Statement of

Eric S. Levy

Vice President

Head of Defined Contribution Products

Lincoln Financial Group

before the

U. S. Department of Labor’s

Employee Benefits Security Administration

Joint Hearing

with the

U. S. Department of Treasury

on

Lifetime Income Options For Retirement Plans

September 15, 2010
Levy Testimony: Hearing on Certain Issues Relating to Lifetime Income Options for Participants and p. 2 of 6

Beneficiaries in Retirement Plans, September 15, 2010

Members of the joint panel ... my name is Eric Levy ... and I am Vice President 

and Head of Defined Contribution Products for Lincoln Financial Group. Lincoln 

Financial has participated in the retirement plan marketplace for more than fifty 

years ... and today serves more than 24,000 plan sponsors and their 1.4 million 

plan participants in the corporate, healthcare, education and non-profit sectors. We 

are a leader in developing lifetime income solutions for both individual products 

and defined contribution plans, including a product called i4Life® Advantage that 

was the subject of a Private Letter Ruling issued in September 2009. I appreciate 

the opportunity to appear before you today to share our views about the importance 

of ensuring that plan sponsors have the guidance they need to offer appropriate 

income options to help their employees face their futures with confidence.

Plan participants face a number of risks when they begin to take distributions from 

their defined contribution retirement plans ... including longevity risk – the risk 

that they may outlive their stream of income ... and inflation risk – the risk that the 

income stream may lose purchasing power over an extended period of time. Only 

insurance companies have the ability to assume the risks of individuals ... and are 

able to offer the product solutions – specifically annuities – to provide guaranteed 

benefits. Lifetime annuity payments from an insurance company can be an 

excellent solution for providing an income stream that plan participants cannot 

outlive ... while variable annuities or fixed annuities with inflation adjusted 

payments can be chosen to combat inflation risk.

Insurance company annuities have some perceived disadvantages. They are 

sometimes viewed to be irrevocable, inflexible and inaccessible ... and costly 

relative to other options. A new generation of annuity product designs, however, 

addresses these perceived disadvantages. One such design is Lincoln Financial's 
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Beneficiaries in Retirement Plans, September 15, 2010

i4LIFE® Advantage rider, which is administered through a patented method that 

provides a lifetime income stream with substantial flexibility and complete 

accessibility during an access period of the participant's choosing. Newer product 

designs also include reasonable and simplified fee structures, and costs can be 

lowered appreciably when purchasing the annuity inside a defined contribution 

plan.

We believe that clearer guidance on incorporating lifetime income products in 

defined contribution plans would significantly benefit plan sponsors and plan 

participants. Such guidance could also help to ensure that these products are 

prudent and sound from a fiduciary perspective. And if employers were 

simultaneously encouraged to provide more education about available choices, 

costs and features ... and to provide clear illustrations showing how much income 

participant account balances will convert to in order to fund their retirements ... 

more plan participants would understand the very real threats to their long-term 

financial security posed by longevity and inflation ... combined with impact of the 

decisions they are making today regarding their contribution rates, asset allocation 

and, in too many cases, unfortunately, hardship withdrawals and/or loans. Further, 

participants would understand that there are solutions and resources available to 

help them plan to minimize these threats.

Turning to fiduciary obligations ... in our opinion, only annuities – with their 

lifetime income options and guarantees backed by the full faith and credit of the 

issuing company – should be the subject of the safe harbor. Any lifetime income 

option that does not provide such guarantees should be subject to standard 

fiduciary determinations. The size of the plan should not come into play in these 

guidelines, since the fiduciary obligation owed the participants by the plan sponsor 
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Beneficiaries in Retirement Plans, September 15, 2010

is the same no matter the size of the plan. And the criteria required in the selection 

of a provider should be objective and easily determined.

While current safe harbor regulation is an improvement over “safest available 

annuity” rules, it is still not practical. The requirement to evaluate an insurer’s 

future solvency means that all but a very narrow segment of plan sponsors must 

hire an outside expert to make that determination, since it requires a detailed 

review of an insurer’s financial records, investments, and current and future 

obligations. In addition, it is unclear how such an independent expert would obtain 

access to this information, making the requirement not only difficult, but 

impossible, to meet.

