400 Howard Street

P.O.Box 7101

San Francisco, CA 94105

BLACKROCK

May 3, 2010

Filed Electronically

Office of Regulations and Interpretations

Employee Benefits Security Administration

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Attention: Lifetime Income RFI

Dear Madam or Sir:

BlackRock, Inc. is pleased to offer its comments regarding the joint request by the

Department of Labor and the Department of Treasury (the "Agencies") for information

on lifetime income options for participants and beneficiaries in retirement plans. The

purpose of the request for information ("RFI") is to solicit the views of various

retirement industry participants on whether enhancements or changes should be

made to the Employee Retirement Income Security Act ("ERISA") and/or the plan

qualification rules under the Internal Revenue Code ("Code") that would facilitate

access to, and use of, lifetime income arrangements for participants in employersponsored retirement plans and individual retirement arrangements ("IRAs").

BlackRock is one of the world's largest investment management firms, managing

over US$3 trillion on behalf of institutional and individual clients worldwide through a

variety of equity, fixed income, cash management, alternative investment and

advisory products. At December 31, 2009, it managed over US$275 billion for US

defined contribution (DC) plans.

Lifetime income arrangements, which are important for DC plan participants'

retirement outcome, are most likely to be an insurance product such as annuities.

BlackRock does not support requiring DC plan sponsors to include annuities or any

other lifetime income products in their plan, nor do we support mandatory

annuitization for plan participants. We believe that such requirements in DC plans—

which are completely voluntary-- could discourage employers from sponsoring DC

plans or employees from participating, resulting in even less preparedness for

retirement. In additions, some companies maintain both a defined benefit (DB) plan

and a DC plan, with the DB plan providing the annuity/lifetime income so such a

requirement would be unnecessarily duplicative. We also urge caution that any

legislative or regulatory changes that may result from this RFI take into account the

evolving nature of lifetime income solutions and thus retain flexibility for future

innovations.
BlackRock supports making the decision by plan fiduciaries to include annuities or

other lifetime income solutions in DC plans easier (including through more clarity on

fiduciary responsibility). We also support making lifetime income solutions more

accessible to the average plan participant. Providing clear guidance to plan

sponsors will make it easier for them to adopt solutions that provide increased

transparency, ease of transfer from the plan to an individual and the continuation of

employee choice.

Background 

For large numbers of Americans on the doorstep of retirement, 401(k) accounts and

IRA savings are expected to be second only to personal real estate holdings as a

source of wealth at retirement. However, as DC plans have increased in importance,

DC plan investment options have failed to keep up. With the exception of target date

funds, there have been few products developed for the DC marketplace that are

designed to address both the average participants' lack of investment expertise and

the increased importance of DC plans on participants' retirement outcome.

In particular, participants need DC investment strategies designed to manage three

critical risks: asset allocation, inflation and longevity. Existing target date funds can

capably manage asset allocation risk and they provide some inflation protection.

However, they fall short of managing longevity risk effectively. Lifetime income

arrangements, properly structured, are key to managing longevity risk.

There are several reasons lifetime income has become a scarce resource: the

demise of DB plans, the rise of DC plans, and growing uncertainty of Social Security.

Concerns about future health care expenses also drive DB plan participants to take

lump sums. Today, the most accessible source of lifetime income for individuals are

insurance based products, but few DC plans offer them, and many insurance

products haven't evolved to directly address the needs of DC participants. Retail

insurance products usually include a complex set of benefits that have a large

degree of embedded optionality to provide buyers with future choices in the particular

form of income benefit they wish to take. Some of these choices can be very

complex. For instance, a high-water mark feature commonly found on insurance

products depends on complex interactions between levels of market volatility and

return, the buyer's birthday and the initial funding level of the policy itself. Since

insurance products are sold primarily by insurance agents, it's assumed that a

knowledgeable agent will guide the consumer to the best choice. Unfortunately, DC

participants typically do not have the expertise nor the access to a knowledgeable

sales agent to help them understand these complex benefit structures.

