May 3, 2010 

Filed Electronically

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N – 5655 

U. S. Department of Labor 

200 Constitution Ave., N.W. 

Washington, D. C. 20210 

Attention: Lifetime Income RFI (RIN 1210-AB33) 

Dear Office of Regulations and Interpretations: 

On February 1, 2010, the U. S Department of Labor (Department) – Employee Benefits 

Security Administration (EBSA) and the Department of the Treasury (Treasury) released 

a Request for Information to obtain information from the public on the subject of lifetime 

income options in retirement plans, especially defined contribution plans. As a result of 

information received from this request, the Treasury may propose amendments to 

current Internal Revenue Code (Code) qualification provisions for defined contribution 

plans and the Department may propose changes to regulations promulgated pursuant to 

the Employee Retirement Income Security Act (ERISA) governing certain aspects of 

these plans. Nationwide Financial Services, Inc. (Nationwide) thanks the Department for 

providing the opportunity to comment on this important issue affecting participants in 

defined contribution plans, as well as plan sponsors and service providers to these 

plans. 

Nationwide is an industry leader in the private and public sector retirement plans 

industry. As of March 31, 2010, Nationwide provides retirement plan services to 

approximately 32,300 retirement plans (including profit-sharing plans with salary 

deferrals qualified under section 401(k) of the Code (401(k) plans)) with 2,465,600 

participants in the United States. Nationwide is also a leading provider of retirement 

plan services to retirement plans sponsored by small businesses. 

Nationwide shares the goal with Congress, the Department, and the retirement plans 

industry of addressing the issue of effectively providing guaranteed lifetime retirement 

income options for all Americans. To achieve this goal, Nationwide agrees with the 

comments of the American Council of Life Insurers (ACLI) and additionally submits its 

401KIncome proposal (Nationwide Proposal) for your consideration. The intent of this 

proposal is to promote features available in current defined contribution plans that would 

provide lifetime income guarantees similar to guarantees once provided by defined 

benefit plans. Although the Nationwide Proposal is primarily a legislative proposal, it 

includes concepts that the Department can integrate into any possible regulatory reform 

One Nationwide Plaza 

Columbus, OH 43215-2220 
affecting the issue of guaranteed lifetime income benefits in defined contribution plans. 

A copy of the Nationwide Proposal is attached to this submission. 

In general, the Nationwide Proposal enhances certain features of the current defined 

contribution retirement system, especially 401(k) plans, with the purpose of encouraging 

sponsors of 401(k) plans to fund guaranteed lifetime income benefits for participants in 

their plans. The Nationwide Proposal strengthens 401(k) plans by 1) providing a greater 

incentive for the employer match; 2) increasing participant investment diversification; 3) 

increasing use of lifetime guarantee options; 4) reducing retirement plan withdrawals 

before retirement; and 5) expanding retirement plan access by offering greater tax 

incentives for the employer match. 

In conclusion, Nationwide believes that the current retirement plan system provides 

adequate individual and national retirement security, but improvements are necessary to 

strengthen the defined contribution plan system. Therefore, Nationwide endorses the 

ACLI response and submits the Nationwide Proposal for your review and consideration. 

If you need additional information, please contact me at 614-854-8650. 

Sincerely, 

Anne L. Arvia 

Senior Vice President 

Nationwide Financial – Retirement Plans 

One Nationwide Plaza 

Columbus, OH 43215-2220 

ON YOUR SIDE® NATIONWIDE.COM

Nationwide, a leading provider of employersponsored retirement savings plans, an industry 

leader in retirement income and the 2009 Plan 

Sponsor of the Year, is concerned about the 

retirement security of all Americans. As was 

quantified by the National Retirement Risk Index 

from the Center for Retirement Research at Boston 

College, 64 percent of Americans are at risk of 

being financially unprepared for retirement even 

when conservative assumptions are made to create 

a best case scenario.

In theory, the defined contribution system can 

provide adequate individual and national retirement 

security, but two major policy issues need to be

addressed:

1. Access — increasing overall access to employersponsored retirement plans; and

2. Guaranteed Income — promoting features within 

the defined contribution system that aord 

income guarantees similar to what was once 

provided by defined benefit plans.

