31/2009 

2

 Variable, Survivorship, Total and Universal Life based on 100% of Recurring Premium plus 10% of Single Premium 

plus 10% of Excess Premium (LIMRA, 12/31/09 YTD); 401(k) based upon plans among insurance companies, mutual 

fund companies and banks (2009 CFO Magazine 401(k) Provider Guide Study, May 2009).
6

21 ratings) – very strong financial security characteristics; Aa3 by Moody’s (4th

highest of 21 ratings) – excellent financial security; A+ by A.M. Best (2nd highest of 

15 ratings) – superior ability to meet ongoing obligations; and AA by Fitch Ratings 

(3rd highest of 21 ratings) – very strong capacity to meet policyholder and contract 

obligations. 

About our parent company: 

• Manulife Financial Corporation is a leading Canadian-based financial services 

group serving millions of customers in 22 countries and territories worldwide. 

Operating as Manulife Financial in Canada and Asia, and primarily through John 

Hancock and its affiliates in the United States, the Company offers customers a 

diverse range of financial protection products and wealth management services 

through its extensive network of employees, agents and distribution partners. 

• As at December 31, 2009, Manulife Financial had capital of Cdn $33.2 billion, 

including Cdn $27.4 billion of common shareholders’ equity. 

• Funds under management by Manulife Financial and its subsidiaries were Cdn $440 

billion (US $420 billion) as at December 31, 2009. 

• Manulife’s key operating subsidiaries enjoy among the highest financial strength 

ratings in the insurance industry as a result of our consistent focus on financial 

discipline, strong capital levels, risk management and operational excellence. 

• Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and 

under '945' on the SEHK. Manulife Financial can be found on the Internet at 

www.manulife.com. 
7

General 

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? 

Advantages 

For most Americans, 401(k) plans provide their only retirement savings apart from Social 

Security. As people have started living longer and have not saved enough (or have lost 

savings due to down markets), retirees are concerned that they will outlive their retirement 

savings. One means of addressing this concern is some form of lifetime income. 

• Poor markets, before or after retirement, can seriously impact a retiree’s retirement 

income. A guaranteed stream of lifetime payments can reduce this risk. 

• Being able to convert 401(k) savings to a steady stream of income for life can ease 

retiree concerns. 

• The guarantee of a steady stream of income protects retirees from market risk 

during a period in which they have less time to recover from a loss. 

• With increasing life expectancy, the risk of outliving one’s retirement assets can be 

significantly reduced. Currently the most effective way to mitigate this risk is to 

purchase an annuity from an insurance company that has the ability to pool 

longevity risk among its clients. This diversification is unmanageable by an 

individual on his or her own. 

• Participants are less likely to squander or prematurely spend their savings if they 

have elected a fixed payment schedule. 

• Deferred annuities that offer revocable lifetime income benefits such as guaranteed 

minimum withdrawal benefits (“GMWBs”), whether offered to plan participants, or 

purchased with rollover balances or personal savings, may be beneficial to 

retirement savers who wish to insulate the purchasing power of future lifetime 

income streams from market or interest rate disruptions. 

Disadvantages

• While traditional fixed annuities provide a guaranteed stream of income, they do 

not otherwise provide retirees with access to their savings. 

• Other than a joint and survivor annuity, the traditional annuity leaves no value to 

the participant’s beneficiaries. In contrast, in revocable lifetime income products, 

such as GMWBs, participants and their beneficiaries have access to their current 

account at any time. 
8

• In any form of guaranteed payments, there will be additional fees that do not exist 

when participants take lump sum or periodic distributions without a guarantee. 

Ensuring balance in an individual’s financial planning is critical. Individuals have both a 

need for liquid assets to cover unanticipated financial events plus the ability to have an 

income stream that is sustainable for their expected lifetime. Life income annuities are 

specifically designed to provide the lifetime protection and are less effective in provided 

liquidity. Education to participants/retirees on the attributes of annuities is critical to ensure 

a properly balanced retirement financial plan. 

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 decisionmaking 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? 

The low utilization rate of lifetime income options likely represents a combination of the 

lack of availability and lack of understanding by both plan sponsors and plan participants. 

This low selection of lifetime income options also results, in part, from the fact that many 

participants do not save enough during their working years. According to EBRI, the 

average account balance as of year-end 2008 was $45,519 and the median was $12,655. 

(See 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2008, released 

by EBRI in October 2009). If, at retirement, a participant has a relatively low balance, this 

translates to a low annual payment under a lifetime income option. Rather than choose a 

small stream of income, participants often choose to take a lump sum. Additionally, 

deciding to purchase an annuity is an important and often irrevocable decision. In many 

instances, participants are simply uncomfortable locking themselves in to the annuity 

payments and give up the flexibility of a lump sum distribution. 

One way to encourage participants to take income options rather than lump sums is to start 

with the fundamentals of savings. If participants increase their plan participation with 

increased deferrals, they will increase their retirement savings and correspondingly increase 

the likelihood that a lifetime income option will provide a more meaningful benefit. Even 

though automatic enrollment is a step in the right direction to increase participant deferrals, 

automatic deferrals start out at low rates and not all plans have implemented automatic 

enrollment. Educating plan sponsors and participants regarding the benefits of enrollment 

(i.e., increased deferrals during the accumulation phase) may result in larger accounts, 

which participants may be more likely to turn into a guaranteed stream of income. 

Providing participants with more education regarding lifetime income options may also 

help increase usage. The better participants understand their options, the less likely they 

are to simply take a lump sum out of fear or inertia. 
9

Additional reasons for the low usage rate of lifetime income arrangements include: 

• IRA products (other than IRA annuity products) do not contemplate distributions in 

the form of an annuity. 

• Purchasing substantial lifetime amounts can be very costly in terms of the 

percentage of pension assets that must be committed. This may go against the 

ingrained concept of the participant who has thought of his or her pension asset nest 

egg as serving for multiple protection purposes, e.g. heath care, family emergency 

funds, etc. 

• Loss of control over the (probable) largest financial asset that retirees have ever 

possessed is not attractive. 

• Most participants are shortsighted retirement planners and really do not have a 

working understanding of the longevity risk associated with pension assets during 

the distribution phase of retirement planning. 

• Even when participants consider their longevity, they tend to underestimate their 

life expectancy. 

• Participants do not have a good intuitive sense of “relative value,” e.g. typically 

they would not compare favorably a $3,000 monthly annuity at age 62, with 

$400,000 in cash. 