Another reason lifetime income products have not gathered large assets in DC plans

is that the annuity purchase decision has been problematic for individuals. There is a

trade-off between the income security provided by the annuity and the loss of control

over the assets. A fairly priced annuity offer participants the opportunity to obtain

lifetime income at attractive prices. Such an annuity consists of a series of mortalitydiscounted payments that begin on the exercise of the annuity and continue until the

annuitant dies. For far-dated cash flows, the price is much cheaper than buying the

cash flows through a zero-coupon bond ladder. However, once the buyer exercises

the annuity and begins receiving payments, they cannot easily get a return on their
capital and can only get the promised annuity payments. Therefore, if the buyer dies

before the average life expectancy, the individual overpaid for the annuity. To be

effective in DC plans, annuities must provide additional options to address the

concern over loss of control and the risk of overpaying. Important options to consider

are a "period certain" feature which means the annuity will continue to pay, at a

minimum, a fixed number of years to the annuity buyer or a designated beneficiary.

Or the annuity can provide for joint survivorship, which provides lifetime income to

both the buyer and another person, such as a spouse.

Despite historical resistance by DC participants, the recent financial crisis, combined

with the growing importance of DC plans in providing retirement outcomes, have

helped to change participant demand for lifetime income options. In a recent study

conducted by BlackRock and the Boston Research Group, of the 401(k) participants

surveyed 9% would like to receive a lump sum pay out in retirement, while 57%

would like to receive a steady stream of income and 34% would prefer a little of both.

The majority of those surveyed express a need for an income option in retirement

and it is important for the industry to address this need with a simple and flexible

solution that allows for both lump sum and steady stream payment options.

Income Accumulation Fund

The RFI requests information on the types of annuity products which are currently

available, including specifically whether there are such products that permit plan

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

issuer. BlackRock is the innovator of such a product, which we call SponsorMatch .TM

This is an income accumulation fund that combines the features of a target-date fund

with the gradual accumulation of managed annuities. The fixed income allocation of

a traditional target-date fund is replaced by a managed annuity. Each SponsorMatch

portfolio provides market participation through an Investment Portfolio of equity and

equity-like instruments, and secures retirement income through an Income Portfolio

that includes deferred fixed income annuities managed by insurance companies.

Like a target-date fund, the SponsorMatch portfolios become increasingly

conservative over time, gradually allocating more assets to the Income Portfolio as

the investors' anticipated retirement date approaches. SponsorMatch qualifies as a

QDIA investment option under relevant Department of Labor regulations.

SponsorMatch uses an unallocated group contract for the managed annuity,

meaning the participants do not hold the annuity directly until fund maturity. 1 This

provides several advantages: the plan participant can transact in the income

accumulation fund just like other DC options, without paying a charge for changing

allocations to the annuity itself; the insurers' administrative costs are less than that of

an allocated annuity (and these savings can be passed to participants) and the asset

Some insurance companies offer deferred income annuities to DC plans. but because they are

allocated annuities, they attach to individuals at the time of purchase. Allocated annuities generally

have higher fees than unallocated annuities.
manager is able to harness its institutional scale and expertise to the purchase (and

sale) of the managed annuity.2

The income accumulation fund is designed to mature and distribute a significant

portion of its assets at the beginning of the year in which participants are expected to

turn 65. Participants may then elect whether they want to either (i) have the amount

distributed in a taxable lump sum cash distribution or (ii) roll the amount distributed

directly into specified rollover IRA accounts and/or annuity contracts qualified under

Section 408(a) or 408(b) of the Code. 3 Assuming it is permitted under the terms of

the plan, if participants do not provide affirmative instructions regarding the

disposition of their assets at maturity, the value of the participant's interest will be

converted into rollover group annuity contracts qualified as 'individual retirement

annuities': under Section 408(b) of the Code. Alternatively, plan participants typically

have the option (if permitted by the plan) to reallocate any assets they have invested

into another plan investment option prior to the fund's maturity.

SponsorMatch provides the following annuity advantages:

- Institutional pricing: BlackRock-negotiated group annuity contracts provide

pricing that would be impossible for individuals to achieve on their own

- Transparency: Single investment management fee

- Group policy: Easier to implement for plan sponsors and record keepers,

compared to the challenge of maintaining individual accounts and policies

- No transaction costs: No surrender fee with group annuity compared to

potentially high surrender charges in traditional deferred annuity contracts

- Diversified interest rate risk: Annuities are purchased over an extended period of

time, seeking to hedge retirement liabilities and produce "dollar-cost-averaging"

benefits and lessen the risk of time-specific interest rates experienced

Fiduciary Issues for "In-Plan" Annuity Options

In deciding whether to make a lifetime income option, such as an annuity, available

