Docket: EBSA-2010-0007 

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

Retirement Plans 

Comment On: EBSA-2010-0007-0001 

Request for Information Regarding Lifetime Income Options 

Document: EBSA-2010-0007-DRAFT-0100 

Comment on FR Doc # N/A 

Submitter Information 

Name: Mary Gleason 

Address: 

Las Vegas, NV, 

Organization: General Public 

General Comment 

See attached file(s) 

Attachments 

PUBLIC SUBMISSION

As of: May 04, 2010 

Received: May 03, 2010 

Status: Pending_Post 

Tracking No. 80ae5f48 

Comments Due: May 03, 2010

Submission Type: Web

EBSA-2010-0007-DRAFT-0100.1: Comment on FR Doc # N/A

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DATES: Comments must be submitted on or before May 3, 2010. 

B. Request for Information 

 The purpose of this notice is to solicit views, suggestions and comments from plan participants, plan 

sponsors, plan service providers and members of the financial community, as well as the general public, 

to assist the Agencies in evaluating what steps, if any, they could or should take, by regulation or 

otherwise, to enhance the retirement security of participants in employer-sponsored retirement plans and 

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

stream of lifetime income after retirement. To facilitate consideration of the issues, the Agencies have set 

forth below a number of matters and specific questions with respect to which views, suggestions, 

comments and information are requested. In addition to addressing any or all of the matters and 

questions referred to below, interested persons are encouraged to address any other matters they believe 

to be germane to the Agencies' consideration of lifetime annuities and similar lifetime income issues, 

particularly as they relate to defined contribution plans and defined benefit plans that distribute benefits as 

lump sums. 

General 

 1. From the standpoint of plan participants, what are the advantages and disadvantages for articipants 

of receiving some or all of their benefits in the form of lifetime payments? 

Lifetime payments provide a steady stream of income in retirement years. However, the recent failures of 

financial organizations and corporations raise the question of whether a steady stream of income will truly 

be there. In addition, lifetime payments do not provide the flexibility that may be needed to deal with 

unexpected financial requirements. In addition, lifetime payments are based on average life expectancies 

and are not tailored to individual life expectancies which may vary drastically depending on health 

conditions. Participants may have uncertainty about their investments not being available for their heirs. 

In addition, some plans have extremely limited investment options (think Enron). 

 2. Currently the vast majority of individuals who have the option of receiving a lump sum distribution or 

ad hoc periodic payments from their retirement plan or IRA choose to do so and do not select a lifetime 

income option. What explains the low usage rate of lifetime income arrangements? Is it the result of a 

market failure or other factors (e.g., cost, complexity of products, adverse selection, poor decision-making 

by consumers, desire for flexibility to respond to unexpected financial needs, counterparty risk of seller 

insolvency, etc.)? Are there steps that the Agencies could or should take to overcome at least some of 

the concerns that keep plan participants from requesting or electing lifetime income? 

The low usage rate is probably a combination of all of the factors listed in your question. However, I 

believe that another factor is that people want to have control of their funds. The only step that Federal 

Agencies could or should take is related to improved education. Knowledge is power that will give 

participants the ability to make informed decisions. Although some will make poor choices, it is not the 

Federal Government’s role to intervene. 

 3. What types of lifetime income are currently available to participants directly from plans (in-plan 

options), such as payments from trust assets held under a defined benefit plan and annuity payments 

from insurance contracts held under a defined contribution or defined benefit plan? 

 4. To what extent are the lifetime income options referenced in question 3 provided at retirement or 

other termination of employment as opposed to being offered incrementally during the accumulation 

phase, as contributions are made? How are such incremental or accumulating 
annuity arrangements structured? 

 5. To what extent are 401(k) and other defined contribution plan sponsors using employer matching 

contributions or employer nonelective contributions to fund lifetime income? To what extent are 

participants offered a choice regarding such use of employer contributions, including by default or 

otherwise? 