• The purchase of an annuity has too often been presented as an “all or nothing” 

proposition; i.e. you buy an annuity or you take the cash. Many, if not most plans, 

make no provision for the use of only a portion of the pension asset to buy an 

annuity while retaining the remainder in the plan or rolling over the remainder into 

an IRA. 

To overcome these concerns, the Government Agencies should consider the following 

actions: 

• Provide a simplified safe harbor for a plan sponsor’s selection of an annuity 

provider in a defined contribution plan. 

• Encourage partial annuitizations through tax laws changes. 

• Promote the education of participants and sponsors regarding longevity risks and 

the various expenses likely to be incurred in retirement. 

• Educate participants and sponsors regarding the value of annuitizing small amounts 

(and small accounts), as a supplement to other retirement income such as social 

security income. 
10

• Require more disclosure about lifetime income options, even for plans without such 

options. 

• Encourage Congress to adopt legislation that provides for a tax exemption for some 

portion of guaranteed lifetime income. 

• Encourage plan sponsors to include lifetime income options in 401(k) plans or 

facilitate access to external lifetime income options via IRA rollover if 

administration is deemed burdensome. 

• Encourage Congress to extend specific benefits (e.g. tax credits) to plan sponsors who 

provide, encourage and/or achieve greater adoption of lifetime income options 

• Encourage Congress to extend specific benefits (e.g. preferential tax deductions) to 

plan participants who elect and contribute a minimum qualifying amount to a 

lifetime income option. 

• Encourage Congress to extend specific benefits (e.g. exclusion of first $10,000 in 

annual income) to payouts from employer-sponsored or IRA plans taken on a 

lifetime basis. 

• Encourage Congress to extend favorable tax treatment (tax deduction, tax-favored 

income as above) to personal deposits (IRAs) made to deferred and immediate 

annuities that provide lifetime income options. 

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? 

New Innovative Products

As described in the Introduction section to this Response, service providers in the 

retirement plan industry have developed new guaranteed lifetime income options such as 

GMWBs, GMIBs (Guaranteed Minimum Income Benefit) and deferred fixed guaranteed 

income annuities, as in-plan options for lifetime income benefits. Other examples of 

lifetime income benefits from insurance contracts held by defined contribution or defined 

benefit plans include fixed annuity payouts in fixed annuity contracts and fixed and/or 

variable payouts in variable annuity contracts. 

We are seeing the development of innovative products in the defined contribution 

marketplace that are addressing the issue of securing guaranteed retirement income during 

the retirement savings stage versus purchasing an annuity at attainment of retirement. John 

Hancock’s GMWB product, called Guaranteed Income for Life Select (GIFL Select) is an 

innovative product that provides for future guaranteed income streams that are secured 

during the deferral stage of the participant’s retirement planning. In a 401(k) plan offering 

the GIFL Select feature, participants can invest in four of John Hancock’s asset allocation 
11

funds (conservative, moderate, balanced and growth) and three focused diversification 

Funds. Once a participant reaches age 65 or older, the participant can take annual 

retirement withdrawals for life equal to their lifetime income base which is five percent of 

the greater of (1) their total plan contributions plus accumulated growth of three percent per 

year, or (2) their total plan contributions plus market gains as locked in at retirement. 

Under this approach, participants can realize market upside potential while eliminating 

market downside risks in the determination of their lifetime income base. Further, the 

participant is guaranteed to receive retirement income payments for life, even if the account 

is depleted during their lifetime, so long as he takes withdrawals in accordance with the 

product schedule. While the participant benefits from the guaranteed protection, the 

participant also retains the flexibility to give up part or all of the guarantee by taking larger 

distributions or moving the assets into a different investment option not covered by the 

guarantee. An additional fee is charged at the participant level currently 0.50 percent 

annually based upon the lifetime income base to provide this protection. 

Purchasing Future Retirement Income Streams

It is also worth noting the recent development of products that involve the purchase of 

future retirement income streams through fixed income units that begin at retirement. This 

"deferred guaranteed income stream" concept is a potentially important component of one’s 

retirement planning. 

In addition, the more traditional single premium immediate annuity which provides a 

guaranteed lifetime income payment starting at retirement is available on both a fixed and 

variable basis. Deferred annuities are also available as savings products which also provide 

settlement options allowing the participant to convert to a guaranteed lifetime income 

stream at retirement. 

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? 

For the most part, lifetime income options are typically provided at retirement. 

Today, lifetime income options offered during the accumulation phase within a 401(k) plan 

is very limited with only a handful of 401(k) providers offering this feature. 

At John Hancock, we are one of the few 401(k) providers that can offer a GMWB within a 

401(k) plan. The participant can continue to enjoy the benefit of lifetime income when 

they retire while either staying in their 401(k) plan or rolling over to a JH IRA that 

preserves the guarantee that was built up within the 401(k) plan. 

5. To what extent are 401(k) and other defined contribution plan sponsors using 

employer matching contributions or employer nonelective contributions to fund 

lifetime income? To what extent are participants offered a choice regarding such use 

of employer contributions, including by default or otherwise? 
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There is no industry data on this as the products are so new little has yet been reported. It 

is our understanding that such distinctions between employer and employee contributions 

are not made in most plans. 

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? 

Plan balances may be rolled over to an IRA (trustee to trustee transfers, or within 60 days 

of distribution to participant), which may be deposited into immediate or deferred annuities 

(among other investment choices), preserving tax deferral. Rollovers to any type of annuity 

generally also preserve the ability to access lifetime income payments. 

There are a number of “out-of-plan” options available for retirees seeking lifetime income: 

IRA GMWBs - For participants who have a GMWB in a plan, upon triggering a 

distribution, they may typically roll that GMWB guarantee over to an IRA with similar 

provisions. Alternatively, participants without a GMWB guarantee may roll over to an 

IRA and purchase a GMWB guarantee through the IRA provider. In either case, the exact 

terms of the GMWB will vary by provider, but the general concepts described in the 

Introduction section of this Response should apply. This approach retains liquidity in that 

an individual has flexibility to take more than the guaranteed distribution amount, although 

this will affect the benefit base and the level of the guaranteed payments if the participant 

runs out of funds. 