This paper addresses the issue of retirement 

income guarantees. For Nationwide’s public policy 

proposal on retirement plan access, please see the 

Nationwide SIMPLE 401(k) 2.0 proposal. 

Guaranteed Income Matters.

Employer-sponsored retirement plans are the 

primary source of retirement savings for most 

workers in America. There are generally two 

categories of employer-sponsored retirement plans.

Defined Benefit — an employer-sponsored 

retirement plan, also referred to as a traditional 

pension plan, where an employee is guaranteed 

a certain payout or income, typically based on 

salary history and years of service. Contributions 

may be made by the employee, employer, or both. 

With defined benefit plans, the employer bears the 

investment risk and generates income at retirement.

Defined Contribution — an employer-sponsored 

retirement plan where the employee elects to defer 

an amount of salary into the plan and typically 

directs how these contributions are invested. 

Employers may also contribute to the plan. With 

defined contribution plans, the responsibility to 

manage investment risk and to generate income at 

retirement is shifted to the employee.

While the share of the workforce covered by an 

employer-sponsored retirement plan has not 

changed over the last quarter century, the type of 

coverage has gradually shifted from defined benefit 

to defined contribution plans— mainly 401(k) plans. 

Most of the working age population has virtually 

nothing accumulated in retirement savings outside 

of these employer-sponsored plans. 2

BACKGROUND

Footnotes

1

 PlanSponsor Magazine, 04-03-2009, Corporate Sector

2 “Do Households Have a Good Sense of Their Retirement Preparedness” 

Boston College Center for Retirement Research, August 2008
401KIncome

US WORKERS BY RETIREMENT PLAN TYPE

Traditional defined benefit pension plans were 

the backbone of retirement security for previous 

generations of workers. People typically worked 

for the same company most of their careers. 

Many worked for companies that were American 

institutions — airlines, steel, telecom, retailers and 

others. Lifetime income from pensions was virtually 

guaranteed.

But that guarantee has run headlong into an era of 

job and career “hopping”, a shift of the employment 

base to smaller companies and regulatory structural 

changes. The clear and demonstrable trend is for 

Footnotes

3 Employee Benefits Research Institute, Continuing Decline of Pension Plans Likely to Hit Younger 

workers and Families the Hardest, Study Shows, press release, May 4, 2004

employers to avoid the promises and liabilities 

associated with traditional defined benefit plans, 

thus eliminating guaranteed income as a component 

of most workers’ employer-sponsored retirement 

plan.

Creating ways to encourage the incorporation of 

guaranteed income is a logical next step in the 

progression of 401(k)-type plans as they continue 

to displace traditional company pension plans. At 

the moment, there is an increasing tendency for 

workers to take their payout as a single lump-sum 

distribution at retirement, rather than an annual 

payout that is guaranteed to last a lifetime. 3

1980

1993

2006

0%

20%

40%

60%

80%

Defined benefit 

only

Defined 

contribution -

401(k) plans - 

only

Both

PRIVATE SECTOR WORKERS WITH PENSION 

COVERAGE, BY PENSION TYPE, 1980-2006

Source: Center for Retirement 

Research at Boston College
ON YOUR SIDE® NATIONWIDE.COM

Investors have long been educated on investment 

risks while saving for retirement, but as a society we 

have not shifted gears to address income risk.

With defined contribution plans trending from 

supplementing to supplanting defined benefit plans, 

far too many Americans are subject to income 

risk at retirement. Income risk becomes a factor 

when people retire and begin withdrawing a fixed 

percentage of income from their portfolios every 

year. In years of poor market performance, their 

portfolio decreases and so does their income. In 

short, when investment values fluctuate with market 

conditions, so do income streams.

This shift is playing out against dramatic changes in 

life expectancy. The good news is that Americans 

are living longer. But that presents a new challenge – 

particularly for those who may outlive their savings. 

At age 65, Americans have a life expectancy of 83 

years. 4 A married couple at age 65 has a 33 percent 

chance of one spouse reaching 95. 5 And those are 

just the averages.

