ING Insurance U.S. 

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May 3, 2010 

FILED ELECTRONICALLY 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

Room N-5655 

200 Constitution Avenue, N.W. 

Washington, DC 20210 

Re: RIN 1210-AB33; Request for Information Regarding Lifetime Income Options 

for Participants and Beneficiaries in Retirement Plans 

Ladies and Gentlemen: 

With this letter, the companies that comprise ING Insurance U.S. (“ING”) are submitting 

suggestions and comments responsive to the Department of Labor and the Department of 

Treasury (the “Agencies”) Request for Information Regarding Lifetime Income Options 

for Participants and Beneficiaries in Retirement Plans, 75 Fed. Reg. 5253, February 2, 

2010. ING appreciates the Agencies’ efforts to consider how the retirement security of 

participants in employer-sponsored retirement plans and in IRAs might be enhanced 

through regulations or other measures that would facilitate access to, and use of, lifetime 

income or other arrangements designed to provide a lifetime stream of income after 

retirement. ING, through its U.S. Retirement Services business, is a leading plan service 

provider in the defined contribution industry. In the United States, the business serves 

approximately 52,000 workplace retirement plans and 6.4 million plan participants, 

managing and administering more than $277 billion in combined assets. ING has a 

longstanding commitment to America’s workforce, offering a diverse array of retirement 

products, services and plan solutions, as well as group insurance. In addition, ING for 

years has been a leading provider of guaranteed lifetime income products. Through its 

newly-organized ING Financial Solutions business, the company is at the forefront of 

offering simpler, lower-cost annuity and non-annuity products to retiring baby boomers 

and the rollover market. 

Background 

Americans today clearly shoulder a much greater burden than their predecessors when it 

comes to planning and saving for retirement. Fewer employers in the private sector are 

offering traditional, defined benefit pension plans these days – once a primary and 

reliable source of income for a large population of retirees. The future of Social Security 

is also uncertain, with many warning signs that question its viability. Most recently, 

experts have calculated that the system will pay out more in benefits this year than it 

receives in payroll taxes, a troubling milestone that was not expected until later this 

decade. On top of this, longer life expectancies and unforeseen costs, including those 

related to healthcare, pose greater risks to each individual’s overall financial security. 
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Following the recent volatility in the financial markets, it has become increasingly clear 

that comprehensive planning and preparation is essential for a successful retirement. 

More needs to be done than simply accumulating a large account balance in a voluntary, 

workplace plan or an individual retirement arrangement (IRA), now the primary 

retirement savings vehicles for many investors. Establishing true retirement security 

requires that individuals create a sustainable strategy for converting one’s account 

balance into a guaranteed income stream that can last for life, regardless of how long one 

lives or how the financial markets may perform in the future. 

Given its leadership positions in the industry, ING is responding to the Request for 

Information with a view to providing useful information to help inform the Agencies in 

their considerations on how to improve the retirement security landscape for more 

Americans. 

ING Response 

ING strongly believes that participating in a defined contribution plan in the workplace is 

one of the first and best places to start saving for retirement. These plans are viewed by 

our customers and ING as the cornerstone of the nation’s private retirement savings 

system and they offer a number of benefits such as the convenience of tax-deferred 

investing right from one’s paycheck, the opportunity to receive additional assets when an 

employer provides matching contributions, and the ability to exercise choice and control 

over one’s investment decisions. 

However, ING also realizes that saving into a workplace plan will often not be enough in 

today’s environment. While it remains extremely important to focus on “accumulation” 

or building up savings, it is just as important to focus on properly managing that amount 

during retirement to protect against the risk of outliving those assets. To that end, we 

believe an ideal retirement savings strategy should include both a plan to build up savings 

and create a guaranteed stream of income, or retirement “paycheck,” from some portion 

of that savings that lasts throughout an individual’s lifetime. 

Today, the typical voluntary workplace plan provides ample opportunities for saving and 

building up one’s assets, but fails to provide the tools and incentives for participants to 

learn how best to manage their assets during retirement, let alone purchase annuities or 

other lifetime income solutions. Industry data backs this up. Relatively few 401(k) plans 

offer participants the option to annuitize through the plan.

 

Accordingly, ING believes that one important way our private retirement savings system 

can and should be improved is by expanding the opportunities – both in-plan and out-ofplan – that promote greater awareness and encourage increased investments in guaranteed 

income options for workers. 

First, while individuals today are free to purchase annuities or guaranteed income options 

outside of a defined contribution plan – using personal savings or withdrawing money 

from their workplace account upon retirement and rolling it over into a tax-qualified 
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annuity contract – few are doing it. ING fully supports ways to reverse this trend, and we 

believe much can be done at the plan level to broaden awareness for this strategy. 

Second, we believe there is tremendous potential to create new opportunities for 

investing in retirement security while participants are still within their plan. By 

thoughtfully designing the post-retirement phase of defined contribution plans to allow 

participants the ability to convert their wealth into annuitized income, the retirement plan 

of the future can become a more comprehensive vehicle through which individuals can 

accomplish their goals and achieve a greater level of security. We believe offering this 

type of product within a defined contribution framework is likely to increase both 

participation in the plan as well as the number of individuals who are better prepared for 

retirement. 

Third, and possibly most important, is the need to address and eliminate a number of 

barriers that discourage employers from making these opportunities more readily 

available and desirable to participants and investors. 

In short, the typical workplace plan is an effective savings vehicle – but not a complete 

one for providing overall retirement income security. While our responses to the Request 

for Information are laid out in comprehensive detail on pages 6-43 of this document, the 

following is a summary of the key themes and positions we support. 

Summary of ING Key Positions 

1. Significant opportunities exist at the workplace. 

ING broadly supports investing in guaranteed lifetime income options within a retirement 

plan. Few options exist today at the plan level, so we believe much more can be done 

within the defined contribution framework and we strongly encourage employers to add 

this type of feature to their plan. Retail products, such as individual IRAs or guaranteed 

income annuities, are also important vehicles for consumers to plan for and manage 

retirement assets. 

2. Regulations must be simplified and clarified in order to address employer fiduciary 

and administrative concerns. 

ING believes it is essential that employers and those serving as plan fiduciaries be given 

the benefit of a streamlined fiduciary standard with more objective criteria than exists 

today under current ERISA regulations. In addition, some of the administrative burdens 

that come with carrying annuities need to be eased in order to attract more employers to 

offer these types of products. 

3. Greater participant communication and education is needed. 

In order for more Americans to embrace and understand the use of guaranteed lifetime 

income options, ING believes more needs to be done in terms of financial literacy and 

education. When individuals are participating in a workplace plan, it is often the best 
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time – and for many, the only time – to reach them with materials, resources and 

communications that can increase their financial literacy and positively influence their 

behavior. 

4. Offering and investing in guaranteed lifetime income options should be encouraged 

for employers and employees, but not mandated. 

Consistent feedback received from plan sponsors and plan participants indicates a clear 

preference for preserving choice and control when it comes to plan design and benefit 

distribution matters. In light of that preference, ING favors steps that would remove 

barriers to adding guaranteed lifetime income distribution options as well as provide 

incentives for these products, but not require their use. 

5. A desirable strategy for many workers would include investing a portion – but not 

all – of one’s retirement assets in a lifetime income product. 

Plans that offer lifetime income distribution strategies tend to present this option to 

employees as an “all or nothing” decision with respect to their account balance. ING 

favors steps that would encourage employers to make the election decision easier by 

encouraging individuals to complete a financial plan and then commit only an appropriate 

portion of their account balance to a guaranteed income stream, while retaining control of 

the uncommitted balance. 

In closing, we applaud the Department of Labor and the Department of the Treasury for 

offering the public an opportunity to comment on this very important topic of lifetime 

income options and retirement plans. We hope responses provided by ING to the various 

questions can shed some helpful light, and we would welcome the chance to further 

discuss this matter with you. 

Sincerely, 

________________________________ 

Robert G. Leary 

Chief Executive Officer, ING U.S. 

________________________________ 

Catherine H. Smith 

Chief Executive Officer, ING U.S. Retirement Services
ING Insurance U.S. 

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ING RESPONSE 

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? 

From the perspective of plan participants, the receipt of all or a portion of their retirement 

benefits in the form of lifetime payments presents some clear advantages. Among these are: 

• Mitigating the risk of running out of assets too quickly during retirement by securing 

a guaranteed income stream for life. 

• Helping to ease the overall burden of managing one’s retirement spending by 

establishing more structure for drawing down resources. 

• Protection against potential investment losses and downturns in the market. 

A perceived disadvantage relates to concerns over loss of control and lack of ready access to an 

accumulated lump sum amount of savings. The perception problem is real and needs to be 

addressed. A growing body of research suggests that the perception problem interferes with fully 

rational decision-making concerning retirement plan distribution choices. 

Innovations by guaranteed lifetime income providers have led to the development of products that 

provide lifetime income benefits while at the same time preserving an individual’s right to access 

a lump sum savings amount in the event of an unanticipated cash need. More traditional annuity 

products can be used as a component part within a multi-faceted strategy for addressing 

retirement spending needs. We feel that participants are best served when provided a proper 

context or “frame” for considering retirement income needs. 

When individuals are presented with materials related to plan distribution elections, retirement 

income considerations should be given at least equal weighting with investment alternatives. All 

too often, participants receive a lopsided presentation that emphasizes the investment side and 

devotes scant or no attention to income considerations. 

At the same time, we think it is important for individuals to consider and plan for the possibility 

that they could live to an advanced age and need to plan wisely to address longevity risk. Our 

research suggests that individuals who tend to be unduly pessimistic about their survival 

probabilities may make more responsible planning decisions within a decision-making frame that 

requires giving thought to the risk that they might some day be a financial burden to their 

children – something most participants place a very high value on avoiding. 
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2. Currently the vast majority of individuals who have the option of receiving a lump sum 

distribution or ad hoc periodic payments from their retirement plan or IRA choose to 

do so and do not select a lifetime income option. What explains the low usage rate of 

lifetime income arrangements? Is it the result of a market failure or other factors (e.g., 

cost, complexity of products, adverse selection, poor decision-making by consumers, 

desire for flexibility to respond to unexpected financial needs, counterparty risk of seller 

insolvency, etc.)? Are there steps that the Agencies could or should take to overcome at 

least some of the concerns that keep plan participants from requesting or electing 

lifetime income? 

The tendency of individuals to forego a lifetime income distribution option in favor of a lump 

sum or periodic distribution option can be attributed to a number of factors, several of which 

are psychological in nature. Listed below are the primary factors we observe in the day to 

day operation of our business, accompanied by our suggestions for steps that the Agencies 

could take to improve how individuals perceive and analyze lifetime income options. 

1. The “One-Time Big Decision” Perception Phenomenon: Although individuals 

unquestionably place a high degree of value on security, our research and experience 

suggests that they place still a higher value on control. We have observed that, when 

faced with a guaranteed lifetime income election opportunity, participants tend to 

perceive the lifetime income option as an all or nothing decision that will result in a loss 

of control over the availability of their investment and which may leave them unable to 

meet unanticipated future cash needs. While many guaranteed lifetime income products 

do indeed involve an irreversible purchase decision, the decision to purchase lifetime 

income would be less daunting, and therefore more appealing, if steps were taken to 

reduce the magnitude of the decision. For instance, if individuals were encouraged to 

commit only an appropriate portion of their savings to a guaranteed income stream, while 

retaining control of the uncommitted balance, individuals would be less likely to be 

overwhelmed by the purchase decision. 

2. Understanding of Risk: Participants generally do not understand the likelihood that they 

may live to an advanced age and therefore underestimate the risk of outliving their 

resources. Our customer interactions suggest that very often, an individual will tend to 

believe he will live only as long as his parents or grandparents did. While family 

genetics play a role in longevity, each generation of Americans has enjoyed a higher life 

expectancy than the prior one. Therefore, on average, individuals will live longer than 

their parents. Another problem is that the need for income to provide for a person’s 

needs at ages 80 to 90 and beyond often seems quite distant to an individual in his or her 

60s. Younger individuals often underestimate or lack a full appreciation for the costs – 

particularly healthcare-related costs – of maintaining their lifestyle in retirement. As a 

result, it often appears more appealing for an individual to preserve a high liquid asset 

balance in one’s 60s than to have secure income planned for one’s 80s and 90s. 