Selection of these types of benefits represents a significant portion of variable annuity 

flows. According to LIMRA, in 2009, qualified plans (primarily IRA rollovers) 

represented 70 percent of variable annuity flows, up from 65 percent in 2008. In addition, 

LIMRA data also reveal that the vast majority of new variable annuity contracts are issued 

with some kind of lifetime income option especially guaranteed minimum withdrawal 

benefits options. 

Qualified Plans represent a significant percentage of variable annuity flows

 Total Variable Annuity 

Sales 

Industry Qualified Sales Industry Non-Qualified Sales

2009 $124, 984 (MM) 70% 30% 

2008 $154, 699 (MM) 64% 27% 

Source: LIMRA, 2010 
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Lifetime Income Option elections dominate annuity flows, WBs most popular 

 Total Variable 

Annuity Sales 

Percent Electing a 

Guaranteed 

Minimum 

Withdrawal Benefit

Percent Electing a 

Guaranteed 

Minimum Income 

Benefit 

Percent Electing any

Lifetime Income 

Option 

2009 $124, 984 (MM) 73% 20% 93% 

2008 $154, 699 (MM) 64% 27% 91% 

Source: LIMRA, 2010 

Rollover Annuity Platforms – Under this option, a retiree taking a distribution from a 

plan can choose a fixed or variable annuity from a variety of insurers. The participant 

essentially uses the account to purchase an annuity. Under this approach, the participant 

has a guarantee but has given up liquidity. Many forms of lifetime income options are 

available including: 

– single life, with and without cash refund 

– joint life with and without cash refund 

– contingent annuitant 

– life and period certain 

– period certain only 

– joint and survivor with a period certain feature 

– contingent annuitant with a period certain feature 

– fixed increasing % annuity, e.g. COLA 

Deferred fixed and variable annuities are also available allowing the participant to continue 

to save for retirement with the additional features to convert to a guaranteed lifetime stream 

as described for Rollover Annuity Platforms. 

Longevity Insurance – At retirement, the retiree can purchase longevity insurance, which 

provides a deferred fixed annuity scheduled to begin payout in the future (usually age 85). 

The individual can then use the remaining part of his or her account to live on during 

retirement. In order to receive payments, the individual must reach a specified age. There 

is no liquidity with respect to the funds used to purchase the insurance and no return of the 

amount used to purchase the deferred annuity if the participant dies before the payments 

are scheduled to begin. 

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? 

There are many factors that affect the cost of lifetime income products. Some factors 

include the following: 
14

• Flexibility in the projected income stream (e.g., a constant income stream is less 

costly than income that may increase depending on market performance). 

• Cashout abilities (e.g., a product that allows a participant to accelerate all of his or 

her income to withdraw the full account value will be more costly than an annuity 

with no cash surrender value). 

• The expected period for which the income stream will be provided (a product that 

allows early retirement will cost more than one that begins at a later retirement 

date). 

• Flexibility in deciding when the stream of income will begin. 

• Inflation protection and 

• Allowing investment in actively managed funds versus indexed funds. 

• Significant age differential between joint lives, (e.g. participant age 65, spouse 

age 55). 

The above factors have been incorporated into the availability of John Hancock’s GMWB 

which currently charges 0.50 percent annually on the lifetime income base. 

In addition, the key drivers of the cost of providing a lifetime income are the investment 

returns on the supporting assets for immediate annuities. Typically these guarantees would 

be supported by fixed income assets, so the investment return available to the provider is 

determined by the current interest rate environment, the term to maturity of the asset, and 

the credit quality of assets selected. 

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)? 

In-Plan Advantages: 

• The products tend to be less expensive and less complicated than outside-of-plan 

rollover products. 

• By building a lifetime income stream over time during the accumulation phase, the 

participant gets the benefit of dollar cost averaging. 

• Building a lifetime income stream during the accumulation phase provides 

downside protection during down markets before and after retirement. 

• The plan sponsor conducts due diligence in deciding to offer and selecting a 

lifetime income option, so the participants may get the benefit of both lower cost 

(wholesale vs. retail) and fiduciary protections offered by ERISA. 
15

• Participants begin thinking early on regarding their future retirement income as 

opposed to merely creating a lump sum savings. 

In-Plan Disadvantages: 

• Because of limitations regarding a plan sponsor’s ability to offer investment advice 

to participants, a participant may not get personal guidance from a financial advisor 

but may have to rely on 401(k) enrollment materials when considering a plan’s 

lifetime income option. 

• The participants are limited to the plan’s investment options. 

Outside-of-Plan Advantages: 

• Depending on the individual’s account balance, he or she may have access to a 

financial advisor to help the individual assess the suitability of lifetime income 

options. This advantage is really more applicable to an individual with a large 

account balance who has access to financial advisors. Rank-and-file individuals 

may not get the same advantage. 

Outside-of-Plan Disadvantages: 

• Rolling over at termination or retirement exposes the individual to “sequence of 

returns” risk (i.e., the risk of rolling over during a down market). This risk can be 

mitigated if the provider of the in-plan guarantee also offers IRA rollover products 

that provide lifetime income protection to the participant. 

• Rollover products offering lifetime income options tend to be more expensive and 

complicated than lifetime income options in plans. 

• The cost of purchasing Single Premium Immediate Annuities is extremely sensitive 

to the interest rate environment when the purchase is made. A single purchase at 

retirement results in the participant exposing their retirement nest egg to the 

prevailing interest rate environment at a single point in time. 

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? 

In-Plan Advantages: 

• As fewer plan sponsors provide defined benefit plans, offering a lifetime income 

option in a defined contribution plan gives sponsors an alternative way to benefit 

their employees. 

• By offering a lifetime income option in the plan, plan sponsors have the ability to 

address participants’ concerns regarding outliving their retirement savings. 
16

• By offering the benefits inside a plan, participants have protection pre-retirement as 

well as the benefit of dollar-cost averaging into different investment markets and 

interest rates. 

• Allows their employees to reduce their risks of purchasing out of plan lifetime 

income in a difficult economic environment. 

• Improved employee satisfaction with the plan sponsor as a "secure retirement 

income" is being established and built. 

In-Plan Disadvantages: 

• One of the primary concerns plan sponsors have regarding offering a lifetime 

income option, such as GMWB, relates to the portability issues. There are several 

approaches that could ameliorate this disadvantage: 

– Some lifetime income providers have tried to address this issue by offering 

lifetime income in IRAs. 

