8515 East Orchard Road

Greenwood Village, CO 80111

(303) 737-3000

Address mail to: P.O. 173764

Denver, CO 80217-3764

May 3, 2010

FILED ELECTRONICALLY

Office of Regulations and Interpretations

Employee Benefits Security Administration

Room N-5655

U. S. Department of Labor

200 Constitution Avenue, NW

Washington, D.C. 20210

Attention: Lifetime Income RFI

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

Participants and Beneficiaries in Retirement Plans

Ladies and Gentlemen:

Great-West Retirement Services (“Great-West”)i provides record keeping and other services to 

over 4 million retirement plan participants and we appreciate this opportunity to comment on 

the Request for Information Regarding Lifetime Income Options for Participants and 

Beneficiaries in Retirement Plans (“RFI”). Great-West is committed to helping plan participants 

secure a financially comfortable retirement and commends the Employee Benefits Security 

Administration (“EBSA”), as well as the Treasury Department, for their efforts to improve 

retirement income adequacy.

Great-West offers a variety of products and services to participants, including a recently 

introduced guaranteed lifetime income product, that are designed to assist participants in 

preparing for a successful retirement. From our experience in working with plan participants, 

as well as from our review of the literature on retirement income adequacy and participant 

savings and investment behavior, we believe that providing a source of guaranteed income 

from defined contribution plan investments is essential to ensuring a reasonable level of 

retirement income adequacy in this country.

We strongly support the use of default strategies in connection with offering guaranteed 

lifetime income products. Participants in defined contribution plans represent a variety of 

investor types. What we have seen from working with participants (both directly and through 

financial consultants), and as supported by research on retirement plan investor typesii is that in 

any plan population there will usually be about 20% of participants who want to actively 

manage their account without help, another 20% who want help but want to ultimately make 

their own decisions, 50% who want decisions made for them, and 10% who are indifferent to 
Page 2

May 3, 2010

The Power of Partnering SM

their retirement plan. If we don’t utilize defaults as supported by behavioral finance research, 

we must accept the consequence that the majority of participants will retire without any 

guaranteed income from their defined contribution plan. We can expect this result to occur in 

spite of education and product availability and simply as a result of inertia.

While we support the use of default strategies to improve retirement income adequacy for 

passive investors, we also support robust participant educational efforts and protections for plan 

fiduciaries who want to reach the 40% of participants who either want to invest on their own, 

or want help with investing. These active investors should be provided the tools and resources 

they need to execute their individual financial decisions. Any default strategy should 

incorporate opportunities to opt out without penalty or restriction, both before and for a 

reasonable period of time after the default occurs, to allow these active investors to implement 

their individual investment decisions.

We believe that a retirement income policy which reflects and accommodates the needs of all 

types of participant investors will have the greatest chance of success in closing the retirement 

income gap and we thank you again for the opportunity to comment on this important policy 

issue.

Sincerely,

Charles Nelson 

President, Great-West Retirement Services

 

i Great-West Retirement Services® refers to products and services provided by Great-West Life & Annuity 

Insurance Company, FASCore, LLC, First Great-West Life & Annuity Insurance Company, White Plains, 

New York and their subsidiaries and affiliates.

ii Lucas, Laura, “Meeting the Financial Planning Needs of a Diverse and Paradoxical 401(k) Population”, 

Benefits Quarterly, December, 2002
1 

Response to Request for Information Regarding Lifetime Income Options

for Participants and Beneficiaries in Retirement Plans

Provided by Great-West Retirement Services®1

May 3rd, 2010 

1.

General Questions 

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

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

The advantages and disadvantages to participants will vary based on the type of lifetime income 

product they are invested in. Generally, the main advantage to plan participants is they can 

count on a reliable source of income they won’t outlive and that isn’t at risk of loss due to 

market volatility. Key disadvantages in some products are that participants may lose control 

over their account balance and some products may be difficult to understand and evaluate. Any 

and all references to “account”, “account balance” or ‘account value” throughout this RFI 

response may refer to total account or one fund in an account, depending on the product 

specifics. 

Great-West offers a product known as a “Guaranteed Lifetime Withdrawal Benefit” or “GLWB”, 

more fully described in response to Q 3. Key advantages of GLWB products are:

A. Protection Against Longevity Risk

GLWB products pay guaranteed income for the life of the participant (or for the second to die if 

a joint and survivor distribution option is selected) so they cannot outlive their retirement 

income.

B. Protection Against Market Losses

Once the guarantee is activated (generally 10 years before the participant’s expected retirement 

date), a benefit base is established from which lifetime income payments are calculated. The 

benefit base can go up with market gains but can never go down as a result of market losses. 