INCOME RISK

Footnotes

4 Centers for Disease Control and Prevention, National Center for Health Statistics, Table 27, Life 

expectancy at birth, at age 65 and at 75 years of age, according to race and sex, 2003 5 Society of Actuaries Annuity 2000 Mortality Table

LONGEVITY RISK
401KIncome

Recent developments from the current economy 

include employers dropping the 401(k) match, 

reduced individual account balances, the demise of 

the traditional company pension plan and concerns 

about retirement plan access. These beg for 

inventive policy solutions that reward employers for 

improving the retirement security picture of their 

employees. Nationwide proposes 401KIncome, a 

public policy solution that provides incentives for 

the financing of guaranteed retirement income while 

strengthening the current employer-sponsored 

defined contribution system.

401KIncome can help encourage plan sponsors of 

defined-contribution plans to earmark the employer 

match for the purpose of funding retirement income 

streams for their employees. Here is how it would 

work:

• Plan sponsors would receive a tax credit instead 

of a tax deduction for any employer match that 

is used to purchase a guaranteed income stream 

in the form of a fixed or longevity annuity, which 

combines private and government assurances 

that the guaranteed income will be backed by 

several layers of protection.

• The plan would be deemed nondiscriminatory 

if the employer contributes 2-3% for each 

employee.

• Employees would still have the same control 

over and access to their own contributions.

• The employer match would not be available for 

loans or early withdrawals. 

• The fixed annuity would continue to be 

administered by the annuity provider upon the 

employee’s separation of service and/or the 

employer’s termination of the plan.

• The employee would elect when and what 

form of lifetime income stream is generated in 

retirement. If no election is made the default will 

be annuitized based on a formula that includes 

age and account balance.

401KIncome

Dollar Cost Averaging Income Purchases

The 401(k) match used to purchase income is an 

ideal solution to hedge retirement income risk. 

Dollar cost averaging as a method for investing has 

long been advocated. By simply investing certain 

dollar amounts in regular increments over time 

in a particular investment or portfolio, individuals 

buy more shares when prices are low and fewer 

shares when prices are high. This is a strategy for 

accumulating a retirement nest egg, but it does 

not address the income risks that can occur at 

retirement, including inflation, market performance, 

interest rates and longevity risk. 

Income risk is best addressed by purchasing an 

income stream over the course of one’s working 

career, which allows for varied purchase rates and 

better overall pricing than if purchased at the point 

of retirement. 
ON YOUR SIDE® NATIONWIDE.COM

IMPLEMENTING THE 401KIncome

To achieve the public policy goal of increasing 

retirement security through guaranteed income, 

policy makers should support and encourage:

1. An employer tax credit as incentive for the 

purchase of guaranteed income units — Currently, 

employer contributions are tax deductible, which 

means that the tax benefit to the employer is equal 

to the employer’s marginal tax rate. A deduction is 

more favorable to a high-income taxpayer than to a 

low-income taxpayer. A credit, on the other hand, 

gives the same tax benefit to the payer regardless of 

its tax rate. Small employers are likely to be taxed 

at lower rates than larger employers. 

2. Fiduciary safe harbor for annuity selection — 

The selection by a plan fiduciary of an annuity 

provider or contract for benefit distributions are 

subject to the fiduciary responsibilities under ERISA 

Section 404(a)(1)(B). One option available to a 

plan fiduciary to ensure it meets these fiduciary 

responsibilities is to satisfy the safe harbor 

conditions set forth in 29 CFR Section 2550.404a4. As directed by the Pension Protection Act of 

2006, the DOL established this safe harbor for the 

selection of annuity providers for the purpose of 

benefit distributions from individual account plans 

subject to ERISA. A plan fiduciary’s decision to 

purchase an annuity for funding purposes related to 

the 401KIncome should also be subject to this safe 

harbor protection. 

3. Separate accounts for fixed assets — Fixed annuity 

assets should be held separately from provider 

assets and not chargeable with liabilities incurred in 

any other business interests of the provider.

4. Income should be saved until retirement — 

Because rollovers are difficult, participants should 

be able to keep their purchased income with the 

annuity provider upon the employee’s separation 

of service or the employer’s termination from 

plan, and not be forced into an early withdrawal, 

which is subject to tax penalty. Legislation should 

clarify that a pure payout annuity contract can be 

separated (distributed) from the investment portion 

of the account at the employee’s termination or the 

employer’s termination of the plan.

