Don’t Count Annuities Out 

A response to the Department of Labor’s “Request for Information Regarding Lifetime Income 

Options for Participants and Beneficiaries in Retirement Plans”. 

Dietrich & Associates, Inc. is the leading expert specializing in the pension annuity 

market for corporate, non profit and public retirement plans. In the last four decades our 

firm has overseen thousands of defined benefit pension plans guaranteeing lifetime 

retirement benefits for several hundred thousand participants through the purchase of 

annuities that defease the plan obligation to financially sound insurance companies. Our 

firm has transferred more than $ 4 billion in annuity payouts from pension plans to 

annuity providers and not one retirement payment to participants has been missed or at 

risk of default. 

A continuing trend of employers to move away from the traditional Defined Benefit 

pension plans towards 401k plans by offering lump sum payouts and freezing and 

terminating Defined Benefit pension plans has been obvious for the last several decades. 

Unfortunately, this trend has left current and future participants without a guaranteed 

Income for Life annuity benefit. This is a meaningful benefit that prior generations of 

workers relied on as their retirement income supplement to social security benefits. 

Because this lifetime income benefit is not typically offered in current 401k plans, all 

participant 401k asset balances are invested and are 100% “at risk” in the capital markets. 

Today’s 401k plan design leaves both investment and longevity risk to rest solely with 

the participant. 

For these reasons, it is essential that an Income for Life benefit be made available once 

again to plan sponsors and participants as part of (or along side) existing 401k and other 

Defined Contribution retirement plans. Employers should be encouraged to direct their 

contributions toward an annuity benefit via safe harbor protection or other means and 

participants should be permitted the option of an “income for life” benefit for their 

contributions as well. (Offering a limited income tax exclusion would help incent 

participants to select an income for life payout) In addition, the annuity benefit being 

offered needs to be a “true” annuity where there is a guarantee of income for life via a 

contractual transfer of longevity risk to an insurer. This insurer must meet the 

qualifications under DOL 95-1 as “safest available” annuity provider or be measured 

within the same standards. Synthetic product offerings such as “target date” or 

“guaranteed withdrawal” schemes do not transfer longevity risk to an insurance company 

and should not be considered in this asset class for this reason. 

Allowing lump sum payouts from the remaining Defined Benefit pension plans where 

participants can opt out of the life income benefit also needs to be reviewed and 

modified. Our experience has been that nearly all (90+%) of retirees already receiving 

life income payouts elect to continue them even when offered a lump sum subsequently. 

When lump sums are offered prior to retirement, approximately 90+% elect a lump sum, 

a completely opposite result. This may be due to several reasons; a) they have not 
become accustomed to the security of the lifetime income stream having never received 

them, as current retirees have, b) because it is human nature to select cash today as 

opposed to an Income for Life annuity in the future or c) because the election has to be all 

in one form or the other requiring participants to make all or nothing choices among 

options. Regardless of the reasons, communicating to and allowing participants the 

ability to elect a portion of their distribution among both the lump sum and the life 

income payout (however they wish) would increase the likelihood of participants 

selecting the annuity payout benefit for, at least, a portion of their distribution. This will 

require additional communication to participants about their choices but would be well 

worth the effort. 

Participant understanding needs to be expanded and improved through education at the 

employer level so that participants become better informed about saving, investing and

the guarantees that various “insured” financial assets can provide. Income for Life 

annuity options (life, joint and survivor) need to be recognized for the features they 

provide and the risks (both tangible and intangible) that they mitigate for the participant 

and their spouses (for example, surviving spouses need not be concerned with making 

investment decisions). An Income for Life annuity is as much an insurance policy as it is 

an investment and needs to be viewed as such. 

Annuities have been around for centuries, in fact, many early retirement plans were 

funded solely through the use of immediate and deferred payout annuities. To suggest 

that an annuity option shouldn’t be provided as a base level of benefit (at the very least) 

in today’s’ 401k era would be to ignore the fact that historically, Defined Benefit 

retirement plans have served retirees well by guaranteeing a valuable benefit they cannot 

outlive. Opponents of payout annuities provide various reasons why they would never 

“own” one, however there are counter points for every argument. The fact is that the 

annuity takes unpredictability and makes it predictable. It accomplishes this by 

contractually transferring risk away from the participant in a 401k plan and away from 

the plan sponsor with defined benefit pensions. This is a good thing in that it provides an 

effective hedge against the risk and volatility inherent in the other asset classes they are 

invested in. 

We would be pleased to offer the DOL more specific insight and guidance on how best to 

position and implement annuity solutions in today’s retirement plans where 401k plans 

are now the primary retirement vehicle for most participants. 

Kurt Dietrich 

 President, Dietrich & Associates, Inc. 

kurt.dietrich@dietrichassociates.com

619-279-9455