Information on the financial strength of insurance companies is readily available 

from state insurance regulators and from private industry rating agencies which 

routinely have access to the detailed information needed to make a reasonable 

determination about future claims paying ability. State insurance regulators can be 

encouraged to coordinate access to basic insurer financial information, licensing 

and standing with state departments of insurance.

Safe harbor rules can and should be expanded to cover the selection of an annuity 

provider for an “in-plan option” as described in the Request for Information ... and 

should not be limited to a selection for benefit distributions from defined 

contribution plans as is currently the case. However, since many plans are already 

funded with group and individual annuities that incidentally provide for 

distribution in the form of an annuity, the safe harbor should not be modified to 

inadvertently include the selection of the annuity to fund the plan as an act 

contemplated by the safe harbor ... and therefore subject to a fiduciary standard 
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Beneficiaries in Retirement Plans, September 15, 2010

beyond the normal fiduciary requirements where a plan sponsor selects its plan 

funding vehicle whether that funding vehicle is a mutual fund, a bank financial 

product or an annuity contract.

Ultimately, there is no single, simple solution to address the multiple concerns 

about best options for including lifetime income in retirement plans. We believe 

that it will take a joint effort between insurance providers – who have the 

regulatory structure and risk management expertise to offer guarantees ... asset 

managers – who are skilled at developing products to maximize savings and 

accumulation ... and recordkeepers – who provide the systems, statements, web 

experiences, call centers and in-person service. Such partnerships could result in 

pricing efficiencies, clearer delivery, and diversification of other risks from the 

plan sponsor’s viewpoint. These partnerships – along with new concepts of plan

design – are being widely explored today.

Turning to plan design ... how retirement income products are integrated into a 

retirement plan – and how plan sponsors and service providers describe and 

communicate the benefits of these options – can have an effect on their usage by 

plan participants. One seldom-discussed but significant barrier to more widespread 

adoption and use is the requirement for unisex rates for in-plan lifetime annuities. 

Advisors generally educate plan sponsors and plan participants to the fact that 

males can receive higher lifetime benefits through gender-distinct rates in an 

Individual Retirement Annuity than through an in-plan unisex lifetime annuity. Inplan unisex lifetime annuity payouts in a defined contribution plan are usually 

based on 100% female or a 50%/50% blended rate due to the expectation that most 

or all males will roll out of the plan to receive a higher gender-distinct male payout 

in an IRA annuity, leaving only female participants ... who will receive no less of 
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Beneficiaries in Retirement Plans, September 15, 2010

a benefit in the plan versus out of the plan. By comparison ... for life only, annual 

income for males is 7.3% higher than for unisex options. Plan fiduciaries are 

reluctant to encourage their male retirees to access in-plan annuities if they know 

that they would be better off with an out-of-plan retirement income annuity option. 

As long as unisex rates for an in-plan annuity payout are required by law, it will be 

unsuitable for male participants with shorter life expectancies to stay in the plan.

There is positive news of how plan design innovation has led to more favorable 

participation in retirement plans. Behavioral Economics studies earlier this decade 

showed that a typical 401(k) or 403(b) plan with automatic enrollment features 

dramatically increased participant rates – from 67% to near 90%. Further, 

automatic step-ups and automatic investing in a QDIA proved to increase 

retirement security for many plan participants, and especially rank and file 

employees. This same concept could be leveraged to encourage the appropriate use 

of retirement income products and downside protections for participants. 

Specifically, guidance that explicitly states the prudence of automatically 

providing downside protections and retirement income products into already 

chosen or defaulted investments – such as target date funds – as participants enter a 

period 10 to 15 years prior to retirement date ... would provide plan sponsors the 

comfort they seek in offering such products and ultimately improve outcomes.

As more and more individuals rely on savings built up in employer-sponsored 

defined contribution plans for financial security in retirement, the more critical it 

becomes that plan sponsors have clear and simple guidance in terms of fiduciary 

responsibility and the incorporation of income options to improve outcomes for 

plan participants. Thank you for your time and attention on this important topic.