May 5, 2010 

FILED ELECTRONICALLY

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue, NW, Room N-5655 

Washington, DC 20210 

Re: RIN 1210–AB35: 2010 Investment Advice Proposed Rule 

Dear Sir or Madam: 

We are writing on behalf of the Committee of Annuity Insurers (the “Committee”) to 

comment on the proposed investment advice regulations published by the Department of Labor 

(the “Department”) in the Federal Register on March 2, 2010. The Committee is a coalition of 

life insurance companies formed in 1982 to participate in the development of federal policy with 

respect to annuities. The Committee’s current 31 member companies represent more than 80% 

of the annuity business in the United States and are among the largest issuers of annuity contracts 

in connection with employer-sponsored retirement plans and individual retirement arrangements 

(“IRAs”). A list of the Committee’s member companies is attached. 

The Committee very much appreciates the Department’s careful consideration of the 

many difficult issues in the proposed regulations implementing the statutory prohibited 

transaction exemption created by the Pension Protection Act (“PPA”) for participant-level 

investment advice. The sole issue addressed in this letter is the extent to which a computer 

model relying on the PPA exemption must take into account deferred annuity investment 

options. As discussed below, the Committee urges the Department to modify the regulation to 

provide that such annuity investment options must be taken into account. 

Section 408(g)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 

as amended by the PPA, provides that a computer model satisfies the PPA prohibited transaction 

exemption only if it “takes into account all investment options under the plan in specifying how a 

participant’s account balance should be invested.” Nonetheless, the proposed regulations 

provide that a computer model may disregard (i) a brokerage window, (ii) a company stock fund, 

(iii) a single fund solution such as a target date fund, and (iv) “an annuity option with respect to 
Committee of Annuity Insurers 

RIN 1210–AB35 Comment Letter 

May 5, 2010

2 

which a participant or beneficiary may allocate assets toward the purchase of a stream of 

retirement income payments guaranteed by an insurance company.”1 For the latter two classes 

of investment options, the proposed regulations provide that the participant or beneficiary must 

be furnished with a general description of the excluded option contemporaneous with the 

investment advice. 

As reflected above, the statute flatly provides that all investment options must be taken 

into account by a computer model. Given the plain language of the statute, it is clear that the 

regulations should reflect a strong bias toward including all options and, in the absence of a 

compelling public policy rationale to the contrary, we believe that annuities should be taken into 

account. We greatly appreciate that there are strong public policy rationales for the exclusions 

for company stock funds, single fund solutions, and brokerage windows that justify a departure 

from the statutory language.2

 However, there is no policy rationale for the exclusion of 

annuities. To the contrary, encouraging participants to elect to receive a portion of their 

retirement savings in the form of a lifetime income option such as an annuity is an important 

policy goal, as recently articulated by the Department’s request for information regarding 

lifetime income options published on February 2, 2010.3

 

With respect to public policy, life-contingent distributions from an annuity are the only 

sure means of insuring against the risk of outliving one’s savings, and annuities offered as dual 

investment and distribution options are one of the most promising avenues for enhancing the 

extent to which participants elect annuity payouts. There are many different approaches ranging 

from traditional deferred annuity contracts to newer hybrid products. For example, an annuity 

investment option may allow a participant to purchase a guaranteed lifetime withdrawal benefit 

(“GLWB”) that permits a participant to withdraw a specified portion of a notional account 

balance for life, regardless of the contract’s cash value. GLWBs provide both protection against 

adverse investment experience as well as a contingent guaranteed life annuity. Another option is 

to invest during the accumulation phase in a deferred fixed annuity contract that allows 

participants to purchase a lifetime income stream while locking in current interest rates and 

mortality tables. These options allow participants to take advantage of cost averaging through 

payroll deduction contributions and, thereby, mitigate the risk of retirement during a low interest 

rate environment when annuity purchase rates may be less favorable. 

                                                            1

 See Prop. DOL Reg. §§ 2550.408g-1(b)(4)(i)(F)(2), 2550.408g-1(c)(1). 

2

 For example, as permitted by ERISA, some plans require investments in company stock, and these 

required investments may be fundamentally inconsistent with the underlying investment principles that guide the 

computer model. Similarly, many computer models provide advice on a variety of investment issues that would also 

be covered by a single fund solution, such as asset allocation, glide path, and capital markets assumptions. Finally, 

brokerage windows enable participants and beneficiaries to select investments beyond those designated by the plan, 

which does not correlate with the purpose of an advice computer model to provide advice with respect to options 

available under the plan. 

3

 Request for Information Regarding Lifetime Income Options for Participants and Beneficiaries in 

Retirement Plans, 75 Fed. Reg. 5,253, 5,253 (Feb. 2, 2010) (noting that the Department of Labor and the 

Department of the Treasury “are currently reviewing the rules under . . . ERISA . . . to determine whether, and, if so, 

how, the Agencies could or should enhance, by regulation or otherwise, the retirement security of participants in 

employer-sponsored 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”). 
Committee of Annuity Insurers 

RIN 1210–AB35 Comment Letter 

May 5, 2010

3 

Despite the strong public policy in favor of promoting annuities as dual investment and 

distribution options, the regulations appear to permit their exclusion from advice computer 

models. This could mean that deferred annuities offered as part of a participant-directed plan’s 

investment menu will rarely be recommended as investments and, therefore, that the prospects of 

such annuities being used as sources of lifetime income will be greatly reduced. Given the 

potential of the proposed regulations to decrease the frequency of recommendation of deferred 

annuities as investments, the net effect may be decreased financial security in retirement. 