 6. What types of lifetime income or other arrangements designed to provide a stream of income after 

retirement are available to individuals who have already received distributions from their plans 

(out-of-plan options), such as IRA products, and how are such arrangements being structured (fixed, 

inflation adjusted, or other variable, immediate or deferred, etc.)? Are there annuity products under which 

plan accumulations can be rolled over to an individual retirement annuity of the same issuer to retain the 

annuity purchase rights that were available under the plan? 

 7. What product features have a significant impact on the cost of providing lifetime income or other 

arrangements designed to provide a stream of income after retirement, such as features that provide 

participants with the option of lifetime payments, while retaining the flexibility to accelerate distributions if 

needed? 

 8. What are the advantages and disadvantages for participants of selecting lifetime income payments 

through a plan (in-plan option) as opposed to outside a plan (e.g., after a distribution or rollover)? 

A major disadvantage is the limited investment options in many plans. 

 9. What are the advantages and disadvantages from the standpoint of the plan sponsor of providing an 

in-plan option for lifetime income as opposed to leaving to participants the task of securing a lifetime 

income vehicle after receiving a plan distribution? 

 10. How commonly do plan sponsors offer participants the explicit choice of using a portion of their 

account balances to purchase a lifetime annuity, while leaving the rest in the plan or taking it as a lump 

sum distribution or a series of ad hoc distributions? Why do some plan sponsors make this partial annuity 

option available while others do not? Would expanded offering of such partial annuity options--or 

particular ways of presenting or framing such choices to participants--be desirable and would this likely 

make a difference in whether participants select a lifetime annuity option? 

 11. Various ``behavioral'' strategies for encouraging greater use of lifetime income have been 

implemented or suggested based on evidence or assumptions concerning common participant behavior 

patterns and motivations. These strategies have included the use of default or automatic arrangements 

(similar to automatic enrollment in 401(k) plans) and a focus on other ways in which choices are 

structured or presented to participants, including efforts to mitigate ``all or nothing'' choices by offering 

lifetime income on a partial, gradual, or trial basis and exploring different ways to explain its advantages 

and disadvantages. To what extent are these or other behavioral strategies being used or viewed as 

promising means of encouraging more lifetime income? Can or should the 401(k) rules, other plan 

qualification rules, or ERISA rules be modified, or their application clarified, to facilitate the use of 

behavioral strategies in this context? 

Rules should be modified to allow efforts to mitigate ``all or nothing'' choices by offering lifetime income 

on a partial, gradual, or trial basis as described above. 

 12. How should participants determine what portion (if any) of their account balance to annuitize? 

Should that portion be based on basic or necessary expenses in retirement? 

This will vary based on individual choices and situations. Only the individual can determine what their 

basic or expenses are in retirement. Changing circumstances can cause drastic fluctuations in what that 

amount is. 
 13. Should some form of lifetime income distribution option be required for defined contribution plans 

(in addition to money purchase pension plans)? If so, should that option be the default distribution option, 

and should it apply to the entire account balance? To what extent would such a requirement encourage or 

discourage plan sponsorship? 

Some form of lifetime income distribution should not be the default distribution option. Having an option 

that allows a portion of the account balance to be paid as a lifetime income distribution and allows the 

participant to access the remaining portion of the balance on an ad hoc basis might encourage greater 

use of lifetime distribution options. 

 14. What are the impediments to plan sponsors' including lifetime income options in their plans, e.g., 

401(k) or other qualification rules, other federal or state laws, cost, potential liability, concern about 

counterparty risk, complexity of products, lack of participant demand? 

 15. What are the advantages and disadvantages of approaches that combine annuities with other 

products (reverse mortgages, long term care insurance), and how prevalent are these combined products 

in the marketplace? 

 16. Are there differences across demographic groups (for example men vs. women) that should be 

considered and reflected in any retirement security program? Can adjustments for any differences be 

made within existing statutory authority? 