We are in favor of Agency actions to promote education about the likelihood of living to 

older ages and of the importance of securing income in those years. Plan statements 

should include information on individual life expectancies and the level of guaranteed 

lifetime income that can be purchased with all or a portion of the accumulated account 

balance. Also, our research has shown that individuals are more likely to take action to 

avoid the risk of becoming a potential financial burden to their children then they are to 

protect only themselves. 
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3. Lack of Awareness: Not all individuals planning for retirement are aware of all of the 

available options to guarantee lifetime income. They may have seen news items which 

suggest annuities are not a good investment. There may be misunderstanding about 

financial options which target retirement income versus those that guarantee it. Financial 

representatives may not be as familiar with products which guarantee lifetime income as 

they are with accumulation products. 

4. Low-interest Rates: The low-interest rate environment that has prevailed during the last 

decade has created a further obstacle, leading many individuals who would otherwise 

take advantage of an annuity option to postpone their decision to annuitize until rates rise. 

Low rates promote borrowing (e.g. mortgage refinancing) but not long-term investing. 

Simple fixed income annuities are a long-term interest-rate driven investment. 

5. Not Federally-insured: Individuals tend to be very familiar with the various federal 

agencies that protect against financial institution failure and are generally comfortable 

with the security provided by that sort of a federal backstop. But life insurers have no 

federal backstop that consumers can draw comfort from. Although the industry has an 

excellent record of meeting obligations to policyholders even in the rare instances where 

a life insurer has suffered financial difficulty, the workings of the state insurance 

guaranty associations are quite different from the federal agencies that most individuals 

tend to use as their frame of reference for how consumers should be protected from 

financial institution failures. The state guaranty associations provide non-uniform levels 

of coverage from state to state. Coverage is determined according to state of residency 

and can change quite dramatically when a person changes his principal residence from 

one state to another. Coverage levels are often difficult to understand and insurers are 

prohibited by law from referring to or otherwise advertising the availability of guaranty 

association coverage in connection with the sale of their products. When one considers 

the potential duration of an annuity contract -- which may provide coverage for 40 years 

or more – some consumers grow worried that the financial strength of a company they 

are comfortable with today may erode over ensuing decades. Ideally, the states would 

conform their guaranty association coverage laws in a way that would promote greater 

consumer confidence. Failing that, the industry needs a federal backstop in order to 

provide customers with the confidence they need to commit significant portions of their 

retirement savings to long term guarantees. 

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? 

Within a defined contribution plan construct, a variety of different options are available to assist 

participants in managing their income needs upon retirement. The most familiar of these turns 

the lump sum account balance into a guaranteed lifetime income stream through an in-plan 

annuity option. Annuity options within the plan can typically be structured in a number of ways, 

such as: 

• Period certain with life annuity – the annuity benefit will be guaranteed for a specific 

number of years and will continue for the life of the annuitant assuming he/she 

survives through the guaranteed period 

• Single life annuity – the annuity benefit will be paid to the participant for as long as 

he/she lives 
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• Joint life annuity – the annuity benefit will continue to be paid to a beneficiary even 

upon the death of the annuitant. There are several options offered with this type of 

annuity allowing the annuitant to determine what percentage of the benefit the 

surviving beneficiary will receive upon the death of the annuitant 

• Variable single premium immediate annuity – provides for lifetime benefits but 

allows the individual’s payment to change with movements in the marketplace 

Where defined contribution plans utilize these types of income annuity options, it is common for 

guaranteed minimum interest rates and guaranteed minimum mortality rates to be included in the 

purchase rate basis of the group annuity contract at the point of issue. When an account balance 

is annuitized, the benefits will be calculated based on those guaranteed minimum rates. Many 

insurance companies will compare the guaranteed minimum rate against the current nonguaranteed single premium immediate annuity rates they offer in the market and automatically 

price the annuity at the better of the two rates. 

Relatively few 401(k) plans in our customer base offer these types of annuity options. There are a 

number of reasons for this. At the forefront of these are fiduciary liability concerns and the 

administrative burdens associated with QJSA administration. A secondary reason is lack of 

utilization of annuity options by participants. Many plans come to the conclusion that if the 

potential liability and administrative burden of offering annuities is very high, and the participant 

take-up rate is low, taking advantage of the profit sharing exception by excluding the availability 

of annuity distribution forms might make the most sense. 

In addition to annuity options, defined contribution plans may also allow a participant to set up 

systematic withdrawals from their account value. This would allow the participant to determine 

how much they want to withdraw from their account balance at a given frequency. These 

withdrawals can be based on life expectancy tables to help spread the account balance over the 

participant’s lifetime. However, with this option it is important to point out that the payments 

are not guaranteed for the lifetime of the individual. Under these approaches, the risk that the 

participant’s account balance will deplete to zero while they are still living remains uninsured and 

is borne by the participant. 

Recently, a few insurance providers have introduced several options for defined contribution 

plans that allow participants to contribute toward lifetime income incrementally during the 

accumulation phase. These fall into two broad categories: 

The first type is a fixed deferred income annuity where the participant’s contribution is used to 

purchase shares of an income annuity. The income annuity will then start to payout at the 

retirement age. However, throughout the course of the accumulation phase, the participant will 

be able to keep track of the levels of lifetime income they have accrued. 

The second type is commonly referred to as a Guaranteed Lifetime Withdrawal Benefit (GLWB). 

The GLWB may involve investing in a target date fund or lifestyle portfolios. The contributions 

that are deposited into this option will be exposed to the market volatility associated with the 

funds they are utilizing, but at certain points during the accumulation phase the participant will be 

able to lock-in the account balance to determine a level of withdrawals that is guaranteed for the 

life of the participant. Upon retirement, the participant will be allowed to take a certain 

percentage of the locked in account balance (also known as the “benefit base”) every year as a 

withdrawal for the rest of their life. The account value will still be exposed to the volatility of the 

market, and if the account value goes to zero the insurance company will be responsible for 

continuing to pay a percentage of the benefit base. 
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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? 

Typically, the annuitization options provided in group annuity contracts are offered to 

participants by plans only at retirement or following severance from employment, if at all. It is 

possible, however, to use these features to associate account contributions with the minimum 

guaranteed purchase rate basis in effect at the time the contribution is made. In that way, dollars 

contributed during periods when interest rates are more favorable can “lock in” that annuity 

purchase rate basis. Viewed from that perspective, the annuity purchase offer would be provided 

incrementally during the accumulation phase. 

Newer benefits in the market such as the fixed deferred income annuity, and the Guaranteed 

Lifetime Withdrawal Benefit (GLWB) represent retirement income benefits that participants 

contribute to during the accumulation phase of their savings cycle and are incremental in nature. 

These product options were designed and marketed in order to get participants thinking about 

retirement income much earlier (during their working years) than they otherwise would. In turn, 

this approach promotes a better understanding of the potential advantages of spreading the cost of 

purchasing guaranteed income out over time. It also tends to promote better understanding of the 

costs of guaranteed income and the very real value associated with those guarantees. Educating 

participants about these concepts over the course of their careers would tend to promote a sounder 

basis for decision-making than under scenarios where participants are asked to evaluate the costs 

of guaranteed lifetime income for the first time at the point of retirement. 

Fixed deferred income annuities are structured in a way that facilitates the purchase of shares of a 

deferred income annuity that pays income benefits at retirement. Each share that is purchased is 

worth a set amount of monthly income at a stated age. In this arrangement, the insurance 

provider takes on the investment risk associated with the income benefits. As contrasted with 

GLWB structures (discussed below) participants take on less risk with fixed deferred income 

annuity structures. Conversely, they also forego the upside potential associated with the equity 

investment exposure allowed under GLWBs. 

GLWBs are often structured so as to allow participants to invest their contributions in a mutual 

fund. The available mutual funds may be restricted by the insurance provider of the product. 

However, at certain specified points during the accumulation phase, the account value will be 

locked-in creating an income base. The products are typically designed to allow the participant to 

be guaranteed a certain percentage of the income base in annual income for life beginning at 

retirement. This option still allows the participant to invest in the equity markets, even though 

their selection of mutual funds may be limited. While the participant is not purchasing explicit 

shares of income for retirement, each contribution will increase the income base from which the 

guarantee is calculated. At any given time, the participant will be able to determine the amount 

of annual retirement income he or she has guaranteed by multiplying the percentage guaranteed 

against their benefit base. 

And, of course, the possibilities for developing newer forms of products to address lifetime 

retirement income needs are abundant. These could include return of premium concepts that 

could further alleviate concerns over access to funds and preserve a benefit for the participant’s 

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

matching contributions or employer non elective contributions to fund lifetime income? 

To what extent are participants offered a choice regarding such use of employer 

contributions, including by default or otherwise?

In our customer base, we have seen very little activity involving the use of employer matching 

contributions or employer non-elective contributions to fund lifetime income. The notion of 

encouraging plan designs that utilize these features could have real merit, however, and is 

deserving of serious consideration. 

We have observed the phenomenon where an employer that sponsors both a defined benefit (DB) 

and a defined contribution (DC) plan will sometimes freeze the DB plan, and simultaneously 

increase the level of DC matching contributions to help offset the loss of future DB accruals. In 

that situation, the concept of having an employer affirmatively direct its DC plan matching or 

non-elective contributions toward the purchase of guaranteed lifetime income has the potential to 

replace some of the future retirement security formerly provided through the DB plan. 

This sort of a plan design could also help reduce some of the “all or nothing” decision paradigms 

that tend to overwhelm participants and prevent them from committing dollars to guaranteed 

income products. 

In order for this type of idea to succeed, very strong and substantial fiduciary protections need to 

be established that would shield plan fiduciaries from the threat of future liability resulting from 

the selection of a guaranteed retirement income product provider. 

6. What types of lifetime income or other arrangements designed to provide a stream of 

income after retirement are available to individuals who have already received 

distributions from their plans (out-of-plan options), such as IRA products, and how are 

such arrangements being structured (fixed, inflation adjusted, or other variable, 

immediate or deferred, etc.)? Are there annuity products under which plan 

accumulations can be rolled over to an individual retirement annuity of the same issuer 

to retain the annuity purchase rights that were available under the plan?

There is a robust array of lifetime income products that are available to individuals who have 

received distributions of accumulated retirement plan benefits. We tend to categorize these 

products among three basic groups: 

1. Traditional Annuity Payment Options come in many different forms including: 

Benefit Payments made for a defined term: 

a. A certain period such as 10 years (these are not guaranteed for life) 

b. For the life of an individual 

c. For the longer life of two individuals 

Benefit Amounts: 

a. Fixed benefits which never change 

b. Fixed benefits which increase each year by a pre-determined amount 

c. Fixed benefits which increase each year by an index tied to inflation 

d. Variable benefits which increase or decrease according to the performance of the 

underlying investment options 

e. A combination of fixed and variable benefits as described above 
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f. There can be pre-determined reductions in benefits upon the first death with two-life 

income annuities 

Benefits with Optional Features: 

a. Death benefits: Cash refund (return of premium in excess of benefits already 

received) or Guaranteed Periods (payments continue after the annuitant’s death 

through the end of the guaranteed period) 

b. Liquidity: Options to commute all or part of the remaining guaranteed period benefit 

payments and/or life contingent benefit payments. 

c. Flexible Period Option: For non-life contingent annuities, allow an individual to 

shorten or lengthen their annuity period (e.g. change a 15 year annuity period to a 20 

year annuity period). 

d. Minimum Benefits: For variable annuity benefit forms, there can be a pre-determined 

floor to the benefit amount. 

2. Guaranteed Minimum Withdrawal Benefits (GMWB)

The GMWB is offered as an optional form of benefit within a variable or fixed annuity. 

The availability of income – defined as a percentage of a stated “benefit base” -- is 

guaranteed over the life of one or two individuals even in the event that the annuity 

contract no longer has any remaining assets. In other words, where regular income 

withdrawals (defined by the contract) deplete the contract of all of its assets, the 

insurance carrier will assume the liability to provide continued income benefits for as 

long as the individual(s) is alive. 

GMWBs can have many features such as: 

a. Increasing guarantees: The level of guaranteed income can increase if the contract’s 

account balance increases a certain amount, if income withdrawals do not start until 

reaching a certain contract anniversary or a certain contract owner’s age, or other predetermined requirements. 

b. Liquidity: A typical feature for an annuity prior to annuitization is that partial 

withdrawals can be taken as needed, or the entire contract can be surrendered. 

Depending on the contract, penalties may or may not apply. In addition, any partial 

withdrawals taken will impact the guaranteed withdrawal benefit amount. 

c. Market exposure: One of the primary benefits of combining a GMWB with a variable 

annuity is that the individual can remain invested in the market while securing 

lifetime income. Depending on the contract, there may be investment limitations. 

