Ralph D. Spaulding, J.D., CLU, ChFC 

4140 Rynex Corners Road 

Pattersonville, New York 12137 

(518) 887-5407 

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 

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

and Beneficiaries in Retirement Plans 

Dear Sir/Madam: 

This letter responds to your request for information regarding lifetime income options for 

participants and beneficiaries in retirement plans. I have some familiarity with annuity products 

offered by life insurers, including individual and group annuity contracts that serve as funding 

vehicles for defined benefit plans and defined contribution plans. I am fortunate to be covered 

under a defined benefit plan that provides lifetime income at retirement. However, I am 

concerned that many of my friends and family do not have such lifetime income option or 

knowledge of the amounts needed to be accumulated during their working years or the risks that 

they may outlive their accumulated retirement savings. 

I have always considered it ironic that the law designed to enhance retirement security (the 

Employee Retirement Income Security Act of 1974) has caused the decline in defined benefit 

plans, the increase in defined contribution plans and the resulting transfer of retirement security 

risk to plan participants in terms of the adequacy of funds accumulated and longevity risk. I 

applaud your initiative and efforts to enhance the retirement security of participants in employersponsored retirement plans and in individual retirement arrangements (IRAs) by facilitating 

access to, and use of, lifetime income or other arrangements designed to provide a lifetime 

stream of income after retirement. 

I offer the following points for your consideration: 

1. Education. I agree that educational initiatives for employee / plan participants during their 

working years and at retirement are needed to better prepare such persons and their 

beneficiaries for retirement. Most participants have no idea how much income should be set 

aside each year and accumulated to provide a comfortable retirement. I understand that TIAA 

(incorporated in 1918) initially recommended a savings rate of 10% but that estimate was raised 

to 15% as experience developed. I am not sure what retirement plan experts currently 

recommend for annual contribution, what assumptions they make concerning the investment rate 

of return or the optimum asset allocation mix during a participant’s working years. This 

information would be helpful to plan participants. 

 Plan participants would also benefit from education concerning annuity income options at 

retirement or commencement of income payments. Participants should know the advantages, 

disadvantages and cost differences of straight life contingent annuity, life contingent annuity with 

period certain, life contingent annuity with refund feature, joint and survivor annuity income 

option, period certain, other income options as well as the required minimum distributions. 
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Information should also be provided as to any commutation benefits provided under annuity 

income options. 

2. Partial Annuitization. I am not sure that education alone will change behavior. Defined 

contribution plan participants and defined benefit plan participants with access to lump sum 

benefits at retirement are not likely to give up control over their account balances at retirement 

even though annuitization provides longevity protection and transfers investment risk to the 

annuity income provider. The required minimum distribution rules are designed to ensure that 

amounts set aside during working years will be used for retirement (and not wealth transfer); but 

fail to provide longevity protection. The U.K. requires annuitization for at least a portion of a 

participant account balance. I believe the U.K. approach should be studied and given some 

consideration here. In the alternative, consideration should be given to providing life contingent 

income options with tax incentives. 

Not all defined contribution plans provide for a lump sum option at retirement. The 

portable pension plan pioneered by TIAA in its retirement annuity does not provide for such lump 

sum option or provide for cash surrender benefits. The accumulation funds must be used to 

provide retirement income. Supplemental retirement annuities offered by TIAA may provide for 

such cash surrender benefits. Defined contribution plan sponsors may want to consider 

provisions designed to ensure that amounts set aside for retirement (or portions thereof 

attributable to employer contributions) are actually used to provide retirement income. Of course, 

in cases where an accumulation account is maintained, the income derived at retirement should 

be based upon the better of the guaranteed annuity purchase rate in the contract or the 

company’s SPIA rates. 

Many defined contribution plans do not provide life contingent annuity options because of 

administrative reasons. In some cases, the Arizona vs. Norris decision in 1983 requiring unisex 

annuity purchase rates caused employer sponsored plans to drop income options. For example, 

the New York State Deferred Compensation Board Rules (9 N.Y.C.R.R. 9000) has never 

permitted life contingent income options under the plan. The lack of life contingent option at 

retirement is unfortunate. Participants taking a lump sum payment may not understand the 

financial risks and tax ramifications resulting from such decision. 