Participant Education 

 The Department of Labor issued Interpretive Bulletin 96-1 (29 CFR 2509.96-1) to clarify that the 

provision of investment education, as described in the Bulletin, will not be considered the provision of 

``investment advice,'' which would give rise to fiduciary status and potential liability under ERISA for plan 

participants' and beneficiaries' investment decisions. 

 17. What information (e.g., fees, risks, etc.) do plan participants need to make informed decisions 

regarding whether to select lifetime income or other arrangements designed to provide a stream of 

income after retirement? When and how (i.e., in what form) should it be provided? What information 

currently is provided to participants, who typically provides it, and when and how is it provided to them? 

 18. Is there a need for guidance, regulatory or otherwise, regarding the extent to which plan assets can 

be used to pay for providing information to help participants make informed decisions regarding whether 

to select lifetime income or other arrangements designed to provide a stream of income after retirement, 

either via an in-plan or out-of plan option? 

 19. What specific legal concerns do plan sponsors have about educating participants as to the 

advantages and disadvantages of lifetime income or other arrangements designed to provide a stream of 

income after retirement? What actions, regulatory or otherwise, could the Agencies take to address such 

concerns? 

 20. To what extent should plans be encouraged to provide or promote education about the advantages 

and disadvantages of lifetime annuities or similar lifetime income products, and what guidance would be 

helpful to accomplish this? 

Plans should be strongly encouraged to provide or promote education about the advantages and 

disadvantages of lifetime annuities or similar lifetime income products. 

Disclosing the Income Stream That Can Be Provided From an Account Balance 
 ERISA section 105 requires defined contribution plans to furnish to each participant an individual 

benefit statement, at least annually, that includes the participant's ``accrued benefits,'' i.e., the individual's 

account balance. 

 21. Should an individual benefit statement present the participant's accrued benefits as a lifetime 

income stream of payments in addition to presenting the benefits as an account balance? 

An individual benefit statement that presents the participant's accrued benefits as a lifetime income 

stream of payments in addition to presenting the benefits as an account balance should be beneficial to 

plan sponsors. Having that information available on a regular basis could very well increase the level of 

contribution. 

 22. If the answer to question 21 is yes, how should a lifetime stream of income payments be expressed 

on the benefit statement? For example, should payments be expressed as if they are to begin 

immediately or at specified retirement ages? Should benefit amounts be projected to a future retirement 

age based on the assumption of continued contributions? Should lifetime income payments be expressed 

in the form of monthly or annual payments? Should lifetime income payments of a married participant be 

expressed as a single-life annuity payable to the participant or a joint and survivor-type annuity, or both? 

On the benefit statement, a lifetime stream of income payments should be expressed as if they are to 

begin immediately in the form of a monthly payment amount. This would remove the need to project 

based on any assumption of continued contributions. Lifetime income payments of a married participant 

should be expressed as both a single-life annuity payable to the participant and a joint and survivor-type 

annuity (similar to Social Security benefit statements). 

 23. If the answer to question 21 is yes, what actuarial or other assumptions (e.g., mortality, interest, 

etc.) would be needed in order to state accrued benefits as a lifetime stream of payments? If benefit 

payments are to commence at some date in the future, what interest rates (e.g., deferred insurance 

annuity rates) and other assumptions should be applied? Should an expense load be reflected? Are there 

any authoritative tools or sources (online or otherwise) that plans should or could use for conversion 

purposes, or would the plan need to hire an actuary? Should caveats be required so that participants 

understand that lifetime income payments are merely estimates for illustrative purposes? Should the 

assumptions underlying the presentation of accrued benefits as a lifetime income stream of payments be 

disclosed to participants? Should the assumptions used to convert accounts into a lifetime stream of 

income payments be dictated by regulation, or should the Department issue assumptions that plan 

sponsors could rely upon as safe harbors? 