– This could be further addressed by treating a plan’s discontinuance of a lifetime 

income option as a distributable event, allowing affected participants to roll 

their accounts (or at least the portion invested in the lifetime income-related 

investment) over to an IRA that provides the same or similar lifetime income 

protection. In-service distributions are already allowed on and after age 591⁄2 

under Internal Revenue Code section 401(k)(2). By allowing participants to roll 

over their accounts if a lifetime income option is discontinued, the participants 

are generally able to preserve their guarantee feature. Otherwise, the 

participants will have paid the guarantee fee and potentially will receive no 

protection. Even if the distributable event is limited to participants at a certain 

age (e.g., age 50), providing this sort of protection will go a long way towards 

addressing plan sponsors’ portability concerns. 

• Plan sponsors’ recordkeeping costs. 

• Plan sponsors are also concerned with whether the qualified joint and survivor 

annuity rules apply to a GMWB. As described in more detail in our response to 

Question 26, and for the reasons stated therein, guidance clarifying that revocable 

lifetime income options, such as GMWBs, are not subject to the provisions of 

Internal Revenue Code section 401(a)(11) would help address this concern. 

• Plan sponsors are concerned with satisfying their fiduciary obligations when 

selecting an in plan lifetime income option. As described in more detail in our 

response to Question 32, guidance clarifying that revocable lifetime income 

options, such as GMWBs, are not subject to the Annuity Safe Harbor regulations 

would address this concern. 

• Increased administration and communication burdens placed on plan sponsors. 
17

To the extent lifetime income products are offered outside of a plan, the advantage is that 

plan sponsors do not have to address the issues described above and do not need to assess 

the providers. However, offering the benefit outside of the plan exposes the retiree to 

“sequence of returns” risk (i.e., retiring into a down market) and may also increase the cost 

to the participant since the participant will be paying a “retail” price for the lifetime income 

option in his or her individual IRA. (Reference answer 32). 

10. How commonly do plan sponsors offer participants the explicit choice of using a 

portion of their account balances to purchase a lifetime annuity, while leaving the rest 

in the plan or taking it as a lump sum distribution or a series of ad hoc distributions? 

Why do some plan sponsors make this partial annuity option available while others 

do not? Would expanded offering of such partial annuity options --or particular ways 

of presenting or framing such choices to participants -- be desirable and would this 

likely make a difference in whether participants select a lifetime annuity option? 

We do not see plan sponsors making this offer to participants. 

Expanded offering of partial annuity options would be desirable, as there is a tendency for 

advisors, sponsors and participants to think in terms of all or nothing. If partial 

annuitization of accounts is made available and accompanied by education efforts and more 

advice, they might be utilized more. Education could consist of scenario modeling where 

differing percentages of accumulated values are converted into lifetime income streams. 

In our experience, in plans offering GIFL Select, about 10 percent of participants elect to 

allocate some portion of their accounts to GIFL Select. The overall average is 83 percent 

of a participant's balance is invested in GIFL. Below is a more specific breakdown of the 

data: 

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 
18

ERISA rules be modified, or their application clarified, to facilitate the use of 

behavioral strategies in this context? 

We believe that plans should not be required to offer a lifetime income option at 

distribution. We also believe that participants should not be automatically enrolled in 

investment options with lifetime income, such as GMWB. The deferral rates for automatic 

enrollment are relatively low, especially at the onset of automatic enrollment and 

guarantees of small accounts do not make much sense. However, we believe that a lifetime 

income feature in an investment option that otherwise meets the qualified default 

investment alternative (“QDIA”) requirements will not cause the investment option to fail 

the QDIA requirements. There is language in the preamble to the QDIA regulation to this 

effect and we understand that is the DOL’s position. Nonetheless, there is some confusion 

in the marketplace on this issue and it would be helpful if the DOL could provide guidance 

making this point explicitly clear. 

Rather than making automatic deferrals or lifetime income options mandatory, we believe 

that participants need to understand the benefits of deferrals and the choices they have in 

taking distributions of their retirement savings so that they can make an affirmative 

decision as to what is appropriate for them. Educating participants about the benefits of a 

meaningful deferral rate, as well as, how lifetime income options can be part of a reliable 

retirement income plan is most important. Even though plan sponsors recognize the value 

of more education regarding distribution options, plan fiduciaries are concerned about 

fiduciary liabilities when providing such information. 

DOL Interpretive Bulletin 96-1 clarifies that providing participants with information 

regarding deferrals and investments is not a fiduciary act if the information constitutes 

“investment education” rather than “investment advice.” It would be helpful to expand 

Interpretive Bulletin 96-1 or provide separate guidance relative to providing participants 

with information regarding distribution options, including lifetime income options. The 

2009 ERISA Advisory Council (the “Council”) came to the same conclusion when 

considering retirement security issues. Specifically, one of the Council’s five 

recommendations was that the “DOL immediately should amend Interpretive Bulletin 96-1 

to expand its scope to the de-cumulation phase of retirement planning.” We agree. 

Many service providers and consultants are reluctant to serve as fiduciaries and, as a result, 

the growth and popularity of annuities and other lifetime income guarantees will be slowed 

if providers and consultants feel they are obligated to serve as fiduciaries when they 

provide information in this important area. 

Providing a safe harbor or guidance addressing what information can be provided to 

participants regarding lifetime income options and other distribution issues without 

triggering fiduciary status would be helpful. For example, guidance could provide that 

plans sponsors may disseminate communication materials created by the lifetime income 

provider describing how the product works and the benefits of a lifetime income feature. 

As long as the plan sponsor does not know or have reason to know that such materials are 

inaccurate or incomplete, the plan sponsor would be protected from fiduciary liabilities for 

providing participants with the information materials. 
19

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? 

We believe that this decision is inherently an individual one based on the particular 

circumstances of each individual. Such decision will depend on many factors, including 

without limitation the type of lifetime income product, other sources of retirement income, 

and the participant’s lifestyle. Therefore, as described in our response to Question 11 

above, we believe that it is important to provide participants with educational materials 

regarding lifetime income options. By giving plan sponsors guidance, perhaps with a safe 

harbor, allows them to freely distribute materials illustrating the types of lifetime income 

options available. Plan sponsors will then be able to provide participants the type of 

information they need to make informed decisions. The information could include 

commonly accepted standards for calculating the amount of money needed for basic living 

expenses in retirement, with appropriate caveats regarding family size, health factors and 

the like. It could also include calculators for these purposes, provided that they are based 

on generally accepted standards. 