3. Stand-alone contingent guarantees 

An annuity contract sometimes referred to as a “stand alone withdrawal benefit” or 

“contingent annuity contract.” The contract provides guaranteed minimum withdrawal 

benefits that are linked to an investment account that the owner maintains with a financial 

institution unrelated to the insurer. If, during the owner’s lifetime, the account is reduced 

to zero other than by reason of the owner withdrawing more than a prescribed annual 

amount from the account, the issuer of the contract will pay the owner a series of periodic 

payments for life. 

Generally, the annuity purchase rights, if any, that are available in-plan do not transfer over to a 

new out-of-plan product into which the assets are rolled over. As the marketplace for in-plan 

guaranteed lifetime income products develops, much discussion has emerged over the question of 

“portability” and how to develop industry standards to permit the retention of in-plan benefits 

following a change of providers. 
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7. What product features have a significant impact on the cost of providing lifetime income 

or other arrangements designed to provide a stream of income after retirement, such as 

features that provide participants with the option of lifetime payments, while retaining 

the flexibility to accelerate distributions if needed?

The following items -- many of which are features and benefits that aim to make lifetime income 

products more attractive -- have a significant impact on the cost of providing guaranteed lifetime 

income: 

1. Options to liquidate or accelerate benefits from a pre-determined benefit schedule. 

2. Minimum guaranteed benefit levels for variable income benefits. 

3. Benefit amounts tied to an inflation index. 

4. Death benefits – including survivorship benefits. 

5. Low interest rates which increase the cost to provide guaranteed income. 

6. Long investment horizons and uncertainty in rates and future investment returns impact 

the credited rate that is available to pass along to the policyholder. 

7. Unisex requirements can lead to overestimation of the female portion of annuitants when 

determining benefits (insurers bear the female/male distribution risk and will generally be 

conservative). 

8. Underutilized ability to underwrite leads to self-fulfilling assumption of only insuring 

healthy annuitants, thereby lowering overall benefit amounts. 

9. Benefit increasing features such as ratchets or roll-ups. 

 10. For guarantees related to variable accounts, volatility of the market will impact the cost of 

any hedging needed for the benefit which will ultimately impact the cost to the 

policyholder. Many new products seek to minimize this cost by limiting the underlying 

investment to index funds. 

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)? 

There are very compelling reasons for making lifetime income products available to participants 

through their plan. The availability of viable, attractive in-plan lifetime income options, when 

offered in combination with statement illustrations and other materials that help to properly frame 

and contextualize guaranteed income considerations, can do a great deal to rationalize retirement 

decision-making by educating consumers on how best to use these products, whether out of plan 

or in-plan. 

Turning to the particulars of in and out of plan offerings, there are distinct advantages and 

disadvantages that accompany the in-plan and the out of plan purchase of guaranteed lifetime 

income benefits. One forum is not necessarily superior to the other. 

Among the advantages of in-plan options are: 

• The availability to dollar cost average the purchase price of the guarantee. 

• Ease of benefit acquisition through an employer-facilitated save at work program. 

• The availability of institutional or “group” pricing advantages. 

• Potential for protection against downside investment risks over the accumulation phase of 

the savings cycle. 
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Countervailing disadvantages include: 

• The portability issue has yet to be adequately addressed. Some products commute 

guaranteed benefits to a lump sum return of premium upon a change of plan provider – 

clearly a sub-optimal result from a retirement security perspective. 

• The choice of providers and benefit designs is limited to those offered through the plan. 

The advantages of out of plan options include: 

• The availability of gender distinct pricing for males. (As discussed later in our response, 

we think this is a difference that needs to be addressed.) 

• Freedom from in-plan portability concerns. 

• There may be more income solutions to choose from based on the individual’s unique 

income needs. 

Countervailing disadvantages include: 

• Point in time investment risk. 

• The potential to be overwhelmed by the sheer number of choices available in the 

marketplace in the absence of a plan selection “filter.” 

• There is typically a minimum purchase payment requirement. 

• Pricing likely to be “retail” and not “institutional”. 

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? 

Plan fiduciaries are responsible for selecting and monitoring annuity providers in ERISA 

retirement plans. From the standpoint of fiduciary risk there is less exposure where the 

participant takes a distribution from the plan and then, post-distribution, secures a lifetime income 

vehicle (i.e. an out of plan annuity). In contrast, where the employer secures an annuity provider 

for the participant, there is a fiduciary concern with regard to which one is selected, and several 

key questions to address: 

 1) Will the employer be held responsible or financially liable in the event there are future 

issues concerning the provider’s financial stability? 

 2) Are the fees reasonable relative to the benefits? 

 3) Will the annuity provide sufficient lifetime income? 

The annuity provider selection safe harbor regulation under Department of Labor Regulation 

404a-4 is extremely difficult to satisfy. Conditions for relief require the employer to demonstrate 

that it conducted an objective analysis of the provider’s future ability to meet all of its payment 

obligations – a task that very few fiduciaries are willing or capable of undertaking. 

Understandably, these are burdens many employers do not want to take on, especially those that 

do not have the resources and in –house expertise. Accordingly, consideration should be given to 

a more specific and workable safe harbor standard that can alleviate these concerns and 

encourage more employers to offer annuities on an “in-plan basis”. Plan fiduciaries need to have 

the comfort that, if they have made a prudent choice of guaranteed income providers and a 

participant has elected to receive guaranteed lifetime income from that provider, that the fiduciary 

will not be exposed to some residual liability relating to the provider’s ability to perform some 

years down the road. 

For “in-plan” annuities where a participant purchases a deferred annuity benefit with ongoing 

contributions (i.e. annuity units are purchased with each contribution) the DOL should also 
ING Insurance U.S. 

14

clarify the availability of ERISA section 404(c) during the accumulation phase and that the 

transfer restrictions associated with GMWB’s are consistent with 404(c). 

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? 

Unfortunately, a large percentage of defined contribution plans continue to make only a single 

form of benefit distribution available to their participants. Even among those that permit more 

than one form of distribution, that freedom of choice is seldom highlighted or emphasized in 

benefit election materials. This often misleads participants into assuming that only a single 

distribution form is available. 

If more plans were to allow multiple forms of distribution, and if participants were to understand 

the availability of these various distribution options, we believe that the environment for 

consideration and uptake of guaranteed lifetime income options could be substantially improved. 

Allowing a participant to select more than one form of distribution would help to avoid the “all or 

nothing” conundrum, whether perceived or real, that often dissuades participants from electing to 

commit a portion of their retirement savings to a guaranteed lifetime income stream. 

Ultimately, the benefit for employees would be in their ability to surrender a portion of their 

account balance to lock in a lifetime guarantee, while maintaining control over the remaining 

account balance to meet emergencies, or other needs. Partial annuities would also facilitate 

greater investment diversification by participants. 

11. Various “behavioral” strategies for encouraging greater use of lifetime income have 

been implemented or suggested based on evidence or assumptions concerning 

common participant behavior patterns and motivations. These strategies have 

included the use of default or automatic arrangements (similar to automatic 

enrollment in 401(k) plans) and a focus on other ways in which choices are structured 

or presented to participants, including efforts to mitigate “all or nothing” choices by 

offering lifetime income on a partial, gradual, or trial basis and exploring different 

ways to explain its advantages and disadvantages. To what extent are these or other 

behavioral strategies being used or viewed as promising means of encouraging more 

lifetime income? Can or should the 401(k) rules, other plan qualification rules, or 

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

behavioral strategies in this context?

Research conducted in the field of behavioral finance, including by our own ING Institute for 

Retirement Research, tells us that individuals face a host of emotional and psychological 

challenges when it comes to making participation, contribution and investment decisions within 

workplace retirement plans. Procrastination, inertia, heuristics (the application of “rules of 

thumb”), unrealistic expectations about outcomes, paralysis from sheer information overload and 

the fear of loss are some of the primary factors that contribute to the realities that contribute to 

retirement planning challenges. Due to these behaviors, many individuals fail to participate in 

their workplace plans at all, fail to contribute meaningful amounts (sometimes even up to a 
ING Insurance U.S. 

15

matched percentage), fail to project the expected income from their investment, and fail to wisely 

balance and allocate their investments (employer stock and stable value, the two most extreme 

asset classes on the risk reward spectrum, are the most “allocated to” classes within workplace 

plans for all age cohorts). 

By logical extension, similar roadblocks exist when it comes to making income-generation 

decisions in the retirement phase of the defined contribution lifecycle. To some extent, the 

industry has implemented measures to help alleviate some of these behaviors during the 

accumulation phase: automatic plan features such as enrollment and contribution escalation, 

target date funds, managed accounts and in-plan advice are a promising start. Modeling tools 

(worksheets, on-line calculators), educational seminars, behavior-and demographic-targeted 

communications campaigns and clear (“Plain English”) educational materials also help. With 

respect to annuitization or other income-generating strategies for retirees, similar measures – with 

some cautions – might be employed. 

Automatic guaranteed lifetime income defaults hold tremendous promise and are clearly worth 

exploring. As with other automatic plan features, such as auto-enrollment and auto-contribution 

increase, the key is to develop mechanisms that promote desirable behaviors but at the same time 

preserve individual control by granting default opt-out rights. ING research tells us that 

participants place an extremely high value on choice and control and opt-out rights effectively 

preserve that choice and control. The QDIA rules under ERISA have done much to facilitate the 

adoption of auto-enrollment and auto-contribution features by plans by treating the default 

enrollment investment option as though it were affirmatively selected by the participant. We 

support an extension of that fiduciary relief to default enrollment of participants into guaranteed 

lifetime income distributions. 

At the same time, communications materials that focus on retirement income anticipation – 

teaching individuals about their options for using their investment in retirement in addition to the 

present-day details about their plan and investment – should be integrated into the entire defined 

contribution experience. Statement illustrations of how much guaranteed retirement income can 

be purchased with an accumulated account balance would help to drive the retirement income 

consideration home over the course of a participant’s career. Seminars, on-line resources and 

ongoing communications initiatives -- written in jargon-free, clear and commonly accessible 

language—are also vitally important. 

Our industry should also not assume that individuals can generate a realistic retirement 

expectation based solely on their experience within one plan. A holistic view – one that is easy to 

generate and understand – should include other workplace plan retirement investments, IRAs and 

personal savings, Social Security benefits and defined benefit payments (if applicable), income, 

and family situations in addition to the potential income possibilities from investment in a 

specific plan. Below, we offer four concrete examples of behaviors that pose issues for the use of 

guaranteed lifetime income products by participants in retirement plans, accompanied by 

suggestions for addressing them: 

Behavioral Problem #1: Information asymmetry 

Consumers are more hesitant to make purchases when they feel their level of knowledge about 

the product or service is inferior to that of the seller. This is a classic example of information 

asymmetry. 

Potential Solution #1: Standard labeling 

The internet has been a powerful corrective agent for years now. For example, Research by 

Austan Goolsbee showed that “the growth in Internet usage can explain about three quarters of 
ING Insurance U.S. 

16

the total declines in term life prices1” because “the Internet reduces the time and effort necessary 

to search for the lowest-price product and therefore should lower overall prices, creating a more 

competitive marketplace.” 

When it comes to lifetime income products, we need standard cost/benefit disclosure much like 

the requirement for nutrition facts label on all products which was provisioned in the 1990 

Nutrition Labeling and Education Act (NLEA), per the recommendations of the United States 

Department of Health and Human Services' Food and Drug Administration. It is reported that 

“More than half of consumers in the United States often read the food label when buying a 

product for the first time”2

 In the case of an annuity, a standard disclosure could translate the 

level of fees for every $1,000 invested in the product along with unitized benefits such as 

guaranteed income, spousal continuation, etc. Removing as much of the information gap without 

overwhelming consumers may result in higher adoption rates. 

Behavioral Problem #2: Lack of trust 

Consumers are increasingly skeptical of for-profit corporations. As a result, consumers do not 

believe corporations have their best interests in mind and are typically distrustful of any 

communication coming from corporations. 

Potential Solution #2: Enable peer-to-peer communication 

According to a Nielsen reports, “Ninety percent of consumers surveyed noted that they trust 

recommendations from people they know, while 70 percent trusted consumer opinions posted 

online” 3

 Peer-based information can act as a significant motivator when it comes to overcoming 

inertia or enabling change. The theory goes: merely going through the act of comparing yourself 

to others will increase the likelihood of your attempting to improve your own situation4

. This 

propensity is accentuated when the comparison is made between people of the same peer group. 