to its plan participants, a plan fiduciary must evaluate what additional fiduciary

responsibilities this might entail. While the Department of Labor has provided some

guidance (cite) on the factors to be considered in the choice of annuity providers,

concerns about the responsibility in choosing an annuity provider, and potentially

monitoring that insurer through the life of a participant/annuitant, creates a

disincentive for a number of plan sponsors. Even when another fiduciary, such as an

asset manager, undertakes responsibility for selection and monitoring, plan sponsors

remain concerned about their potential fiduciary liability. This risk may discourage

some plan sponsors from offering in-plan annuities, and thus lessens the availability

of such programs for plan participants. Although IRA rollover annuities are available

to plan participants taking a distribution, likely at higher cost, it also transfers the

annuity provider selection to individuals who generally are less equipped to evaluate

the provider, the options available, and the associated fees.

2 The unallocated group contract is held by the insurer in a 'bankruptcy remote' separate account to

provide an additional layer of credit protection in the event of insurance company insolvency.

3 Current tax law does not permit an unallocated annuity in a DC plan to be changed into an allocated

annuity without using a rollover IRA; otherwise it is treated as a distribution subject to tax. This

unnecessarily complicates the communications to plan participants about their election decisions which

may result in confusion or non-election, and should be changed.
Education

Longevity risk is one of the greatest risks facing DC plan participants, and it is

extremely difficult for individuals to manage efficiently. To properly manage longevity

risk, individuals must accurately estimate their own mortality, which is nearly

impossible to do in a way that is meaningful to retirement planning. In a report by the

Society of Actuaries, over sixty percent of people underestimate their life span and

time spent in retirement (see graph below).

50% chance of living beyond ,25% chance of living beyond

50% chance of living beyond 25% chance of living beyond

Female (age 65)

	

88

50% chance of living beyond 25% chance of living beyond

Couple (both age 65)

	

92	97

BlackRock believes that DC plan participants need information communicated in a

way that is easy to understand and facilitates good decision-making with respect to

the management of longevity risk. Lifetime income options that, like SponsorMatchTm,

that takes the familiar target-date platform and extends its capabilities is one

example of an investment strategy that addresses longevity risk and is also more

easily understood than other products, including some in-plan annuities. We believe

participant disclosure must facilitate comparisons between investment alternatives.

In addition, it is important to include thoughts from behavioral finance to help combat

the effects of inertia. Behavioral finance studies have identified inertia as the number

one reason employees don't enroll in retirement plans, don't contribute adequately,

fail to adjust their portfolio asset allocation, or lack the proper knowledge to manage

401(k) assets in retirement. Auto features ( e.g., auto enrollment, auto escalation)

are built on the principal of reversing inertia to make it work for the participant,

instead of giving participants the opportunity to opt in and make the right choice

about their retirement savings, they require participants to only take action if they

want to opt out. By making constructive outcomes easy and automatic with plan auto

features, plan sponsors can help participants overcome inertia and encourage

enrollment, higher savings rate, proper asset allocation and ultimately more secure

retirement outcomes. Adding an easy to understand income option as part of a DC

plan's QDIA could significantly increase security at retirement.

The RFI asks specifically about whether an individual benefit statement should

present the participant's accrued benefits as a lifetime income stream in addition to
presenting as an account balance. We note some plan sponsors and their service

providers already offer information as a monthly or annual withdrawal amount. We

would have concerns about showing a lifetime income stream when in fact there is

no investment alternative in the plan that would provide such a payout, which could

be confusing to participants. There are additional challenges in assuring uniform

assumptions are used by the industry, which potentially could be addressed using a

`model form' of disclosure. We believe plan fiduciaries should be given appropriate

liability protection if such a disclosure were mandated provided the model form and

its assumptions were used.4

BlackRock appreciates the opportunity to comment on this important issue. DC

plans are no longer savings vehicles but are now for many US employees their

retirement plan. Managing longevity risk is not currently part of the investment

strategy of many DC plans, and we welcome the review of the Agencies in

determining what may be done to encourage the voluntary actions of employers and

participants to remedy this.

We would welcome further discussion with you on this important topic.

Sincerely,

Chip Castille

Managing Director

Head of US Defined Contribution

4 The Agencies should consider the downside of disclosure as well: that the monthly lifetime income

payment would be perceived as so small as to encourage distributions in a lump sum to be spent on a

participant's immediate need, for example. a car purchase.