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? 

We do not believe that lifetime income distribution options should be required for defined 

contribution plans. The availability of lifetime income products within a defined 

contribution plan is a relatively new industry development. Given this very early stage in 

product evolution, it would be premature to mandate lifetime income products in defined 

contribution plans. 

We believe it is important that plan participants understand the lifetime income option and 

make an affirmative decision as to whether it is appropriate for them. Further, with respect 

to participants who do not have large account balances, defaulting them into a lifetime 

income option would likely not be to the individual’s benefit. Rather than imposing a 

lifetime income option, we believe participants would be better served by encouraging plan 

participation at meaningful deferral rates to address the accumulation issue and providing 

well-crafted educational materials regarding the benefits of selecting a lifetime income 

option. 

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 several impediments under both ERISA and the Internal Revenue Code. 
20

First, the fiduciary responsibilities with respect to selecting and monitoring lifetime income 

products present issues. Plan sponsors are concerned that they do not have the ability to 

select insurance companies that will have the financial resources to pay the benefits (or 

even be in existence) 30, 40 or possibly 50 years from now, when the benefits are paid. In 

other words, plan sponsors do not understand that the prudent man rule requires that they 

evaluate the provider of the guarantee in light of today’s circumstances. Instead, there 

appears to be a belief that plan sponsors are responsible for the financial stability of 

financial service institutions well into the future. Plan sponsors need clear guidance on this 

issue with respect to both annuity type benefits and non-annuity type benefits. Furthermore, 

we believe that the selection of such lifetime income features should be subject to the 

general fiduciary standards under section 404 of ERISA. For further information on this 

issue, see our response to Question 32. 

Second, portability is a significant fiduciary issue, especially for revocable lifetime income 

benefits. Specifically, plan sponsors are concerned that if they do not have universal 

portability opportunities upon a change of providers, they may be breaching their fiduciary 

duties in selecting the revocable lifetime income provider in the first place or in electing to 

change providers later on. One way to address this issue is to amend the Internal Revenue 

Code to permit qualified plans to make distributions upon a change of providers if a 

participant might otherwise lose a lifetime income feature under the plan. For example, if a 

55-year-old participant had selected a lifetime income option several years ago and then the 

plan sponsor switched to another provider that would not maintain the lifetime income 

option, the participant should be able to take a distribution and roll it over into an IRA that 

permits him to preserve the lifetime income option. In other words, the loss of a lifetime 

income option would be a distributable event. By adopting such a change, the fiduciary 

concern regarding portability would be eliminated. 

Finally, for annuity-type benefits, the qualified joint and survivor annuity (QJSA) rules 

impose a substantial barrier to the near-term expansion of lifetime income guarantees (to 

the extent they are subject to these rules). As 401(k) plans have grown in popularity, the 

vast majority of plan documents do not contain annuity provisions. As described below in 

our response to Question 26, we do not believe revocable lifetime income options are or 

should be subject to QJSA rules. However, guidance making this point clear would be 

helpful to plan sponsors who worry that they will have to amend their plans and comply 

with what they feel are the onerous provisions of the QJSA rules. 

15. What are the advantages and disadvantages of approaches that combine annuities 

with other products (reverse mortgages, long term care insurance), and how prevalent 

are these combined products in the marketplace? 

As we have highlighted several times, current savings rates are insufficient to provide 

Americans with a secure retirement income stream over their entire retirement years. On 

top of this savings burden, it is prudent that individuals have readily accessible savings to 

cover numerous inevitable events such as medical emergencies, progressive disabling 

illness that require extended health care and other unanticipated financial hardships. It 

would be beneficial if retirement savings financial products had the flexibility to provide 

for, not only longevity risk, but also immediate financial needs. The revocable lifetime 
21

income options, such as GMWB, have been developed to address both the risk of longevity 

through their lifetime income guarantees, as well as, having access to the remaining 

account balance to provide for immediate financial needs. As with any financial product 

that provides for multiple coverages, compromises must be made and in the case of 

GMWB’s, offering and then exercising the liquidity feature reduces the potential and/or 

current guaranteed retirement income stream. 

We believe that innovation in the multi-purpose financial products will continue. Recently 

a combination retirement income product with additional payments if the individual has a 

need for long-term care has been brought to market. In addition, life insurance companies 

have offered life insurance with a long-term care feature that allows for an acceleration of 

death benefit proceeds in the event long-term care financial assistance is required. We 

encourage regulators to work with financial product manufacturers to allow for this 

innovation to flourish and assist in providing guidance around regulatory treatment of these 

new products. 

16. Are there differences across demographic groups (for example men vs. women) 

that should be considered and reflected in any retirement security program? Can 

adjustments for any differences be made within existing statutory authority? 

Other respondents are likely better equipped with research results to answer this question. 

Any differences adversely impacting demographic groups should be addressed through 

education to ensure that all Americans are fully prepared to make critical retirement 

planning decisions. 

Participant Education 

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? 

In order to make informed decisions, participants should be provided information that 

includes the following: 

• Guidance on how much of the participant’s investment portfolio should be allocated 

to a lifetime income feature – this would include information regarding how much 

the participant can expect to receive as lifetime income from Social Security and 

estimates on how much income they should be trying to replace and guarantee, 

additionally illustration of their anticipated life expectancy. 

• An explanation of the nature and features of a lifetime income option, including any 

conditions and/or restrictions, such as, maximum payments that can be made 

without reducing future lifetime income payments, survivorship benefits, tax 

implications, surrender charges (if any), withdrawal and liquidity options; and 
22

• Costs – the costs of both the underlying investment option as well as the cost for the 

guarantee. 

• Information regarding the underlying investments, including the risk, class, 

management style, and whether the management is active or passive. 

• Portability – this includes what happens when the plan or participant terminates the 

relationship with the lifetime income provider as well as information regarding 

rollovers to IRAs that will continue the lifetime income guarantee. 

The information typically provided to a participant at the point of selection, enrollment or 

post-enrollment, includes fees, investment options, trading rules and restrictions and is 

provided both through paper (e.g., an enrollment kit) and electronic media (e.g., a website). 

Similarly, the information described above should be provided to a participant when the 

participant selects the lifetime income feature. The information should be provided in plain 

language and made available in print and electronic media. Further, such information 

should be available upon request by the participant. 

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? 