Providers should be encouraged to create forums whereby consumers can discuss the merits of 

guaranteed income products and solutions among their peer group. 

Behavioral Problem #3: Hyperbolic discounting 

Given two similar rewards, humans show a preference for one that arrives sooner rather than 

later. Humans are said to discount the value of the later reward, by a factor that increases with the 

length of the delay. The economist David Laibson has used hyperbolic discounting to explain 

why people simultaneously have large credit-card debts at a high interest rate and pre-retirement 

wealth growing at a lower interest rate. As predicted by hyperbolic discounting, the rewards 

provided by buying something today often outweigh the discounted displeasure of future 

payments. This leads to a sizable credit card debt.5

 In the case of lifetime income products, this 

 

1

Life Insurance in the Information Age, Internet Comparison Sites Create Major Marketplace Change, Research by 

Austan D. Goolsbee is professor of economics at the University of Chicago Graduate School of Business.

2 http://www.fda.gov/ForConsumers/ConsumerUpdates/ucm202611.htm

3 Global Advertising: Consumers Trust Real Friends and Virtual Strangers the Most, Nielsen, 

http://blog.nielsen.com/nielsenwire/wp-content/uploads/2009/07/pr_global-study_07709.pdf

4 Peer effects have been shown to play a role in other contexts. For example, Sacerdote (2001) 

finds that college roommate assignments have an impact on GPA. Duflow and Saez (2002, 2003) find that 401(k) 

plan participation and the choice of vendor are both influenced by peers. Similarly, Hong, Kubik and Stein (2004) 

find that stock market participation is higher for social individuals. Noah J. Goldstein, Robert B. Cialdini, and Vladas 

Griskevicius (2008) find that using peer-based social norms has a greater impact on the propensity of individuals to 

reuse hotel towels to help save the environment 

5 A debt puzzle, David Laibson, Harvard University and NBER; Andrea Repetto, Universidad de Chile; Jeremy 

Tobacman, Harvard University, 2001
ING Insurance U.S. 

17

tendency is represented in the low take-up rate even after the consumer has been properly 

educated about the benefits. 

Potential Solution #3: Putting a price on procrastination 

Promote means by which people engage in long-term contracts that provide immediate or 

periodical benefits (or penalties). Examples include the use of annual tax breaks for contributions 

to a lifetime income product, and behavioral concepts such as stikk.com6

 - a website that helps 

people fulfill their goals by allowing them to risk their own money -- if they don't complete their 

self-described objectives, they lose the money. 

Behavioral Problem #4: Loss-aversion 

In prospect theory, loss aversion refers to the tendency for people to strongly prefer avoiding 

losses than acquiring gains. Some studies suggest that losses are as much as twice as 

psychologically powerful as gains. Loss aversion was first convincingly demonstrated by Amos 

Tversky and Daniel Kahneman.7

Potential Solution #4: Framing 

Consumers view annuities as risky gambles rather than insurance. If we die early, we lose; if we 

live a long time, we win. Economists, and insurance companies, view annuities as insurance: not 

against dying but against the risk of outliving your wealth. Framing experiments have yielded 

much different outcomes in the take-up rate for annuities. 

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? 

In our experience, it is a huge oversimplification to base the annuity decision on basic or 

necessary expenses in retirement. Other factors to consider, at time of decision, include: 

• Current age 

• Account balance 

• Salary growth rates 

• Contribution rate 

• Employer match rate 

• Retirement horizon 

• Life expectancy 

• Inflation rate 

• Potential “fixed” income sources 

• Pension benefit 

• Social Security benefit / annual increase 

• Required income replacement ratio 

• Expenses / lifestyle in retirement 

• Costs / risks / returns of annuity vs. alternative 

options 

• Spousal and other dependent needs 

Our direct, daily experience and our research strongly indicate that participants will need help 

with the following identifying factors relevant to the decision: finding relevant information; 

deciding if an annuity is a sound investment for their circumstances; and, if it is, determining 

what portion to annuitize. 

Helping individuals make annuitization or other retirement income decisions requires a 

communication process that begins to build awareness of the need to plan ⎯ and the potential 

investment options ⎯ well before the point of decision at retirement. 

 

6 Dean Karlan, Barry Nalebuff, Ian Ayres, Jordan Goldberg

7 Prospect Theory: An Analysis of Decision under Risk, Daniel Kahneman; Amos Tversky, Econometrica, Vol. 47, 

No. 2. (Mar., 1979), pp. 263-292
ING Insurance U.S. 

18

Our experience strongly suggests that participants respond positively when they receive written 

education materials, hard copy and / or Web-based earlier in their career, that these 

communications are keyed to more universal reading level; that the communications make use of 

easy-to-understand graphical representations like comparative tables, charts, etc.; and that 

participants are provided online easy-to-use modeling / calculator tools. 

Additionally, in order to make an even more informed and individualized decision, participants 

should have access to counseling by trained, objective advisers using sophisticated, proven 

technology and methodologies, as well as an opportunity for a final suitability review. 

Our experience further suggests that only a joint effort on the part of sponsors, benefit servicers 

and payroll providers can ensure that participants have access to all the information they need 

fully to understand the relative merits of their options. 

13. Should some form of lifetime income distribution option be required for defined 

contribution plans (in addition to money purchase pension plans)? If so, should that 

option be the default distribution option, and should it apply to the entire account 

balance? To what extent would such a requirement encourage or discourage plan 

sponsorship? 

The in-plan availability of one or more lifetime income distribution options would assist defined 

contribution participants in their retirement planning and spending considerations. At the very 

least, a plan that provides a lifetime income distribution option as an optional form of benefit 

would provide an opportunity for thoughtful consideration by participants of retirement income 

needs and protections against longevity, inflation and investment risks. 

Despite these advantages, ING is not at this time recommending that lifetime income distribution 

options be a mandatory requirement for all defined contribution plans. Input that we have 

received from our plan sponsor and participant customers indicates a very strong preference for 

preserving choice and control over plan design and benefit distribution matters. For many plan 

fiduciaries, the burdens of the fiduciary liability and additional administration associated with 

lifetime income options would be unwelcome. In light of that strong preference, we favor steps 

that would encourage consideration and use of lifetime income distribution options, but would 

stop short of requiring their use. At the same time, we are keenly interested in seeing these 

liabilities and administrative complexities substantially reduced. 

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? 

When considering potential plan designs, employers commonly weigh the advantages and 

disadvantages of particular features. 

Generally, the employer’s overriding goal is to sponsor a plan that will advance its business 

objectives of attracting and retaining a skilled and qualified workforce by providing employees 

with means to save and attain a secure retirement through participation in the plan. Balanced 

against that objective are cost considerations – pure and simple. At the end of the day, employers 

tend to weigh the retirement security advantages of a particular design feature against the 

potential disadvantages that accompany that feature. Plan features that tend to be selected are 

those that present obvious advantages relative to cost. 
ING Insurance U.S. 

19

The primary advantages of in plan guaranteed lifetime income options are that they can 

encourage setting and achieving retirement security goals. The problem for employers, however, 

is that more often than not, they come to the conclusion that the downsides outweigh the benefits. 

However, there are ways to reduce these challenges. Many of the problems that currently impede 

employer selection of lifetime income options are a by-product of fiduciary risk and 

administrative burden. We believe there are a number of workable policy measures that, if 

implemented, stand to dramatically reduce the current levels of embedded costs that crop up in 

employer considerations of lifetime income options. By making a few changes to the regulations 

governing plans, it is possible to change the cost/benefit dynamic so that lifetime income options 

are more favorably considered by employers. 

 (a) Fiduciary Liability Risk. It is clear to us and many in our industry that the high burdens 

associated with fiduciary liability outweigh and impede the advantages of lifetime 

income option selection. The Department of Labor’s 2008 clarification that the safest 

available annuity standard does not apply to defined contribution plans was an extremely 

positive first step to reducing the magnitude of the fiduciary liability impediment, but 

additional progress is needed. 

First and foremost, it is imperative that regulatory guidance be developed and 

promulgated under which plan sponsors would be allowed to enjoy the same fiduciary 

protections with respect to participant selection of guaranteed lifetime income options 

that they now enjoy under the Section 404(c) regulations with respect to participant 

selection of accumulation investment options. Under a 404(c) plan, sponsors and 

fiduciaries are shielded from the potential liability that might otherwise arise from the 

investment results generated from a participant’s exercise of investment control over his 

or her account balance. A similar construct could and should be developed under which 

participants would be provided information about the features and risks of a broad range 

of lifetime income options. With the proviso that plan fiduciaries remain responsible for 

the prudent selection and monitoring of the lifetime income option products, it should be 

made absolutely clear that the plan sponsor and fiduciary will be insulated from any 

downstream liability for the results of a participant’s choice. 

With respect to prudent selection and monitoring, the potential fiduciary liability that 

worries so many plan sponsors can be summed up rather easily: What will happen to me 

and my business, if the guaranteed lifetime income provider I prudently select today fails 

to perform by reason of financial impairment some ten or twenty or thirty years down the 

road? It is simply not a reasonable or logical construct to ask plan sponsors to assume the 

risk that they might be called upon to effectively indemnify participants who purchase 

lifetime income options through their own exercise of account balance control. 

It is vital to clarify the guidelines that should apply to the prudent selection of a 

guaranteed lifetime income provider. The provider selection criteria under the 404a-4 

Regulations are too vague and daunting for most plan fiduciaries to navigate or gain a 

sense of comfort. The regulations carry an implicit suggestion that in order to be prudent, 

a plan fiduciary must somehow acquire expert knowledge of the financial condition of 

various providers. Since acquisition of that level of knowledge is beyond the reasonable 

capabilities of most employers, the effect of the regulation prevents them from providing 

lifetime income products. 
ING Insurance U.S. 

20

A more streamlined and straightforward approach to demonstrating prudence would 

produce better results. It must be made clear that in order to be prudent, a plan sponsor 

need not be required to exercise powers of omniscience or clairvoyance. 

(b) QJSA Administration. Second to fiduciary liability, the costs associated with the 

administration of lifetime income options need to be reduced. The use of electronic 

means to accomplish QJSA administration is essential in order to promote efficiencies 

and reduce costs. 

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?

We have seen relatively little marketplace activity seeking to combine annuity income with 

reverse mortgage income. 

Long term care insurance, addresses a key insurance coverage need, and should be considered as 

part of a complete retirement income plan. 

Potential combinations of retirement income and long term care products have various advantages 

and disadvantages: 

Advantages

• Protects the policyholder against longevity risk and provides regular income payments in 

retirement to replace the paychecks earned during the working phase of their life. 

• Includes an added benefit if the policyholder enters a long term care facility, recognizing 

that the benefit level may not always be sufficient to cover the entire cost of the long term 

care institution. 

• These types of products are ways for individuals to receive some additional security at a 

cheaper price compared to purchasing long term care insurance. 

Disadvantages

• Provides less long term care coverage than a typical policy. 

• Long investment horizon and uncertainty in rates and future investment returns impacts the 

credited rate available to pass along to the policyholder. 

• Long term care benefits have to be carefully structured so the existing annuity distribution 

will be appropriately licensed to sell the product. 

• Providers may incur additional expenses for maintaining a claim adjudicating unit as 

annuity providers typically don’t have to verify claims. 

Another compelling product combination analysis has to do with how to optimize a guaranteed 

retirement income payout stream with investment vehicles that preserve ready access to lump 

sum cash amounts. Combining annuities with other investments can be used very effectively to 

provide for retirement financial needs. 

Retirees today generally count on receiving guaranteed lifetime income from Social Security and 

may also receive guaranteed payments under a defined benefit pension plan. If those sources are 

insufficient to generate a sufficient guaranteed income stream an optimal strategy would use an 

annuity to generate that additional income. Remaining assets would then be invested in an age 

and risk appropriate asset mix such as mutual funds or bank CDs. The non-annuity investments 

can be as simple and familiar as the individual chooses. Each component would provide the 
ING Insurance U.S. 

21

service it is designed to do - the annuity for lifetime income, the mutual fund for market exposure 

and the CDs for a fixed investment. All of this speaks to the need for participants to have access 

to expert assistance necessary to develop a thorough plan to address their needs and to identify 

the options available through various products for addressing longevity risk. 

Below we list some of the pros and cons of combining a simple fixed income annuity with cash 

refund death benefit with a portfolio of mutual funds. 

Advantages to the Individual

1. Very efficient means of protecting against longevity risk while maintaining market exposure. 

2. The income annuity guarantees income over one or two lives with no loss of principal. 

3. A mutual fund portfolio can efficiently offer multi-manager fund options with no investment 

restrictions and full liquidity. 