401KIncome AT A GLANCE

What it does - This proposal gives a strong incentive for employers with defined contribution plans to 

use the employer match to purchase a guaranteed stream of income. This proposal would also promote 

greater use of 401(k) plans, thereby increasing employee access to retirement plan savings.

What it looks like - 401(k) plans would offer a deferred fixed income annuity as the investment option 

for the employer match portion.

How it works - Plan Sponsors (employers) would receive a tax credit instead of a tax deduction for any 

employer match used to fund a guaranteed stream of income payments to participants.

Employees would still have control over and access to their own contributions, but the employer match 

would not be accessible for loans or early withdrawals. Employees could also choose to put their own 

deferrals in the defined benefit option.
401KIncome

3. Increases usage of lifetime income guarantees

Behavioral Finance shows that individuals have a 

psychological barrier to putting a large part of their 

savings in an annuity at the point of retirement, 

yet 93% of respondents in a Harris Active survey 

in 2007 said that finding a guaranteed source of 

post-employment income is their topmost priority in 

planning their retirement. 

4. Reduces retirement plan leakage

An important behavioral finance component of 

getting people to save for retirement is giving 

them the ability to access those funds for loans or 

hardship withdrawals. There is a difficult balance 

between providing this access and preventing 

retirement plan leakage. In 2007 alone, 49 percent of 

employees borrowed from retirement savings to pay 

off existing debt. 8 By creating an income investment 

using the employer match funding, employees 

are not losing access to any of their own deferred 

savings. At the same time, there is insurance that at 

least a portion of the retirement savings account is 

leakage-free until retirement.

5. Expands retirement plan access

Greater tax incentives for the employer match will 

help offset the costs of offering a plan, allowing 

more employers to maintain their 401(k) plans and 

potentially encouraging other employers to offer 

plans.

In light of this transformation in the pension system, 

providing an incentive for plan sponsors to adopt a 

retirement income stream purchase using a 401(k) 

match addresses several retirement public policy 

concerns. The employer-sponsored system provides 

42.3 percent of retirement income for those aged 

65 and older. (Social Security provides an additional 

42 percent.) 6 For the long-term financial security 

of individual Americans and for the country as a 

whole, public policy should strengthen the defined 

contribution system. Here are ways the 401KIncome 

proposal accomplishes that. 

1. Provides greater incentive for use of the employer 

match

Research shows that when plan sponsors suspend 

their 401(k) plan match, employees sometimes 

reduce or stop their own 401(k) contributions. In the 

current economic climate, companies are cutting the 

401(k) match as a cost saving measure. According 

to Hewitt Associates a younger worker earning 

$50,000 a year who contributes 6 percent of his/

her salary will have $16,000 less for retirement than 

what they would have had if their employer hadn’t 

suspended their match for one year. That number 

jumps to $48,000 if the employee stops contributing 

during that year as well. A younger worker earning 

$50,000 a year who stops contributing 6 percent of 

his/her salary for five years may have up to $150,000 

less for retirement. 7

2. Increases participant investment diversification

In this system, employees would not only see an 

account balance on their quarterly statements, 

but also the defined income benefit they are 

accumulating in retirement. This income will be 

guaranteed, which may allow for more flexibility 

in the investment portion of the account.

STRENGTHENING THE 401(K) SYSTEM

Footnotes

6 Profit Sharing 401(k) Council of America Issue Brief, March 2006

7 Hewitt Associates, Companies Can Save Millions of Dollars by Suspending Their 401(k) Match for Just One 

Year, According to New Hewitt Analysis, April 13, 2009 8 Sources: EBRI Issue Brief, August 2007; “Despite Costs, More People Raid 401(k)s for Cash” The Wall 

Street Journal, February 28, 2008; “Raiding the 401(k) Nest Egg” The Wall Street Journal, May 5, 2008
CONTACT 