In general the answer is yes. Any additional comfort that a plan sponsor may utilize plan 

assets to facilitate participant education on attaining their retirement goals would be 

advantages. 

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? 

For plan sponsors, the issue of how to help participants make the choice of investing in a 

lifetime income arrangement poses the same issue as typical investment decisions. Plan 

sponsors are concerned about crossing the line from merely providing information and 

education that helps participants make appropriate decisions to providing advice for which 

the plan sponsor could be held responsible. As described in our response to Question 11, 

we believe that DOL Interpretive Bulletin 96-1 should be expanded (or separate guidance 

provided) to specifically address providing information relative to lifetime income options. 

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? 

As described in our response to Question 11, we believe that plan sponsors and providers 

should be encouraged to provide participants with information about reasonable estimates 
23

of the lifetime income their accounts can purchase as well as what amount of income they 

will likely need during retirement. This can be achieved with annuity calculators that are 

made available to participants. The calculators should allow for variables that include 

other sources of incomes (e.g. defined benefit plan income and social security income). 

This can be coupled with education materials that discuss longevity risk, inflation risk, 

credit risk and any other pertinent risk issues. 

In addition to expanding on the investment education guidance in Interpretive Bulletin 96-1, 

providing protections with respect to a participant's decision to purchase a lifetime income 

option will further allay the concerns of plan fiduciaries. These could be similar to the 

protection ERISA section 404(c) provides with respect to investment decisions, in general. 

If plan fiduciaries feel comfortable that taking certain steps will satisfy their fiduciary 

duties, for lifetime income options, they may be more likely to offer these new benefits to 

plan participants. 

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? 

Unfortunately, many plan sponsors and participants continue to see 401(k) plans as 

“savings” plans, rather than as “retirement” plans. In other words, they focus on the 

amount saved or accumulated, without realizing that this sum will need to last for many 

years and should be viewed as a stream of income payments during retirement. Projections 

in participant statements would help both plan sponsors and participants understand the 

retirement income issues and the adequacy of the account balances for that purpose. In that 

regard, it would be helpful to project the amount as monthly income (because most 

employees estimate their expenses on a monthly basis) and in terms of current dollars (in 

part because of the difficulty in projecting the rate of inflation and in part because if the 

information is provided in future inflated dollars, it will likely be misleading, i.e., too 

optimistic or too pessimistic). 

It may also be useful to project the lifetime income stream at retirement age under the 

assumption that the participant will continue to defer at the same rate and the account will 

continue to grow at the same rate. This type of projection would need to be accompanied 

by a careful iteration of the assumptions used in making the projection, but could be helpful 

in encouraging participants to continue to defer or perhaps even to increase their deferrals. 

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? 
24

One issue with respect to providing these statements is whether the projection should be 

based on a participant’s current account balance or whether there should be assumptions 

about future deferrals and future employer contributions. The projection based on current 

account balance could be mandated because that information is needed by participants in 

order to understand where they currently stand and to understand the true meaning of their 

current account balance. 

However, plan sponsors should be given flexibility with respect to projecting retirement 

income based on the particular lifetime income option offered by the plan. Plan sponsors 

should be encouraged to provide additional information and projections as well, so long as 

reasonable assumptions are made and disclosed. It would be helpful for the DOL to 

provide a regulatory safe harbor for the range of assumptions that plan sponsors may use 

for developing the statement. 

In addition to the statement, an on-line tool that a participant can use to modify variables 

could be valuable for the participant in projecting a lifetime income amount specific to the 

participant. Variables include planned age when lifetime income is to begin, expected 

contribution levels during accumulation (either dollar amounts or as a percentage of 

salary), and the choice of single life versus joint life guarantee. The statement alone, while 

useful, would not lend itself well to helping the participant model different lifetime income 

amounts under various scenarios; thus, we believe that the on-line tool would be an 

essential additional element. 

The statement could show monthly income equal to projected account value times the 

specified percentage (e.g., five percent for a GMWB) divided by 12. The statement should 

include language along the lines of the following: “Your annual projected income has been 

estimated by applying a factor of five percent to the projected account value at a retirement 

age of 65. This five percent is typically what a variable annuity can provide as a 

guaranteed lifetime income benefit. Products in the actual market may provide higher or 

lower amounts of annual income. A fixed annuity can typically provide a higher income 

stream, but you would lose the flexibility of being able to access your market value at any 

time.” 

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? 
25

The key assumptions to determine the projected income are: interest, mortality, surrender 

rates, expense loads, income patterns (single or joint life). These assumptions will vary 

dramatically over time, from provider to provider, and from participant to participant so 

that it is impossible to set up mandated assumptions or a mandated approach to calculating 

a guaranteed lifetime income stream. Instead a simplified benchmark should be used to 

give participants a rule of thumb as to what income level they can expect from their 

accumulated assets. Then they should be encouraged to go to a retirement calculator that 

would allow them to input interest rates and inflation within a range, starting age, expected 

lifetime (with an illustration of anticipated life expectancy), and projected account balances 

to derive various levels of retirement income amounts. 

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 

pre-retirement 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? 

No. We believe an income replacement ratio is specific to each individual and cannot be 

standardized on a benefit statement in a meaningful manner. Instead, an on-line tool that 

allows a participant to determine his or her income replacement ratio would be more 

helpful. The tool could include a pre-populated table listing the most common expenses for 

retirees (based on national averages for retirees at varying ages and income levels) and then 

allow the participant to modify the average expenses based on the participant’s particular 

lifestyle. The tool would have the ability to remove expense categories and create new 

categories that may be specific to a participant. 

25. How does 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 described in more detail in our response to Question 26, one of the primary qualification 

rules that affect revocable lifetime income products, such as GMWBs, is the qualified joint 

and survivor annuity (QJSA) rules. While we do not believe that GMWBs are subject to 

these rules, plan sponsors are concerned about the issue. It would be helpful if the 

Treasury could provide guidance clarifying that, revocable lifetime income options with 

liquidity features described in our response to Question 26, are not subject to the 

requirements of the QJSA rules of Code section 401(a)(11). 

As described in our response to Question 14, plan sponsors are also concerned with the 

issue of portability with respect to lifetime income options. One way to address this issue is 

to amend the Internal Revenue Code to permit qualified plans to make distributions upon a 

change of providers if a participant might otherwise lose a lifetime income option under the 

plan. 
26

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? 