Advantage to Providers

1. Very efficient scalable businesses. Both have relatively low expenses post-issue. 

2. Utilizes strengths of both insurance companies and mutual fund companies. 

Current Disadvantages

Required minimum distribution rules concerning annuity benefits do not work well for partial 

annuitizations. Please see our reply to Question 28. 

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? 

Part 1: Our first observation has to do with the pricing of in-plan annuities. Under current law, 

employer-sponsored plans are obligated to use unisex annuity rates. Yet sex-distinct annuity rates 

are used for purposes of pricing out-of-plan annuities. For defined contribution plans, the unisex 

annuity pricing requirement could discourage the use of in-plan guaranteed retirement income 

products. 

Unisex rate requirements put plans at a pricing disadvantage relative to out-of-plan options. The 

availability of sex-distinct pricing outside of the plan encourages men to roll into an IRA to 

obtain the more advantageous rates. As a result, in-plan unisex rates tend to assume an all female 

retiree population. In considering this dilemma, we think that there are three distinct demographic 

groups that should be considered: 

• Males who receive male-only rates because they rolled out of plan 

• Females receiving heavily female weighted rates because they remained within plan 

• Males receiving rates on a more heavily female-weighted basis because they remained 

within plan 

The first two groups are at least receiving rates that are fair from an economic perspective. 

Unfortunately, the same cannot be said for those in the third group. Participants who fall into this 

category are at a distinct economic disadvantage. 

Under unisex pricing, the insurer bears the male/female distribution risk. When insurance 

carriers set in-plan unisex annuitization rates, they must set a single rate which applies regardless 

of the proportion of males and females who select it. Insurers may apply a degree of 

conservatism by assuming a higher female proportion when setting rates than one would 
ING Insurance U.S. 

22

otherwise expect. For most providers, the female assumption embedded in unisex rates ranges 

between 60%-85%. 

We see two potential solutions for solving this dilemma. One approach would be to remove the 

unisex requirement for in-plan annuitizations. The alternative would be to or require unisex rates 

for out-of-plan annuitizations. Unfortunately, the current situation creates an imbalance for 

defined contribution plan offerings relative to out-of plan solutions. Therefore we would strongly 

support a consistent, level, set of rules that would apply to both in-plan and out-of-plan offerings. 

Part 2: We would also like to comment on some of the different behaviors we have noted 

concerning different behavioral patterns and behavioral drivers of male and female participants. 

It is well known that women and men demonstrate different behaviors in retirement plans 

(analysis of both ING participant data and industry insights bear this out): 

• Women contribute lower amounts of salary, in terms of both percentage and total dollars 

• Fewer women participate at all 

• Women tend to participate for fewer years 

• Women have lower account balances 

• Women tend to be more conservative investors 

Consequently, when factors such as employer type and age band are taken into account, women 

have consistently lower account balances. 

This dynamic exists for a host of reasons: 

• Women are more likely than are men to spend time out of the workforce, generally for 

caretaker duties 

• Women generally earn less than men ($0.81for every $1.00 earned by men) 

• They receive less from Social Security (on average, 26% less than men) 

• Only 28% of women earn a pension 

 ...yet, women need their money to last longer. An average 65 year old man will live to be 82; an 

average 65 year old woman will live to age 85. 

In broad terms, those plan sponsors who provide education, products, financial tools and 

messages can do a better job of focusing on the unique ways women can save more and work 

towards achieving retirement independence. Themes that resonate well with women, such as 

“empowerment” and “self-improvement” can be leveraged in communications. Initiatives should 

also consider and accommodate the many differences that make women more than a single niche 

market, including generational, cultural, circumstantial or otherwise. 

For example, special consideration should be given to women who are single or head of a 

household. Research shows that this group saves less and faces an increased risk of underfunded 

retirement. There is a greater need for relevant, practical advice and tools to help them overcome 

substantial obstacles to saving, which can include anything from daily child rearing expenses to 

unexpected emergencies. 

 

Understanding other key attributes can help to better connect with women, too. Studies have 

revealed that women are more likely to seek out advice than men, and tend to gather more data 

from multiple sources when making decisions. Women are also more “brand loyal,” making 

purchasing decisions based on their relationship with a brand. Additionally, women are internet 

savvy -- and generally want solutions that make life easier. 
ING Insurance U.S. 

23

Consideration of the different needs, preferences for learning and other circumstances of women 

– and solution approaches to helping them, extends to retirement income solutions. It is to be 

hoped that the dependability of defined income will have additional appeal to women, given that 

we know that “advice” has additional appeal to them, and that they generally demonstrate a more 

conservative investment nature. 

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

There are multiple factors that plan participants need to consider when making decisions about 

whether and how much of their retirement savings should be allocated to guaranteed lifetime 

income products. Among these factors are items such as: 

• Current age 

• Account balance 

• Salary growth rates 

• Contribution rate 

• Employer match rate 

• Retirement horizon 

• Life expectancy 

• Inflation rate 

• Potential “fixed” income sources 

• Pension benefit 

• Social Security benefit / annual increase 

• Required income replacement ratio 

• Expenses / lifestyle in retirement 

• Costs / risks / returns of annuity vs. alternative 

options 

• Spousal and other dependent needs 

Helping individuals make annuitization or other retirement income decisions requires an 

education process that begins to build awareness of the need to plan ⎯ and potential options ⎯

well before the point of decision at retirement. We are supportive of rules that would require that 

participant quarterly benefit statements include an illustration of the level of guaranteed lifetime 

retirement income that could be purchased by a participant’s accumulation account balance. 

Our experience strongly suggests that participants respond positively when they receive written 

education materials, hard copy and / or Web-based, well in advance of the decision-making event 

(throughout employment and at retirement). Moreover, these communications should be keyed 

to more universally understood reading level and make use of easy-to-understand graphical 

representations like comparative tables, charts, etc. Participants also benefit from online easy-touse modeling / calculator tools. 

Even these communication and education resources can be enhanced. In order to make a fully 

informed and personalized decision, participants should also have access to counseling by trained, 

objective counselors using sophisticated, proven technology and methodologies. Finally, 

participants should have an opportunity for a final suitability review. 

Our experience further suggests that only a joint effort on the part of sponsors, benefit servicers 

and payroll providers can ensure that participants have access to all the information they need to 

better understand the relative merits of their options as they relate to their individual 

circumstances. This should include a comprehensive view of all the potential sources of 

retirement income (including Social Security and pension plans) and should not be limited to the 

defined contribution plan. 
ING Insurance U.S. 

24

Currently, few sponsors offer lifetime income options in their plans’ investment lineups, and as a 

result, there is little-to-no emphasis on educating participants during the time they accumulate 

their savings. As a result, most participants are not presented with the information they need to 

make the annuitization decision until retirement, at which point they have the option to either stay 

in plan or rollover to an investment vehicle outside the plan. 

As more predictable, portable, competitively priced life-income options become available ⎯ and 

more sponsors include them in their investment lineups ⎯ the industry can do more to effectively 

educate and advise participants. 

ING recommends that new standards be considered for plan communications. Education should 

be crafted according to the principles of adult learning theory and in consideration of the many 

behavioral and emotional “roadblocks” that many individuals have about making situationappropriate financial decisions. These documents should also have clear guidelines about what 

information must be included, in order to assure that individuals who may be overwhelmed by 

prospectuses and technical information still receive the information they need to make lifeappropriate decisions. 

Currently, there is little-to-no emphasis on educating participants during the time they accumulate 

their savings even among those sponsors who do offer these. As a result, most participants are 

not presented with the information they need to make the annuitization decision until retirement, 

when they have the option to rollover to an investment vehicle outside the plan. Considering the 

“income generating” aspect of the DC investment should be an integral part of plan 

communications and messaging beginning with enrollment and continuing throughout the length 

of plan participation (and eligibility for non-participants). 

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 outof plan option? 

Yes, we believe there is a need for some guidance and clarification on the matter of plan assets 

being used to pay for participant information. 

ERISA Section 401(c)(1) states that the assets of a plan shall be held for the exclusive purposes 

of providing benefits to participants in the plan and their beneficiaries, and defraying reasonable 

expenses of administering the plan. Similarly, ERISA Section 404(a)(1)(A) provides that a 

fiduciary shall discharge his duties with respect to the plan solely in the interest of the participants 

and beneficiaries for the exclusive purpose of providing benefits to participants and their 

beneficiaries, and defraying reasonable expenses of administering the plan. 

In advisory opinion guidance the DOL has frequently noted that a decision on whether to pay a 

particular expense from plan assets is a fiduciary act governed by ERISA’s fiduciary 

responsibility provisions. 

As such, in order to use plan assets to pay for the expense of providing information to aid 

participants in selecting an in-plan or an out of plan lifetime income option, a plan fiduciary 

would need to conclude that incurring that sort of an expense would be consistent with ERISA – 

that the expense was a reasonable one to effect plan administration and was incurred for the 

purpose of providing benefits to participants and their beneficiaries. 
ING Insurance U.S. 

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Information Bulletin 96-1 helps to provide a basis for reaching a fiduciary conclusion that the 

provision of financial educational materials may be consistent with ERISA’s exclusive purpose 

rule. The Bulletin recognizes “the importance of providing participants and beneficiaries, whose 

investment decisions will directly affect their income at retirement, with information designed to 

assist them in making investment and retirement-related decisions appropriate to their particular 

situations”. The Bulletin then goes on to describe various categories of educational materials that 

a plan might provide to participants. 

Unfortunately, the categories of educational materials that the Bulletin describes do not mention 

lifetime income payment options. The Bulletin describes two categories of educational material: 

• Plan Information (information and materials that inform a participant or beneficiary about 

the benefits of plan participation, the benefits of increasing plan contributions, the impact 

of preretirement withdrawals on retirement income, the terms of the plan, or the operation 

of the plan; or information on investment alternatives under the plan such as descriptions 

of investment objectives and philosophies, risk and return characteristics, historical return 

information, or related prospectuses); and 

• General Financial Information (information and material that inform a participant or 

beneficiary about general financial and investment concepts, such as risk and return, 

diversification, dollar cost averaging, compounded return, and tax deferred investment; 

historic differences in rates of return between different asset classes based on standard 

market indices; effects of inflation; estimating future retirement income needs, 

determining investment time horizons and assessing risk tolerance). 

Because participant income at retirement will be affected not just by the investment decisions 

made during the account’s accumulation phase, but also by the decision to purchase or to forego a 

guaranteed lifetime income product, the Bulletin would be improved by the addition of new 

language to the Plan Information and the General Financial Information descriptions that would 

extend to guaranteed lifetime income options. 

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? 

Plan sponsors remain concerned about the potential liability that might accompany efforts to 

educate participants on the advantages and disadvantages of lifetime income arrangements. These 

concerns could be addressed by regulatory guidance, such as the expansion of the Interpretive 

Bulletin 96-1 described in our response to question 18, above, that would clarify the guaranteed 

lifetime income concepts and include them as part of participant educational efforts. 

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? 

 

The availability of sound, easy to understand educational material is core to the successful 

operation of a participant directed defined contribution plan. Unfortunately, the educational 

materials available to most participants today focus almost exclusively on the plan’s investment 

options. The topic of how to preserve one’s accumulated account balance through guaranteed 

lifetime income products is given comparatively short shrift or, in many cases, ignored altogether. 
ING Insurance U.S. 

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That dynamic – the focus on investment products to the exclusion of guaranteed lifetime income 

products – is not in the best interests of plan participants who need to better understand how to 

preserve their retirement savings and make sure that it lasts for an adequate period of time in 

retirement. 

For that reason, we support rules that would require that participant quarterly benefit statements 

illustrate the level of guaranteed lifetime retirement income that could be purchased by a 

participant’s accumulation account balance. We also support enhanced educational materials for 

participants during the accumulation phase of their savings cycle as described above. 

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? 

Simply put, we believe the answer to this question is “yes.” For many years, defined contribution 

plan participants have focused almost exclusively on the amount of their account balance, with 

little focus on what is at least as important an issue: how long can I expect my accumulated 

account balance to last in retirement? 

The overriding purpose of defined contribution plans is to ultimately provide participants with the 

means to retire. Yet the focus on account balances and the exclusion of considering how long 

those account balances will last has led to a negative result: increasingly we hear stories of 

retirees who mistakenly believed they had adequate means to retire, but who then outspent or 

outlived their savings. 