Caveats should be required so that participants understand that lifetime income payments are merely 

estimates for illustrative purposes. The assumptions underlying the presentation of accrued benefits as a 

lifetime income stream of payments should be disclosed to participants in laymen’s terms. The 

Department should issue assumptions that plan sponsors could rely upon as safe harbors to provide 

consistency.

 24. Should an individual benefit statement include an income replacement ratio (e.g., the percentage of 

working income an individual would need to maintain his or her pre-retirement standard of living)? 

If so, what methodology should be used to establish such a ratio, such as pre-retirement and postretirement inflation assumptions, and what are the impediments for plans to present the ratio in a 

meaningful way to participants on an individualized basis? 

401(k) and Other Plan Qualification Rules 

 Income Tax Regulations that apply specifically to lifetime annuities include: 26 CFR 1.401(a)-11, 26 

CFR 1.401(a)-20, 26 CFR 1.401(a)(9)-1 through 26 CFR 1.401(a)(9)-9, 26 CFR 1.417(a)(3)-1, and 26 

CFR 1.417(e)-1. 
 25. How do the 401(k) or other plan qualification rules affect defined contribution plan sponsors' and 

participants' interest in the offering and use of lifetime income? Are there changes to those rules 

that could or should be made to encourage lifetime income without prejudice to other important policy 

objectives? 

 26. Could or should any changes be made to the rules relating to qualified joint and survivor annuities 

and spousal consents to encourage the use of lifetime income without compromising spousal 

protections? 

 27. Should further guidance clarify the application of the qualified joint and survivor annuity rules or 

other plan qualification rules to arrangements in which deferred in-plan insurance annuities accumulate 

over time with increasing plan contributions and earnings? 

I think clarification is crucial. Many retirees make retirees make choices without really understanding the 

survivor rules. 

 28. How do the required minimum distribution rules affect defined contribution plan sponsors' and 

participants' interest in the offering and use of lifetime income? Are there changes to those rules that 

could or should be made to encourage lifetime income without prejudice to other important policy 

objectives? In particular, how are deferred annuities that begin at an advanced age (sometimes referred 

to as longevity insurance) affected by these rules? Are there changes to the rules that could or should be 

considered to encourage such arrangements? 

 29. Are employers that sponsor both defined benefit and defined contribution plans allowing 

participants to use their defined contribution plan lump sum payouts to ``purchase'' lifetime income from 

the defined benefit plan? Could or should any actions be taken to facilitate such arrangements? Should 

plans be encouraged to permit retirees who previously took lump sums to be given the option of 

rolling it back to their former employer's plan in order to receive annuity or other lifetime benefits? 

Selection of Annuity Providers 

 The Department of Labor's regulation 29 CFR 2550.404a-4 contains a fiduciary safe harbor for the 

selection of annuity providers for the purpose of benefit distributions from defined contribution plans. 

 30. To what extent do fiduciaries currently use the safe harbor under 29 CFR 2550.404a-4 when 

selecting annuity providers for the purpose of making benefit distributions? 

 31. To what extent could or should the Department of Labor make changes to the safe harbor under 29 

CFR 2550.404a-4 to increase its usage without compromising important participant protections? What are 

those changes and why should they be made? 

 32. To what extent could or should the safe harbor under 29 CFR 2550.404a-4 be extended beyond 

distribution annuities to cover other lifetime annuities or similar lifetime income products? To which 

products should or could the safe harbor be extended? 

ERISA Section 404(c) 

 ERISA section 404(c) and 29 CFR 2550.404c-1 provide defined contribution plan fiduciaries with 

limited relief from the fiduciary responsibility provisions of ERISA where a participant or beneficiary 

exercises control over the assets in his or her account. 

 33. To what extent are fixed deferred lifetime annuities (i.e., incremental or accumulating annuity 

arrangements) or similar lifetime income products currently used as investment alternatives under ERISA 
404(c) plans? Are they typically used as core investment alternatives (alternatives intended to satisfy the 

broad range of investments requirement in 29 CFR 2550.404c-1) or non-core investment alternatives? 