Under current law, 401(k) plans are generally subject to the QJSA requirements only if a 

participant elects his or her distribution in the form of a life annuity (since most 401(k) 

plans provide that the participant’s death benefit is payable to his or her spouse). Most 

401(k) plans now provide only for lump sum distributions, so few are subject to the QJSA 

requirements related to the timing and content of notification to participants and obtaining 

spousal consent. 

The QJSA requirements add cost and administrative complexity, which, if applied to 

revocable lifetime income options, such as GMWBs, could be a substantial impediment to 

the addition of such features to 401(k) plans. 

There are a number of characteristics that significantly distinguish revocable lifetime 

income features from irrevocable annuity income options. In the case of an irrevocable 

annuity income option, a plan participant takes a distribution of his account and which is 

used to purchase the right to receive payments for life. The participant no longer owns his 

account balance. Rather, the participant has the right to receive a stream of payments from 

the annuity provider. With an irrevocable annuity income option, the individual cannot 

increase or decrease the payments. Upon the participant’s death (or the spouse’s death in 

the case of a joint and survivor annuity), there is no account balance remaining for the 

participant’s beneficiaries. These types of income options are focused upon maximizing the 

lifetime income payments, however, they do so by generally providing little or no future 

liquidity. 

On the other hand, in the case of a revocable lifetime income options, such as GMWB, the 

participant does not give up his account. Instead, the participant retains control over his 

account invested in one of the lifetime income permitted investment options. At retirement 

or termination of employment, the account may remain in the plan or may be rolled over to 

an IRA. While taking installment distributions from his account above the maximum will 

affect the amount of the participant’s guaranteed payments (assuming such payments 

commence in the future), the fact remains that the participant is free to take distributions in 

any amount. In other words, revocable lifetime income options are revocable and liquid. 

In many cases, a participant who has purchased an investment with a lifetime income 

feature will roll his account to an IRA at the time of distribution. It is important to 

understand what will actually be rolled over. There are two elements. First, the investment 

will be liquidated to cash, and the cash will be rolled to the IRA and reinvested by the 

participant. Second, under the agreement between the 401(k) plan and the insurance 

company, under which the participant is a third party beneficiary, the insurance company 

agrees to continue to provide to the participant a lifetime income feature in the IRA while 

still guaranteeing the benefit base accrued by that participant. Allowing a participant to 

rollover their future income protection benefit into an IRA, supported by the issuing 

insurance company, will prove to be an effective financial planning tool and illustrates the 

flexibility that these new revocable lifetime income options provide. 
27

In conclusion, the liquidity features of a revocable lifetime income product are unlike an 

annuity but are very similar to any other non-guaranteed 401(k) investment option. These 

liquidity features provide protections for a participant’s spouse, which make the application 

of the QJSA rules unnecessary. As a result, we propose that the IRS and Treasury issue 

guidance explicitly clarifying that these types of lifetime income guarantees are not subject 

to the QJSA rules in Code section 401(a)(11). 

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? 

As outlined in the response to Question 26, guidance should be issued that clarifies 

revocable lifetime income options are not subject to QJSA rules.

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 current RMD rules could be an impediment for defined contribution savings to fund 

innovative products such as longevity insurance. We encourage guidance that would assist 

in making these new longevity risk mitigation products available to all individuals 

executing their retirement income planning. 

29. Are employers that sponsor both defined benefit and defined contribution plans 

allowing participants to use their defined contribution plan lump sum payouts to 

"purchase" lifetime income from the defined benefit plan? Could or should any 

actions be taken to facilitate such arrangements? Should plans be encouraged to 

permit retirees who previously took lump sums to be given the option of rolling it 

back to their former employer's plan in order to receive annuity or other lifetime 

benefits? 

We have not seen plans that allow either kind of purchase or buy back, however, we 

believe there would be significant administrative and economic difficulties involved with 

such purchases and buy backs. Instead, rules in defined contribution plans should promote 

access to lifetime income options offered as either in-plan options or out-of-plan rollovers. 
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Selection of Annuity Providers 

30. To what extent do fiduciaries currently use the safe harbor under 29 CFR 

2550.404a-4 when selecting annuity providers for the purpose of making benefit 

distributions? 

In the small- and mid-market, 401(k) plans seldom, if ever, use traditional annuities as an 

option for benefit distributions. As a result, their fiduciaries and service providers are 

generally not well versed on the provisions of 29 CFR 2550.404a-4 (the “Annuity Safe 

Harbor”) or its implications. For plan sponsors who are familiar with the safe harbor, there 

is some concern among fiduciaries about whether they have satisfied all of the subjective 

requirements. To the extent the DOL can provide guidance and specific examples such that 

plan fiduciaries can be confident they have satisfied the safe harbor, fiduciaries may be 

more willing to consider traditional annuities. 

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? 

As described in our response to Question 30 above, we believe that the DOL should 

significantly revise the Annuity Safe Harbor to make is simpler and easier for plan 

sponsors to meet their fiduciary obligations, while at the same time providing adequate 

protection for participants. In this vein, we believe that the Annuity Safe Harbor should 

include the following requirements: 

• The plan fiduciary should engage in an objective and thorough search for the 

purpose of identifying and selecting providers from which to purchase annuities. 

• The plan fiduciary should consider whether the cost of the annuity contract is 

reasonable in relation to the benefits and services provided under the contract. 

• The plan fiduciary should consider to the quality of the provider, including its 

history, reputation and third party evaluations. 

It is important to note the protections that already exist under state law with respect to the 

decision to purchase an annuity contract. Existing state insurance department oversight 

over life insurance companies includes, statutorily required reserves, rules regarding asset 

and liability valuations, risk-based capital requirements and required capital. The 

combination of all of these factors should allow the DOL to feel comfortable that 

participant needs would be safeguarded in this more flexible framework. 

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? 
29

As we have described above, the decision of a plan participant to invest in the newly 

introduced lifetime income options, such as GMWB, does not result in the same 

commitment as is inherent in the decision to select an irrevocable annuity option during the 

accumulation phase or at retirement. At any time, even after the beginning of the period 

during which the retirement income payments commence, the participant can elect to 

discontinue his participation in the retirement income payment stream and either stay in the 

same investment options or move to other investment options. 