3. Enhanced Annuities & Substandard Underwriting. One benefit of the U.K. approach has 

been the use of underwriting of substandard annuities. Enhanced annuities are provided for 

persons with a reduced life expectancy. Medical underwriting of annuities in the U.S. is common 

for structured settlements; but not common in other settings. As a result, the lack of underwriting 

by insurers has made annuitization an unattractive option for persons who are not in good health 

or have a reduced life expectancy. Immediate annuity pricing in the U.S. assumes that persons 

in good health will annuitize. Coordination with state insurance regulators may be advisable on 

this point. 

4. Paradigm Shift - Income Model or Account Model. The individual account plan model in 

which participants accumulate funds for retirement may need to be reconsidered because of the 

temptation to use the account balances for purposes other than meeting retirement income 

needs. An income model in which each contribution purchases a stream of income that begins at 

a specified date may provide a better model in providing income security. 

Ironically, the stipulated premium fixed deferred annuity contracts offered by life insurers 

50 or more years ago provided an income based model. Such contracts which served as the 

model for IRC Section 412(i) plans provided income benefits at retirement and often did not 

provide death benefits or cash surrender benefits. Today, most individual fixed deferred annuities 

are accumulation annuity products (i.e., excess interest annuities, modified guaranteed annuities, 
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equity indexed annuities) that provide for an accumulation phase and permit (but do not require) 

the contractholder to annuitize his or her account balance using the contract’s guaranteed 

purchase rates and, in some states, at the insurer’s single premium immediate annuity rate when 

more favorable. The forces that caused the transition from stipulated premium deferred annuities 

to accumulation annuities also led to the transition from defined benefit plans to defined 

contribution plans. 

In this decade, life insurers have begun to develop innovative paid-up deferred annuity 

contracts that have more in common with the old style deferred annuities than accumulation 

annuities. Under such contracts, contributions purchase income benefits without maintaining an 

account balances and income benefits are based upon the more favorable of guaranteed or 

current purchase rates at the time of deposit. State nonforfeiture laws for annuities may need to 

be tweaked to better address the development of annuities using this incremental income 

approach. 

Some insurers have marketed the new style guaranteed paid up deferred annuity to 

seniors with payments commencing at advanced ages (e.g., age 85). This longevity annuity 

option allows a defined contribution plan participant to control his or her account funds and 

secure longevity protection. This worthwhile product should be encouraged by removing the 

value of this product from RMD consideration. 

In the pension market, the fixed income options may include options that provide for the 

aggregation of fixed income streams at retirement in addition to an accumulation amount based 

upon fixed income assets. Educational material and disclosure will be needed to assist 

participants in understanding this paradigm shift. For account based defined contribution plans, it 

would be helpful if plans disclosed the account value at specific dates (annually, quarterly) 

together with the income benefit such amount would provide at the retirement date using the 

better of the contract’s guaranteed annuity purchase rates or the then current rate. 

5. Additional Liquidity. Life insurers have attempted to make annuitization more attractive. 

Many immediate annuities today include commutation features. However, it should be noted that 

nonforfeiture laws do not apply to immediate annuities and nonforfeiture law protections do not 

extend to commutation provisions. 

Life insurer have developed guaranteed minimum withdrawal benefits for variable annuity 

products that allow participants to withdraw a specified percentage of a benefit base for life even 

if the participant’s account balances falls to zero. This benefit provides participants with longevity 

protection and control over their account balances. The benefit places restrictions of asset 

allocation and withdrawals. However, as long as the asset allocation requirements are satisfied 

and withdrawals do not exceed permitted levels, the life contingent benefit remains in tact. 

Insurers have allowed participants covered under group annuity contracts to rollover their 

GMWBs to individual annuity contracts (IRA rollover). I assume the life insurance industry will 

take additional steps to provide longevity protection. 

Thank you for the opportunity to comment on this important topic. 

Very truly yours, 

Ralph D. Spaulding, J.D., CLU, ChFC