The focus on account balances can sometimes lead to an illusion of great wealth. Translating 

those account balance amounts into a stream of guaranteed lifetime income benefits tends to elicit 

a more sober and realistic appraisal of retirement readiness. 

Even where plans do not offer annuity options, illustrating the amount of guaranteed lifetime 

income that can be purchased provides a much more complete assessment of retirement readiness. 

We believe seeing that illustration on a regular basis during the course of a career can assist 

participants in gauging the adequacy of their contribution levels and when it would be most 

appropriate to retire from the workforce. Our research has shown that individuals are motivated 

to address their retirement needs when they are presented with personalized information that is 

relevant to their personal retirement picture. 

Providing an illustration of estimated income in retirement encourages better consideration by 

participants of their current savings and investment strategy and how they translate to a 

sustainable retirement income stream. Our experience strongly suggests that targeted, 

individualized communications, starting with benefit statements, can drive positive participant 

action. 

Our work with participants tells us many savers are ready for and open to making positive 

changes to improve their retirement strategies when the right product, features and information is 

presented to them in a clear, succinct, personalized and engaging way. In fact, we have seen 

response rates as high as 35% in targeted participant education campaigns focused on retirement 

readiness and the need to close the gap between replacement income needs and the resources 

available to meet those needs. 
ING Insurance U.S. 

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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 survivortype annuity, or both? 

We think that the simplest and least complicated approach would be to express lifetime benefits 

using the same basic methodology that the Social Security Administration uses to estimate 

benefits on its annual statement. 

The benefit statement illustration should display an annual pre-tax life-only annuity income 

amount in terms of today’s dollars assuming no more contributions, with income beginning at the 

Social Security Normal Retirement Age and increasing annually at a projected inflation rate. 

This approach would indicate the level of standardized retirement income benefit that has been 

accumulated to date for the participant. 

 

In addition, a projection based on the assumption that plan contributions continue at current levels 

could be shown. Benefits should be shown for a single life and for joint lives (non-reducing) 

assuming a spouse of the same age. This amounts to four projected benefit amounts: 

 Age 67 Ages 67 

 Single Life Joint Lives

No additional contributions $10,000 $7,000 

Continued contributions $30,000 $21,000 

This illustration and method of displaying it would provide participants with a concrete, 

understandable baseline measure of the “income value” of their accumulated benefits. At the 

same time, the administrative burden of producing the illustration would be minimal since only 

three data elements would be needed for each participant: age, account balance and current 

contribution level. 

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 a source (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? 

In order to accomplish the goal of providing a simple and easy-to-read benefit statement that 

converts a participant’s accrued retirement assets into a lifetime income stream of payments, three 
ING Insurance U.S. 

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key data elements of age, balance, and contribution level, are required. In addition to those three 

data elements, we recommend using the following assumptions for this calculation: 

• An assumed net growth rate to be applied to the participant’s account balance from the 

present to the date of Social Security normal retirement age. 

• Mortality rates, interest rate, and inflation rate assumptions for determining the initial 

annuity income amount at the date of attaining the Social Security normal retirement age. 

The interest rate assumption should reflect an expense load in order to come as close as 

possible to reflecting the guaranteed lifetime income benefits available for purchase in the 

marketplace. 

• An assumed inflation rate for the period prior to attaining the Social Security normal 

retirement age to help assure that the level of benefit being illustrated is shown in today’s 

dollars. 

We suggest that these assumptions be consistently applied across plans and updated annually. 

Standard forms of disclosures and caveats should also be prescribed to underscore for participants 

that the levels of income illustrated are merely an estimate and that the actual level of benefits 

available at retirement may vary materially from the levels projected. The assumptions 

underlying the projections should be available to participants in a manner similar to the 

assumptions underlying Social Security benefit projections. 

24. Should an individual benefit statement include an income replacement ratio (e.g., the 

percentage of working income an individual would need to maintain his or her preretirement standard of living)? If so, what methodology should be used to establish 

such a ratio, such as pre-retirement and post-retirement inflation assumptions, and 

what are the impediments for plans to present the ratio in a meaningful way to 

participants on an individualized basis?

We believe that determining a participant’s optimal income replacement ratio tends to be a highly 

personalized exercise. Factors that can materially affect the calculation can vary considerably 

from one individual to the next. For that reason, we do not think it would be appropriate to 

suggest or illustrate an income replacement ratio to a participant on a benefit statement. 

Income replacement need determinations include: 

• Taking into account anticipated reductions in expenses following retirement. These might 

include reduced income tax burdens, and the expense of saving for retirement. 

• Estimating any anticipated increases in expenses following retirement, especially health 

care and health care insurance costs. 

• Desired retirement age. 

• Marital status and the level of need of dependents. 

• Lifestyle considerations, including how active a retirement is planned for and the expense 

considerations that accompany those activities. 

• Other forms of retirement income that might be available to the participant. 

Our direct, daily experience and our research strongly indicate that participants will need help in 

identifying factors and information; deciding if an annuity is a sound investment for their 

circumstances; and, if it is, determining what portion to annuitize. 

Helping individuals estimate their income replacement ratio need requires a communication 

process that begins to build awareness about the need to plan ⎯ and the potential options 

available to them ⎯ well before the point of decision at retirement. 
ING Insurance U.S. 

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We believe this education must be jointly supplied by sponsors, benefit servicers and payroll 

providers alike. 

We also believe strongly in working with a trusted financial professional. Retirement planning 

by nature is a complex and daunting process. For many participants, some form of professional 

planning and decision-making advice can help them to better prepare a sound strategy that 

incorporates and properly accounts for lifetime income needs. 

25. How do the 401(k) or other plan qualification rules affect defined contribution plan 

 sponsors' and participants' interest in the offering and use of lifetime income? Are 

 there changes to those rules that could or should be made to encourage lifetime 

 income without prejudice to other important policy objectives? 

General Impact of Survivor Annuity Requirements

It is our position that the rules underlying Internal Revenue Code Sections 401(a)(11) and 417 – 

which address the survivor annuity requirements and the notice and consent rules - introduce a 

significant and unfortunate degree of complexity to the administration of qualified plans that offer 

annuities. To illustrate their complexity, we have summarized the relevant sections below, which 

provide the following: 

• That the normal form of benefit for a participant who does not die prior to his or her annuity 

starting date under a defined contribution plan (except for a plan that satisfies the profit 

sharing exception discussed below) is a Qualified Joint and Survivor Annuity (QJSA). A 

QJSA is an annuity for the participant with a survivor annuity of at least 50% for the 

surviving spouse. 

• The normal form of benefit for a participant who dies prior to his/her annuity starting date 

(under a plan subject to the survivor annuity requirements) is a Qualified Pre-retirement 

Survivor Annuity (QPSA), which also provides a survivor benefit of at least 50% to the 

surviving spouse. 

• Beginning with plan years beginning on or after December 31, 2007, plans subject to the 

survivor annuity requirements must also provide for a Qualified Optional Survivor Annuity 

(QOSA). Here, if the plan has a QJSA survivor benefit that is less than 75% of the benefit 

payable for the joint lives of the participant and spouse, the plan must also offer an optional 

annuity with a survivor benefit of at least 75%. If the plan has a QJSA at 75% or more, it 

must offer a QOSA at 50% survivorship. 

• A participant may waive the QJSA/QPSA benefit form during an applicable benefit period 

and select an alternate form (e.g. lump sum, installments, optional annuity form); however the 

spouse must consent to this waiver. Spousal consent is also required for loans and hardship 

distributions. The waiver and consent form signature must be witnessed by a plan 

representative or notary public. The waiver may be subsequently revoked. 

• A written explanation of the qualified joint and survivor annuity (J &S notice) must be 

provided to a participant not more than 180 days prior to the annuity starting date. This 

notice must explain the terms and conditions of the QJSA, the right to waive the QJSA and 

the conditions for such waiver, the rights of the spouse, and the right for a revocation. In 

addition, the plan must provide an explanation of differences in settlement choices along with 

the relative financial impact of each option, exact quotes upon request. A waiver of the QJSA 

rules is not valid unless this notice is provided. 

• A written explanation of the qualified pre-retirement survivor annuity (QPSA) must be 

provided to participants generally between the ages of 32 and 35, or following the 

participant’s separation from service if earlier. A waiver of the QPSA may be made after age 
ING Insurance U.S. 

30

35, provided the spouse consents in writing. A plan may permit a waiver of the QPSA before 

age 35 but it becomes invalid at age 35 and a new waiver and consent period must be 

provided. A plan may also permit the spouse to choose an alternate benefit form after the 

participant’s death. 

• Profit sharing plans (most 401(k) plans are designed as profit sharing plans) can avoid the 

survivor annuity (QJSA/QPSA) requirements if they meet certain requirements. These 

include a requirement to deem the participant’s spouse as the 100% beneficiary in the event 

of the participant’s death (note the QJSA/QPSA rules only require 50% survivorship). In 

addition, any form of lifetime annuity cannot be elected (either under the terms of the plan or 

the participant chooses not to). Where these requirements are met, the plan may offer a lump 

sum instead of a QJSA as the normal form of benefit. Note, however, that under this 

exception, any assets transferred from a plan that is subject to the J&S rules, remain subject 

to these rules following the transfer to the exempt plan. 

Administrative Issues

The notice and consent requirements for both QJSA and QPSA are extremely cumbersome and 

complex. It is often extremely time consuming and costly for employers to comply with these 

rules. Failure to fully comply raises qualification concerns and can be financially burdensome to 

correct. 

The issues inherent in notice and consent administration include: 

• Cost and increased administrative processes around ensuring that each participant receives 

the required notice within the required timeframe. 

• The content requirement of the required notice is excessive making the notice difficult to 

understand for participants and beneficiaries. 

• Securing spousal consent and proper notarization. 

• QPSA rules require an additional notice and a new waiver after age 35. 

As a result of these administrative complexities, most 401(k) plans have sought to come within 

the requirements of the profit sharing exception by altogether declining to offer annuities. Note 

that one of the requirements for the exception is that the participant cannot elect any type of 

lifetime annuity. The easiest way to avoid the additional expense associated with issues related to 

the administrative burden is to not offer annuities under the plan. 

These administrative complexities are in conflict with the objectives of plan administrators who 

are seeking to operate more efficiently and, increasingly, who are seeking to replace paper-based 

administration with procedures that are electronic. 

DOL and IRS rules accommodating electronic delivery of notices and consent, however, as 

currently written, explicitly exclude situations where spousal consent is required.

In order to help overcome these impediments to the inclusion of guaranteed lifetime income 

options, we are urging: 

• Simplified notice requirements. Placing general information on participant statements with a 

phone number to call or a website to go to for specifics or exact quotes would substantially 

alleviate the burden that now accompanies the lengthy notice and waiting period. 

• Simplified content requirements for providing the information to participants who call or go 

to the website. 

• The elimination of the age 32-35 notice and consent period rule for QPSA. A prior election 

should not automatically become invalid at age 35. 
ING Insurance U.S. 

31

Permit spouses to have a pin that can be used to provide spousal consents electronically. 

Allow spouse to certify electronically that he or she has read and understands J&S form and 

to also consent to distribution. 

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?

Possible Changes to QJSA and QPSA Rules.

Yes. We believe that the QJSA notice and spousal consent requirements have become antiquated 

and would benefit from streamlining and updating to make them compatible with electronic 

administration. 

• The notice requirements should be simplified or replaced altogether with a simple notice that 

would appear on participant statements containing a phone number to call and a website to 

contact for specifics or exact quotes. 

• Spouses should be assigned a PIN in order to facilitate the delivery of spousal consents 

electronically. The spousal certification that he or she has read and understands J&S form and 

to consent to an alternative form of distribution should be permitted to be delivered through 

electronic means. 

The age 32-35 notice and consent period for QPSA serves no useful purpose yet is extremely 

burdensome. We think it should be eliminated. It makes little sense to invalidate otherwise valid 

elections simply because a participant has attained the age of 35. 

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? 

It is our position that for plans subject to the QJSA notice and consent rules, care must be taken to 

follow the rules at the time of a distribution election. In contrast, where a plan permits the accrual 

of guaranteed lifetime income benefits gradually, during accumulation, comparable notice and 

consent rules do not apply during the accumulation period. 

Generally, in-plan annuity designs that permit the accumulation of benefits over time with 

increasing contributions and earnings come with surrender rights. An individual who accumulates 

a certain level of benefit has the ability to surrender that benefit and to transfer the resulting 

surrender proceeds to one or more of the plan’s alternative investment options. 