The Department’s reasoning for permitting the exclusion of deferred annuity contracts 

from advice computer models is not clear. One justification may be found in the preamble to the 

prior final regulations, published on January 21, 2009, which states generally that where a 

participant has allocated assets to an immediate annuity, modeling should not be required.4

 

However, the proposed rule is much broader than the reasoning given in the preamble to the 

prior final regulations, as it appears to permit the exclusion of deferred annuities as well. It even 

appears to permit a computer model to disregard investment funds offered through an insurance 

company separate account solely because such an investment is technically in “an annuity option 

with respect to which a participant or beneficiary may allocate assets toward the purchase of a 

stream of retirement income payments guaranteed by an insurance company.”5

Another possible justification for the exception of deferred annuities may be that there 

are many layers to an annuity investment that a typical plan offering will not have, such as taking 

into account longevity risk or guaranteed lifetime income, which may be difficult for a computer 

model to address. However, mere difficulty in adjusting to the statutory requirements is not a 

valid reason for eschewing good public policy. The Committee is not aware of any reason or 

technological barrier that would inherently preclude inclusion of deferred annuities in computer 

models, and we believe that, given adequate time for transition and adjustment, all computer 

models that wish to take advantage of the statutory prohibited transaction exemption may be 

modified to include annuities. Thus, the Committee strongly believes that advice provided 

pursuant to one of the computer model approaches should take into account available annuities, 

particularly deferred annuities, and a transition period could be provided to assist in enabling 

computer models to adapt to the requirements. 

 The Committee also notes that there are other investment advice arrangements sanctioned 

by the Department that involve computer models. In particular, one computer-based approach 

relies on the use of a computer model that is developed by a qualified independent third party 

(the “SunAmerica Opinion”).6

 The SunAmerica Opinion does not appear to require that a 

computer model based thereon take into account all of the plan’s investment options. 

Nonetheless, we urge the Department to consider whether there are ways to encourage models 

based on the SunAmerica Opinion to take into account annuity investment options, for example, 

                                                            4

 Investment Advice – Participants and Beneficiaries, 74 Fed. Reg. 3,822, 3,827 (Jan. 21, 2009) (withdrawn 

Nov. 20, 2009). 

5 Id. 

6

 ERISA Advisory Op. 2001-09A (Dec. 14, 2001). 
Committee of Annuity Insurers 

RIN 1210-AB35 Comment Letter 

May 5, 2010 

by stating that one factor a plan fiduciary should consider in selecting and monitoring a computer 

model is whether the model takes into account annuity investment options. 

* * * 

Should any questions arise in connection with our comments, or if the Committee can be 

of any assistance to the Department in its consideration of this important issue, please contact 

Jason Bortz or Joseph McKeever, both of Davis & Harman LLP. They can be reached by phone 

at 202-347-2230, or via electronic mail at jkbortz@davis-harman.com or jfmckeever@davisharman. com, respectively. 

Sincerely, 

Joseph F. McKeever, III 

Attachment 

4 
 May 5, 2010 

The Committee of Annuity Insurers 

The Willard Office Building 

Suite 1200 

1455 Pennsylvania Ave., NW 

Washington, D.C. 20004 

AEGON Group of Companies, Cedar Rapids, IA 

AIG American General, Wilmington, DE 

Allstate Financial, Northbrook, IL 

AmerUs Annuity Group Co., Topeka, KS 

AXA Equitable Life Insurance Company, New York, NY 

Commonwealth Annuity and Life Insurance Co. 

(a Goldman Sachs Company), Southborough, MA 

Conseco, Inc., Carmel, IN 

Fidelity Investments Life Insurance Company, Boston, MA 

Genworth Financial, Richmond, VA 

Great American Life Insurance Co., Cincinnati, OH 

Guardian Insurance & Annuity Co., Inc, New York, NY 

Hartford Life Insurance Company, Hartford, CT 

ING North America Insurance Corporation, Atlanta, GA 

Jackson National Life Insurance Company, Lansing, MI 

John Hancock Life Insurance Company, Boston, MA 

Life Insurance Company of the Southwest, Dallas, TX 

Lincoln Financial Group, Fort Wayne, IN 

MassMutual Financial Group, Springfield, Massachusetts 

Metropolitan Life Insurance Company, New York, NY 

Nationwide Life Insurance Companies, Columbus, OH 

New York Life Insurance Company, New York, NY 

Northwestern Mutual Life Insurance Company, Milwaukee, WI 

Ohio National Financial Services, Cincinnati, OH 

Pacific Life Insurance Company, Newport Beach, CA 

Protective Life Insurance Company, Birmingham, AL 

Prudential Insurance Company of America, Newark, NJ 

RiverSource Life Insurance Company (an 

Ameriprise Financial Company), Minneapolis, MN 

Sun Life of Canada, Wellesley Hills, MA 

Symetra Financial, Bellevue, WA 

TIAA-CREF, New York, NY 

USAA Life Insurance Company, San Antonio, TX 

The Committee of Annuity Insurers was formed in 1982 to participate in the development of 

federal tax and securities law policies with respect to annuities. The member companies of the 

Committee represent more than 80% of the annuity business in the United States.