Given this important distinction between the purchase of an irrevocable annuity and the 

decision to invest in a revocable lifetime income product, we believe that the decision by a 

plan fiduciary to elect to include such product features in its plan should not be subject to 

the provisions of the Annuity Safe Harbor, even as it may be revised, as we have suggested 

in our response to Question 31, or otherwise. We believe that the selection of such lifetime 

income features should be subject to the general fiduciary standards under section 404 of 

ERISA. As such, we recommend that any change to the Annuity Safe Harbor should 

exclude from its requirements any revocable lifetime income product which allows a 

participant to retain control over his investment accounts. 

ERISA Section 404(c) 

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? 

To the extent that lifetime income products are currently available under retirement plans 

that are intended to qualify as ERISA 404(c) plans, such products are not considered one of 

the core investment alternatives required under the regulations. When available, they are 

offered as a non-core investment alternative. The advantages and disadvantages of the 

lifetime income products are discussed elsewhere in this response. 

When available as an investment alternative, all participants in the plan are provided with 

the information required by the regulations for investment alternatives under an ERISA 

404(c) plan, including: 

• the risk and return characteristics and the investment managers of each of the 

underlying funds that are available to a participant choosing the lifetime income 

product 

• the fees associated with these underlying funds 

• the calculation of the guaranteed benefit and guaranteed withdrawal amounts 
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• all restrictions relating to transfers in and out of the lifetime income product from 

and to other investment alternatives under the ERISA 404(c) plan, 

• the effect of any such transfers in and out of the lifetime income product on the 

guaranteed income and guaranteed withdrawal amounts, 

• any additional fees associated with the life income products, 

• the potential effect of future actions by the plan sponsor in eliminating the lifetime 

income product as a investment alternative under the ERISA 404(c) plan, 

• the potential effect of future actions by the participant to elect out of the lifetime 

income product, and 

• the effect on the guaranteed income and guaranteed withdrawal amounts of future 

market performance of the underlying funds in the lifetime income product. 

The lifetime income products do not currently qualify as core investment alternatives under 

the regulations because of the restrictions inherent in these products to transfer money in 

and out of these products to other investment alternatives. Transfers out of lifetime income 

products (including withdrawals in excess of the guaranteed lifetime amounts after the 

establishment of such amounts) can result in reductions in the guaranteed income and 

guaranteed withdrawal amounts available to the participant and his beneficiaries, as well as 

the loss of much of the additional fees associated with these products. Also, any decision 

by the plan sponsor to eliminate the lifetime income product as an alternative investment 

under the ERISA 404(c) plan will result in the complete loss of those guarantees for those 

participants who have not yet had a distributable event. 

To encourage the use of lifetime income products, the regulations could be amended as 

follows. Since we are not recommending that defined contribution plans be required to 

include a lifetime income product, we are not recommending any changes to the 404(c) 

regulations that relate to the required core funds. We do, however, recommend that the 

regulations be amended to provide specific provisions relating to how such lifetime income 

products qualify for ERISA section 404(c) protection as non-core funds, particularly 

relating to the transfer and timing restrictions that are inherent in these products, as 

described above. 

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? 

With respect to the use of variable annuity contracts under ERISA 404(c) plans (that is, 

lifetime income products that provide participants with an annuity option upon the 

occurrence of a distributable event, there is little in the DOL regulations that affect a plan 
31

sponsor’s decision to offer such contracts. The one major issue is whether the plan 

sponsor or other plan fiduciaries continue to receive the protections of the DOL regulations 

at the time the participant chooses this optional form of benefit and at all times during the 

annuity period. The regulations could be amended to clarify that the decision by a 

participant in an ERISA 404(c) plan to elect an annuity option upon the occurrence of a 

distributable event, assuming the disclosure of all of the information that the regulations 

require, is an exercise of control by the participant that affords 404(c) protection at the time 

of such election and at all time during the annuity payout period. 

Qualified Default Investment Alternatives 

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? 

We do not currently provide investments and recordkeeping services to any plans using a 

guaranteed lifetime income feature in connection with an investment that is offered as the 

plan’s default investment alternative. We do not believe that the use of guarantees in 

connection with default investment alternatives should be encouraged. Default investment 

alternatives are often made up of large numbers of accounts with small balances held by 

unengaged participants. Given the existence of the additional fee for the guarantee and the 

complexities associated with a lifetime income option, we do not believe participants 

should unconsciously select or be defaulted into investments with lifetime income features. 

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. 

The benefits to a plan sponsor by offering lifetime income products as an in-plan option are 

highlighted in the response to Question 9. 

A plan sponsor offering lifetime income products as an in-plan option may incur expenses 

in order to satisfy the general fiduciary standards under section 404 of ERISA. Additional 

expenses may be incurred by the plan sponsor to satisfy the safe harbor under 29 CFR 

2550.404a-4 and QJSA requirements. 

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 in the response to Question 36, there are costs that the plan sponsor would likely 

incur by adding an in-plan lifetime income product. These costs are especially burdensome 

to smaller plan sponsors, who may not have the financial and human resources to satisfy 

the general fiduciary standards under section 404 of ERISA, the safe harbor under 29 CFR 
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2550.404a-4 and QJSA requirements. Simplifying these requirements would encourage 

plan sponsor usage of lifetime income products.

38. Would making a lifetime annuity or other lifetime income product the default 

form of benefit payment have an impact on employee contribution rates? If so, in 

which direction and why? 

We believe offering to plan sponsors tax incentives to add lifetime income in-plan products 

would encourage plan level utilization. As these lifetime income options are made more 

available in retirement plans, education must be provided by the plan sponsors to the 

participants on the advantages and disadvantages of electing lifetime income options. Tax 

incentives combined with product education will encourage Americans to contribute a 

more meaningful portion of their earnings into qualified retirement plans. 

39. For plans that offer lifetime annuities or similar lifetime income products, what 

percentage of eligible workers elect to annuitize at least some of their retirement 

assets and what percentage elect to annuitize all of their assets? 

Currently, very few Americans are annuitizing their retirement assets. According to the 

2008 “Retirement Income Market Overview” report by Retirement Research, Inc, only six 

percent of participant dollars industry-wide are rolled at retirement into an annuity or an 

arrangement for monthly payout. This low utilization is likely due to plan sponsor 

reluctance to add an irrevocable lifetime income in-plan products such as an annuities 

because of the requirements of the safe harbor under 29 CFR 2550.404a-4 and QJSA. 

Simplifying these requirements, along with the plan sponsor tax incentives and participant 

education recommended in the response to Question 38, will improve participant utilization 

of lifetime income products.