The policy question that arises in these arrangements relates to whether spouses are deserving of 

rights and protections at the point of distribution, and whether those same rights are present and 

deserving of protection during accumulation. A related, countervailing consideration has to do 

with permitting individual retirement plan participants to exercise control over the investment of 

his or her account balance. The laws governing retirement plans have never suggested that a 

married participant needs to have the consent of his or her spouse in order to make investment 

option elections and changes. In fact, the preservation of individual participant control over 

investment direction has been one of the hallmarks of defined contribution plan design and a 

significant factor in the appeal and success of those plans. 

We would strongly oppose importing QJSA-style consent requirements to in-plan annuity 

accumulation structures. Doing so, would likely and dramatically undermine the potential appeal 
ING Insurance U.S. 

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of those offerings by effectively requiring married participants who contribute to them to 

surrender the individual investment control that they now enjoy. 

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?

We believe that the value of longevity insurance payments should be excluded from the RMD 

rules to encourage participants to purchase longevity protection coverage. 

We also believe that the RMD rules should be modified in situations where a participant has an 

IRA invested in mutual funds and also has an IRA in annuity form. Under current rules, 

individual retirement annuity payments do not count toward the required minimum distribution 

amount for the mutual fund IRA. This results in excessive annual payments for affected 

participants. The rules should be changed so that the lifetime annuity payments offset the RMD 

requirement for other assets. 

The following example demonstrates how the current RMD rules do not work well for a partial 

annuitization since they penalize an investor with higher RMD requirements: 

• A 70 year-old male with $200,000 in IRA mutual funds has a $7,299 RMD (27.4 year 

distribution period). 

• Should he use $100,000 to purchase an IRA income annuity, the annuity benefit would be 

$8,223 (ING’s 3/10/2010 rates). 

• However, he can not use any of the annuity benefit to offset the mutual funds’ RMD. 

• The $100,000 in IRA mutual funds would have a $3,650 RMD. 

• This would be a total taxed income amount of $11,883. This is a 63% increase in his RMD. 

Accordingly, we believe the RMD rules should be changed so that guaranteed lifetime benefits 

can offset other asset RMDs. For example, one method to accomplish this is to apply the RMD 

uniform table’s life expectancy values to the guaranteed income amount. Continuing the example 

above: 

• Multiply the guaranteed income by the IRS 70 year-old single life expectancy of 17.0 to get a 

present value of $139,961. 

• The combined actuarial present value of his assets are $139,961 + $100,000 = $239,961. 

• The RMD is $239,961 / 27.4 = $8,758. 

• The remaining RMD on the mutual funds is $8,758 - $8,223 = $535. 

Note, this is still an increase in overall RMD relative to not annuitizing. 
ING Insurance U.S. 

33

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? 

Some state and local governments have allowed plan to plan transfers of 457 plan account 

balances to the government’s defined benefit pension plan for purposes of purchasing additional 

retirement credits under the defined benefit program. 

We have not seen an extension of that sort of plan to plan transfer allowance to retirement plans 

sponsored by private employers. 

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 our experience, the relatively small subset of plans that select annuity providers for the purpose 

of making benefit distribution do seek to avail themselves of the 404a-4 safe harbor. The 

challenge is that because 404a-4 is too daunting and too unwieldy for most fiduciaries to satisfy, 

the number of plans willing to embark upon an annuity selection process remains exceedingly 

low. 

For all but the largest and most sophisticated plan sponsors, the bar set by the safe harbor is 

simply too high. Even if a small to mid-size employer was prepared to retain the expertise and 

incur the associated cost attendant with satisfying the “thorough and analytical search 

requirement” that employer would likely be stopped short by the safe harbor requirement that the 

fiduciary “appropriately concludes that, at the time of the selection, the annuity provider is 

financially able to make all future payments under the annuity contract.” This is another good 

example of how the complexities associated with plan administration need to be reduced, 

particularly for small plans in order to encourage more plan creation. 

In considering that component of the safe harbor, a fiduciary is likely to confront the following 

questions: 

• The annuity provider I am interested in appears by all accounts to be financially stable 

and capable of meeting all of its obligations, but what if some future event should call 

that capability into question? With hindsight, will my selection be called into question 

and will I be exposed to financial liability? 

• The operations of large financial institutions are complex. Particularly in the aftermath of 

the financial crisis, numerous questions remain open about how to analyze financial 

strength and capabilities. What am I to do about that? How do I factor those questions 

into my decision-making process? 

• The selection of an annuity provider seems like a no-win proposition for me. Even if I do 

my very best to analyze the costs, strengths and capabilities of various providers and 

make what I think is a good decision for the plan, it seems as though if anything goes 

wrong in the future – even if the event doesn’t happen until many years from now – I will 

be blamed and held responsible for having breached a duty. 

If, as a matter of public policy, we want to encourage the use by plans of guaranteed lifetime 

income options, it is our position that plan fiduciaries must have more robust protections or 
ING Insurance U.S. 

34

complete relief from claims of fiduciary breach. Although the industry has an excellent record of 

meeting obligations to policyholders even in the rare instances where a life insurer has suffered 

financial difficulty, the workings of the state insurance guaranty associations are quite different 

from the federal backstops most fiduciaries tend to use as their frame of reference. The state 

guaranty associations provide non-uniform levels of coverage from state to state. Coverage is 

determined according to state of residency and can change quite dramatically when a person 

changes his principal residence from one state to another. Coverage levels are often difficult to 

understand and insurers are prohibited by law from referring to or otherwise advertising the 

availability of guaranty association coverage in connection with the sale of their products. When 

one considers the potential duration of an annuity contract -- which may provide coverage for 40 

years or more – fiduciaries become worried that the financial strength of a company they are 

comfortable with today may erode over ensuing decades. Ideally, the states would conform their 

guaranty association coverage laws in a way that would promote greater consumer confidence. 

Failing that, we favor a federal backstop that would stand behind the performance of guaranteed 

lifetime income providers in order to provide fiduciaries with the support they need to engage in 

more confident decision-making. 

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?

A number of our plan sponsor customers have expressed a great deal of discomfort with the 404a4 safe harbor. 

Plan fiduciaries seeking to come within the safe harbor are generally seeking a high degree of 

certainty that, when selecting an annuity provider and contract for benefit distributions from an 

individual account plan, they have followed a process that discharges their obligations under 

ERISA Section 404(a)(1)(B) by exercising the care, skill, prudence and diligence under the 

prevailing circumstances that a prudent man acting in a like capacity and familiar in such matters 

would use in the conduct of an enterprise of a like character and with like aims. 

The problem is that is difficult, if not impossible, for a plan fiduciary to satisfy several of the safe 

harbor’s elements with any degree of certainty. The following provisions illustrate this challenge: 

1. Paragraph (b)(2) of the safe harbor requires that the fiduciary “appropriately considers 

information sufficient to assess the ability of the annuity provider to make all future 

payments under the contract.” Annuity providers are life insurance companies that are 

regulated for solvency under state law. As a condition of maintaining a license to do 

business in a particular state, the insurer must file regular reports of its financial condition 

with the state regulators. An insurer will not be allowed to maintain its license in a 

particular state if the commissioner concludes that it is not financially sound. But 

paragraph (b)(2) does not say that a fiduciary must verify that the insurer is licensed to 

conduct an annuity business. Instead, it suggests that other information must be gathered 

and analyzed. Most plan fiduciaries are ill equipped to conduct that sort of an 

independent analysis. Even if an analysis were attempted, few fiduciaries would ever be 

able to conclude that they had made an “appropriate assessment” because no standard or 

criteria for appropriateness is offered. 

2. Paragraph (b)(4) of the safe harbor requires the fiduciary to reach an “appropriate” 

conclusion that, “at the time of selection, the annuity provider is financially able to make 

all future payments under the contract”. Here once again, because the safe harbor 
ING Insurance U.S. 

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requirement does not specify exactly what it is that a plan fiduciary must consider in 

order to reach an “appropriate conclusion” few fiduciaries are likely to find comfort. 

3. Paragraph (b)(5) of the safe harbor requires, when necessary, that the fiduciary consult 

with an appropriate expert or experts for purposes of compliance with the other 

provisions of paragraph (b). For all but the largest and most sophisticated, plan 

fiduciaries, locating, retaining, and consulting with an expert capable of determining the 

financial capabilities of the annuity provider is unlikely. The paragraph is also unclear on 

what qualifications an appropriate expert would have. As a consequence, most plan 

fiduciaries cannot, as a practical matter, ever conclude to any reasonable degree of 

certainty that the safe harbor has been satisfied. 

To facilitate the use of guaranteed lifetime income products by plans and participants without 

compromising the need to protect participants, a federal backstop that would stand behind the 

performance of guaranteed lifetime income providers is needed to provide fiduciaries and 

participants with the confidence they need to commit significant portions of their retirement 

savings to long term guarantees. 

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?

As noted in our responses to previous questions, it is an unfortunate fact that, as currently written, 

the 404a-4 safe harbor strongly discourages the use of annuity products by plans because it is 

difficult if not impossible for most plan fiduciaries to satisfy the safe harbor criteria. 

For that reason, we would oppose extending the 404a-4 safe harbor, as it is currently written, to 

other lifetime annuities or similar lifetime income products. Doing so would effectively shut 

down the in-plan usage of those products. 

On the other hand, if the 404a-4 safe harbor were rationalized and re-written in a manner that 

could be easily and effectively applied by fiduciaries, there would be good reason to broaden its 

scope to extend beyond distribution annuities and to cover lifetime income products that are 

guaranteed. 

Guaranteed lifetime income products, whether provided in the form of a distribution annuity, a 

minimum guaranteed withdrawal benefit, or some other form, all share in-common the promise of 

a specified level of lifetime income. It would be reasonable, therefore, to apply the same safe 

harbor criteria to the prudent evaluation of that guaranteed product. 

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?

As an introduction for our response, we would like to briefly describe how it is that fixed deferred 

lifetime annuities work and how the fixed deferred lifetime annuity structure is being deployed in 
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new ways through target date fund and similar offerings. We will then transition to a discussion 

of the potential uses of these products by 404(c) plans. 

Under a fixed deferred lifetime annuity in-plan offering, each participant contribution directed to 

that investment option will purchase a piece of guaranteed future income. Those future payment 

obligations are typically supported by insurance company general account products. 

These sorts of products typically permit the participant to surrender their investment and to reinvest the surrender proceeds in other investment alternatives offered under the plan. 

 

Fees for these products are embedded in the purchase rates. 

Some recent marketplace activity has involved incorporating an in-plan deferred fixed annuity as 

an asset class within a target date series of funds. Under this construct, each participant 

contribution buys shares of a fund of funds. One of the underlying funds provides guaranteed 

future income. 

Advantages of these products include: 

• Ability to lock-in guaranteed income during accumulation phase or payout in retirement 

• Income amounts expected in retirement won’t be affected by market performance 

• Focuses participants on monthly budgeted payment in retirement rather than a lump sum 

which could provide participants an easier way to plan for retirement as they compare the 

payout amount with their monthly income prior to retirement 

• The nature of the product helps individuals to plan for retirement as they look to achieve 

a comfortable level of monthly income in retirement during the accumulation phase 

• Provider bears the investment risk rather than the participant 

• Dollar cost averaging throughout the accumulation phase rather than risk a point in time 

purchase at retirement which could result in unfavorable pricing 

Disadvantages

• The fee is typically embedded in the return and not explicit to the participant 

• Can be disadvantageous to purchase in a low interest rate environment 

• Access to funds is limited 

• No exposure to the equity markets to participate in potential growth 

• Typically no access to contributions made during the accumulation phase (if there is 

access it is typically associated with fees or penalties) 

• May receive less than premiums paid during income phase if die early on in the income 

phase (assuming no death benefit is offered) 

• The participant is reliant on the providers’ claim paying abilities 

We think it is imperative that participants utilizing these products understand how it is that they 

work. Most importantly, participants need to understand limits on transfer rights and that they risk 

the loss of their benefit base if they do not restrict their investments to particular funds. 

Participants also need to appreciate that excess withdrawals will diminish the benefit base and 

therefore the value of the guarantee. It is incumbent upon the industry to develop products that 

are clear, transparent and comprehensible so that participants will more readily understand and 

take advantage of guaranteed lifetime income opportunities. 

To encourage 404(c) plans to include GMWB-types of investment alternatives in their plans, we 

think it would be sensible to clarify that the transfer restrictions associated with those products –- 

that is, the requirement that participants need to restrict their investments to particular funds and 
ING Insurance U.S. 