INFORMATION

GOVERNMENT RELATIONS

Bridget Hagan 

haganb1@nationwide.com 

202-347-5912 

Jerry Golden 

goldeng@nationwide.com 

202-347-5913

PUBLIC POLICY

Jennifer Monnin 

monninj@nationwide.com 

614-677-5391

Scot Zajic

zajics@nationwide.com 

614-677-1573

MEDIA RELATIONS

Je Whetzel 

whetzej@nationwide.com 

614-249-6354 

401KIncome

www.nationwide.com/401KIncome

EXECUTIVE SPONSORS: 

Kirt Walker, President, Nationwide Financial Services

Anne Arvia, Senior Vice President, Nationwide Retirement Plans

Eric Henderson, Senior Vice President, Nationwide Individual Investments

Nationwide, On Your Side, and the Nationwide framemark are 

service marks of Nationwide Mutual Insurance Company. © 2009 

Nationwide Mutual Insurance Company. All rights reserved.
May 3, 2010 

Filed Electronically

CC:PA:LPD:PR (REG-148681-09) 

Room 5205 

Internal Revenue Service 

P.O. Box 7604 

Ben Franklin Station 

Washington, D. C. 20044 

Re: REG-148681-09 

Dear Internal Revenue Service: 

On February 1, 2010, the U. S Department of Labor (Department) – Employee Benefits 

Security Administration (EBSA) and the Department of the Treasury (Treasury) released 

a Request for Information to obtain information from the public on the subject of lifetime 

income options in retirement plans, especially defined contribution plans. As a result of 

information received from this request, the Treasury may propose amendments to 

current Internal Revenue Code (Code) qualification provisions for defined contribution 

plans and the Department may propose changes to regulations promulgated pursuant to 

the Employee Retirement Income Security Act (ERISA) governing certain aspects of 

these plans. Nationwide Financial Services, Inc. (Nationwide) thanks the Treasury for 

providing the opportunity to comment on this important issue affecting participants in 

defined contribution plans, as well as plan sponsors and service providers to these 

plans. 

Nationwide is an industry leader in the private and public sector retirement plans 

industry. As of March 31, 2010, Nationwide provides retirement plan services to 

approximately 32,300 retirement plans (including profit-sharing plans with salary 

deferrals qualified under section 401(k) of the Code (401(k) plans)) with 2,465,600 

participants in the United States. Nationwide is also a leading provider of retirement 

plan services to retirement plans sponsored by small businesses. 

Nationwide shares the goal with Congress, the Treasury, and the retirement plans 

industry of addressing the issue of effectively providing guaranteed lifetime retirement 

income options for all Americans. To achieve this goal, Nationwide agrees with the 

comments of the American Council of Life Insurers (ACLI) and additionally submits its 

401KIncome proposal (Nationwide Proposal) for your consideration. The intent of this 

proposal is to promote features available in current defined contribution plans that would 

provide lifetime income guarantees similar to guarantees once provided by defined 

benefit plans. Although the Nationwide Proposal is primarily a legislative proposal, it 

includes concepts that the Treasury can integrate into any possible regulatory reform 

One Nationwide Plaza 

Columbus, OH 43215-2220 
affecting the issue of guaranteed lifetime income benefits in defined contribution plans. 

A copy of the Nationwide Proposal is attached to this submission. 

In general, the Nationwide Proposal enhances certain features of the current defined 

contribution retirement system, especially 401(k) plans, with the purpose of encouraging 

sponsors of 401(k) plans to fund guaranteed lifetime income benefits for participants in 

their plans. The Nationwide Proposal strengthens 401(k) plans by 1) providing a greater 

incentive for the employer match; 2) increasing participant investment diversification; 3) 

increasing use of lifetime guarantee options; 4) reducing retirement plan withdrawals 

before retirement; and 5) expanding retirement plan access by offering greater tax 

incentives for the employer match. 

In conclusion, Nationwide believes that the current retirement plan system provides 

adequate individual and national retirement security, but improvements are necessary to 

strengthen the defined contribution plan system. Therefore, Nationwide endorses the 

ACLI response and submits the Nationwide Proposal for your review and consideration. 

If you need additional information, please contact me at 614-854-8650. 

Sincerely, 

Anne L. Arvia 

Senior Vice President 

Nationwide Financial – Retirement Plans 

One Nationwide Plaza 

Columbus, OH 43215-2220