What are the advantages and disadvantages of such products to participants? What information typically 

is disclosed to the participant, in what form, and when? To what extent could or should the ERISA 404(c) 

regulation be amended to encourage use of these products? 

 34. To what extent do ERISA 404(c) plans currently provide lifetime income through variable annuity 

contracts or similar lifetime income products? What are the advantages and disadvantages of such 

products to participants? What information about the annuity feature typically is disclosed to the 

participant, in what form, and when? To what extent could or should the ERISA 404(c) regulation be 

amended to encourage use of these products? 

Qualified Default Investment Alternatives 

 ERISA section 404(c)(5) provides that, for purposes of ERISA section 404(c)(1), a participant in a 

defined contribution plan will be treated as exercising control over the assets in his or her account 

with respect to the amount of contributions and earnings if, in the absence of an investment election by 

the participant, such assets are invested by the plan in accordance with regulations of the Department 

of Labor. The Department of Labor's regulation 29 CFR 2550.404c-5 describes the types of investment 

products that are qualified default investment alternatives under ERISA section 404(c)(5). 

 35. To what extent are plans using default investment alternatives that include guarantees or similar 

lifetime income features ancillary to the investment fund, product or model portfolio, such as a target 

maturity fund product that contains a guarantee of minimum lifetime income? What are the most common 

features currently in use? Are there actions, regulatory or otherwise, the Agencies could or should take to 

encourage use of these lifetime income features in connection with qualified default investment 

alternatives? 

Comments Regarding Economic Analysis, Regulatory Flexibility Act, and 

Paperwork Reduction Act 

 Executive Order 12866 (EO 12866) requires an assessment of the anticipated costs and benefits of a 

significant rulemaking action and the alternatives considered, using the guidance provided by the Office 

of Management and Budget. In addition, the Regulatory Flexibility Act (RFA) may require the preparation 

of an analysis of the economic impact on small entities of proposed rules and regulatory alternatives. For 

this purpose, the Agencies consider a small entity to be an employee benefit plan with fewer than 100 

participants. The Paperwork Reduction Act (PRA) requires an estimate of how many ``respondents'' will 

be required to comply with any ``collection of information'' requirements contained in regulations and how 

much time and cost will be incurred as a result. 

 The Agencies in this section of the RFI are requesting comments that may contribute to any analyses 

that may eventually need to be performed under EO 12866, RFA, and PRA, both generally and with 

respect to specific areas identified in questions 36 through 39. 

 36. What are the costs and benefits to a plan sponsor of offering lifetime annuities or similar lifetime 

income products as an in-plan option? Please quantify if possible. 

 37. Are there unique costs to small plans that impede their ability to offer lifetime annuities or similar 

lifetime income products as an in-plan option to their participants? What special consideration, if any, is 

needed for these small entities? 

 38. Would making a lifetime annuity or other lifetime income product the default form of benefit 

payment have an impact on employee contribution rates? If so, in which direction and why? 
Making a lifetime annuity or other lifetime income product the default form of benefit payment would 

probably decrease the amount of participation because the Federal Government, banks, insurance 

agencies, Wall Street and corporations have lost the public trust. 

 39. For plans that offer lifetime annuities or similar lifetime income products, what percentage of eligible 

workers elect to annuitize at least some of their retirement assets and what percentage elect to annuitize 

all of their assets? 

Additional comments: 

Under no circumstances should the Federal Government take over any retirement accounts and 

guarantee a lifetime annuity. The Federal Government has showed time and time again that it is willing to 

dip into retirement funds rather than curb outrageous spending. 

 The current penalties and tax liabilities associated with early withdrawals should be reviewed. At a time 

when many are looking to the government to bail them out, honorable individuals facing unexpected 

financial events are forced to withdraw funds early and are then hit with tax consequences and penalties.