37

not exceed prescribed limits in order to maintain the benefit base – are reasonable ones and are 

not inconsistent with the 404(c) requirement that participants and beneficiaries be permitted to 

provide investment instructions with a frequency that is appropriate in light of the market 

volatility to which the investment alternative may reasonably be subject. 

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? 

Within the last couple of years, some providers have developed novel approaches to providing 

guaranteed lifetime income options within a defined contribution plan. Under this new class of 

products, instead of annuitizing the balance at time of retirement, the participant accrues a benefit 

over time, during the accumulation phase and need not ever annuitize in order to receive the 

benefit protection guarantees. 

These types of products are typically referred to as Guaranteed Minimum Withdrawal Benefits. 

Under a typical GMWB structure, the participant builds up a “benefit base” that may exceed the 

market value of his account balance. At retirement the participant is entitled to withdraw a certain 

percentage of this benefit base each year for life. In the event that the market value of the 

participant’s account is exhausted, the insurer will step in and make the payment. 

Recently, GMWBs have been incorporated into target date fund or lifestyle portfolio offerings. 

Among the advantages offered by these are: 

• Income amounts expected in retirement won’t be affected by market performance 

• The nature of the product helps individuals to plan for retirement as they look to achieve 

a comfortable level of monthly income in retirement during the accumulation phase 

• The ability to lock in market gains at different points throughout the accumulation phase 

• Dollar cost averaging throughout the accumulation phase rather than the risk of a point in 

time purchase at retirement which could result in unfavorable pricing 

• Typically don’t have access to the money if need more than the scheduled monthly 

payment during the income phase 

• Continued exposure to the equity markets to maximize growth during the accumulation 

phase 

• Participant has full access to the account value during the accumulation phase and also 

during the income phase to the extent they need to take a withdrawal for an unforeseen 

circumstance 

• If participant dies at any point, the money will be left to the heirs 

The primary disadvantages are:

• May not be easily portable if the plan sponsor chooses to switch recordkeepers 

• Withdrawals in excess of the allowed amount during the income phase will impact the 

guaranteed withdrawal amount in future years 

• The structure of the product is complex and not easily understood. 

We think it is imperative that participants utilizing these products understand how it is that 

they work. Most importantly, participants need to understand limits on transfer rights and that 

they risk the loss of their benefit base if they do not restrict their investments to particular 
ING Insurance U.S. 

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funds. Participants also need to appreciate that excess withdrawals will diminish the benefit 

base and therefore the value of the guarantee. 

To encourage 404(c) plans to include GMWB-types of investment alternatives in their plans, we 

think it would be sensible to clarify that the transfer restrictions associated with those products –- 

that is, the requirement that participants need to restrict their investments to particular funds and 

not exceed prescribed limits in order to maintain the benefit base – are reasonable ones and are 

not inconsistent with the 404(c) requirement that participants and beneficiaries be permitted to 

provide investment instructions with a frequency that is appropriate in light of the market 

volatility to which the investment alternative may reasonably be subject. 

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? 

Some plan sponsors have questioned whether investment alternatives that include guaranteed 

withdrawal rights are eligible for treatment as a QDIA. This has occurred despite the 

Department’s addition in the final regulation of text confirming that “features ancillary” to an 

investment fund product or model portfolio will not cause the product or portfolio to fail to be a 

QDIA. We request that the Department clarify this matter by amending section 2550.404c-5(e) 

(4) (iv) of the final regulation to add “distribution or withdrawal guarantees” to the list of 

ancillary features. 

Some product providers offer investment alternatives with ancillary features only to participants 

who have attained a certain age. There are various reasons for such product design decisions, 

including the fact that younger participants have little need in the short term, and should not be 

charged for, investment and distribution guarantees. Since this design decision necessarily limits 

the availability of an investment alternative only to certain plan participants, it may create a 

separate “benefit, right or feature” that must be subjected to testing under Treasury Regulation 

section 1.401(a)-4 to ensure that it is not currently or effectively available to “highly compensated 

employees” on a discriminatory basis. The potential burden to plan sponsors of additional 

nondiscrimination testing is an impediment to the availability of investment products with 

ancillary features. This burden is unreasonable if the need for testing is prompted by the design 

decision of a product provider unmotivated by any desire to favor highly compensated 

employees. We request that the Internal Revenue Service/Treasury Department clarify this matter 

by amending section 1.401(a)-4 to disregard age conditions with respect to any form of 

investment that includes guarantees or lifetime income features in determining the employees to 

whom a benefit, right or feature is currently available. 

Since qualified default investment alternatives typically have to be adequately diversified, it may 

need to be clarified whether or not the guarantee portion of the option is adequately diversified 

given there is only one company responsible for paying the claims in the event that the account 

value is eroded by poor market performance. 
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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. 

Generally, the employer’s overriding goal is to sponsor a plan that will advance its business 

objectives of attracting and retaining a skilled and qualified workforce by providing employees 

with means to save and attain a secure retirement through participation in the plan. Balanced 

against that objective are cost considerations – pure and simple. At the end of the day, employers 

tend to weigh the retirement security advantages of a particular design feature against the 

potential costs that accompany that feature. Plan features that tend to be selected are those that 

present obvious advantages relative to disadvantages. 

The advantages of guaranteed lifetime income options as promoters of retirement security goals 

are clear and obvious. The problem is that when employers evaluate the potential costs that 

accompany selection of those options, more often than not, they come to the conclusion that costs 

outweigh the benefits. 

But it doesn’t have to be that way. Many of the disadvantages that currently impede employer 

selection of lifetime income options are a by-product of fiduciary risk and administrative burden. 

Below, we will discuss a number of smart, sensible and effective policy measures that, if 

implemented, stand to dramatically reduce the current levels of embedded costs that crop up in 

employer considerations of lifetime income options. By making intelligent changes to the 

regulations governing plans, it is possible to change the cost/benefit dynamic so that the decision 

to offer lifetime income options in-plan can be weighed on a scale that is more balanced and less 

heavily weighted toward the disadvantages. 

(a) Fiduciary Liability Risk. It is difficult, if not impossible; to overstate the high level of 

fiduciary liability cost that currently weight against and impedes lifetime income option 

selection. The Department of Labor’s 2008 clarification that the safest available annuity 

standard does not apply to defined contribution plans was an extremely positive first step 

to reducing the magnitude of the fiduciary liability impediment, but additional guidance 

is needed. 

First and foremost, it is imperative that regulatory guidance be developed and 

promulgated under which plan sponsors would be allowed to enjoy the same fiduciary 

protections with respect to participant selection of guaranteed lifetime income options 

that they now enjoy under the Section 404(c) regulations with respect to participant 

selection of accumulation investment options. Under a 404(c) plan, plan sponsors and 

fiduciaries are shielded from any potential liability that might otherwise arise from the 

investment results resulting from a participant’s exercise of investment control over his or 

her account balance. A similar construct could and should be developed under which 

participant’s would be provided information about the features and risks of a broad range 

of lifetime income options. With the proviso that plan fiduciaries remain responsible for 

the prudent selection and monitoring of the lifetime income option products, it should be 

made absolutely clear that the plan sponsor and fiduciary will be insulated from any 

downstream liability for the results of a participant’s choice. 

The potential fiduciary liability that beleaguers so many plan sponsors can be summed up 

rather easily: What, plan sponsors worry, will happen to me and my business, if the 

guaranteed lifetime income provider I prudently select today fails to perform by reason of 

financial impairment some ten or twenty or thirty years down the road? It is simply not a 

reasonable or logical construct to ask plan sponsors to assume the risk that they might be 
ING Insurance U.S. 

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called upon to effectively indemnify participants who purchase lifetime income options 

through their own exercise of account balance control. This does not mean to suggest that 

participants should be left on their own and without recourse in the event of provider 

failure to perform. Rather, we would suggest that participants who have made a 404(c) - 

like selection of lifetime income options, providers should seek recourse through the 

same, robust sets of consumer protections that are available to participant’s who purchase 

lifetime income vehicles outside of the plan. 

In addition, it is vital to clarify the rules of the road that should apply to the prudent 

selection of guaranteed lifetime income provider. The provider selection criteria under 

the 404a-4 Regulations are too vague and too daunting for most plan fiduciaries to 

navigate or gain comfort from. The Regulations carry an implicit suggestion that in order 

to be prudent, a plan fiduciary must somehow acquire expert knowledge of the financial 

condition of various providers. Since acquisition of that level of knowledge is beyond the 

reasonable capabilities of most employers, the effect of the Regulation is to impede 

lifetime income product selection. 

In order to make in-plan usages of guaranteed lifetime income options a success, it is 

essential that the fiduciary liability associated with the selection of a provider be 

substantially mitigated. To make that happen, the development of a more robust and 

uniform state insurance guaranty association coverage structure would be optimal. As an 

alternative to that, the industry and the government should also explore a federal 

government backstop that would stand behind the performance of guaranteed lifetime 

income providers in order to instill greater confidence in fiduciaries and participants that 

annuity payment obligations will be made even if there is a change in an insurers 

financial circumstances in the years and decades following its selection. 

(b) Costs of QJSA Administration. Second to fiduciary liability, the costs associated with the 

administration of lifetime income options need to be reduced. The use of electronic 

means of QJSA administration is needed to promote efficiencies and reduce costs. 

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? 

The 404a-4 annuity selection safe harbor is one that is extremely difficult to satisfy even for 

fiduciaries of the largest and most sophisticated plans. For fiduciaries of smaller plans, the terms 

of the safe harbor are effectively impossible to satisfy. 

To take advantage of the safe harbor, a small plan fiduciary is generally obligated to retain a 

knowledgeable expert to assist in an investigation of the annuity provider’s financial strength and 

capability to make all future payments under the contract. The costs of satisfying that requirement 

are too great for all plans, but are particularly overwhelming for small plans. 

What smaller entities need is a safe harbor that is not only protective of the interests of plan 

fiduciaries and beneficiaries but is also straightforward, simple to understand, and capable of 

being satisfied with reasonable effort and diligence. 

The very mission of state insurance regulators is to make sure insurance companies operate on a 

financially sound basis. If needed, the state insurance department will immediately step in if it 

appears that an insurer will be unable to fulfill the promises made to its policyholders. These 
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actions include taking over the management of an insurer through conservation or rehabilitation 

order, the goal being to get the insurer back into a strong solvency position. 

State regulators have numerous actions they can take to prevent an insurer from failing. Claims 

from individual policyholders are given the utmost priority over other creditors in these matters - 

and, in the unlikely event that assets are not enough to cover these claims, there is still another 

safety net in place to protect consumers: the state guaranty funds. These funds are in place in all 

states. If an insurance company becomes unable to pay claims, the guaranty fund will provide 

coverage, subject to certain limits. 

Strict solvency standards and keen financial oversight - based on conservative investment and 

accounting rules - continue to be the bedrock of state-based insurance regulation. 

A key policy question that the Agencies need to confront can be summed up as follows: 

At present, the language of the 404a-4 safe harbor suggests that defined contribution plan 

fiduciaries must somehow act as a “super regulator” of life insurance company distribution 

annuity products by independently evaluating the solvency of the company and reaching a 

conclusion about the company’s ability to meet its payment obligations many years into the 

future. That requirement does not serve the interests of plan participants and beneficiaries who 

need the protections that guaranteed lifetime income products offer. Instead, it succeeds only in 

obstructing and blockading the use of those products. If the use of guaranteed lifetime income 

products by plans is to be encouraged, then the safe harbor must be changed and it is essential 

that the fiduciary liability associated with the selection of a provider be substantially mitigated. 

To make that happen, the development of a more robust and uniform state insurance guaranty 

association coverage structure would be optimal. As an alternative to that, the industry and the 

government should also explore a federal government backstop that would stand behind the 

performance of guaranteed lifetime income providers in order to instill greater confidence in 

fiduciaries and participants that annuity payment obligations will be made even if there is a 

change in an insurers financial circumstances in the years and decades following its selection. 

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?

Without making the changes we have suggested above, we believe establishing a lifetime income 

product as the default form of benefit payment would be unlikely, in and of itself, to materially 

influence the rate of employee plan contributions. 

In our retirement services business, we have not noticed significant differences in the contribution 

levels between similarly situated 401(k) plans that offer a QJSA as the normal form of benefit and 

those that do not. 

We also have seen instances where state and local government plans offer defined contribution 

plans that encourage through default or mandate that a significant percentage of retiree account 

balances be paid in the form of annuity. Notwithstanding those features, participant contribution 

levels have remained quite robust. 
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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?

The data required to respond to question no. 39 is not readily available.