Participants can therefore count on a reliable level of lifetime income payments.

C. Opportunity to Benefit from Market Gains

Participants in GLWB products are typically invested in asset allocation funds and remain 

exposed to the potential upside of the capital markets throughout the accumulation and 

 

1 Great-West Retirement Services® refers to products and services provided by Great-West Life & Annuity 

Insurance Company, FASCore, LLC, First Great-West Life & Annuity Insurance Company, White Plains, New York 

and their subsidiaries and affiliates.
2 

distribution phases until their account is depleted, at which point the guaranteed payments are 

made from assets of the insurer. Typically the value of the underlying GLWB account is 

reviewed annually and if the value of the account is higher than the benefit base, the benefit 

base is raised to equal the value of the underlying account (this feature is typically referred to as 

a “ratchet” or “high water mark” feature). 

D. Inflation Protection – Increased Exposure to Equity Markets Throughout Retirement 

Participants invested in GLWB products will have a higher exposure to the equity markets in 

retirement years as compared to non GLWB investors because they are protected against 

downside market risk while benefiting from positive market experience. According to an 

Ibbotson study2

, this model provides higher total income for participants while decreasing 

income risk as compared to stand-alone traditional mutual fund portfolios.

E. Protection Against Sequence of Returns Risk

As we saw with the market crash of 2008 and its impact on employees nearing retirement who 

had significant exposure to the financial markets, a large loss at or near the time of retirement 

can have a devastating effect on the amount retirement income available to retirees because 

that is the time when retirees typically have their greatest account balance. In GLWB products 

participants invest over a long time horizon (typically ten or more years) during which their 

account value is protected against market losses so they eliminate the sequence of return risk. 

F. Protection Against Poor Investment Decision Making During Retirement

Participants who do not have ready access to professional financial help are unlikely to 

effectively manage a lump sum distribution such that it pays a reliable source of income which 

will last a lifetime. Loss of cognition late in life can also present a barrier to effective investment 

decision making. By investing in a GLWB, participants remain in a single asset allocation fund 

and do not make investment decisions regarding that account throughout their retirement years 

in order to secure guaranteed lifetime income.

G. Control Over Account 

One of the challenges in motivating participants to invest in lifetime income products is concern 

with losing control over their account. Participants worry that if their financial or other life 

circumstances change they will be locked in to an investment that no longer meets their needs. 

GLWBs address this concern by maximizing the amount of control participants have over their 

account. Typical features of GLWBs are:

• During the accumulation phase, participants have complete control over their account 

balance so they can transfer funds in or out of the GLWB investment, take loans or 

hardship withdrawals, etc. without incurring any additional fees or penalties (although 

transfers out may impact the amount of lifetime income available). 

 

2 Ibbotson Associates, Inc., “Allocation to Deferred Variable Annuities with GLWB for Life”, January, 2009
3 

• During the withdrawal phase, participants can take withdrawals in excess of the 

guaranteed withdrawal amount as needed to meet current financial needs. Any 

withdrawals will typically reduce the amount of future lifetime income payments.

• If a participant dies before their account has been depleted, any funds remaining in the 

account are passed to their plan beneficiary.

H. Fee Transparency

Fees for GLWB products typically consist of an asset management fee and a fee for the 

guarantee, both of which are commonly expressed as a basis point fee. Participants are familiar 

with basis point fees from their exposure to mutual fund investments and can understand what 

they are paying for the investment.

I. Net Value to Participant (Cost versus Benefit)

Participants pay a fee for the benefit of receiving guaranteed lifetime income and the amount of 

the fee will vary based on product features such as the level of guarantee, the degree of 

flexibility over the account, and other variables. However, the Ibbotson research identified in 

item D above, as well as other research on the relative economic value of GLWBs3

 support the 

conclusion that in-plan GLWBs offer the least costly method (looking at total costs – both out of 

pocket and market gain/loss costs) for providing guaranteed income for life.

GLWB products also involve some disadvantages to participants. Key disadvantages are:

A. Lack of Portability of Benefit Base

If the plan moves to a service provider that does not support the GLWB product, and if the 

participant cannot rollover his or her GLWB investment into an IRA that supports the product, 

the value of the guarantee (and of payments made by the participant to purchase the 

guarantee) may be lost. There is currently an industry wide effort to prevent this through 

cooperation among service providers and we anticipate finalizing this solution no later than 

12/31/2010. It should also be noted that when a participant’s account balance exceeds their 

benefit base, portability is much less of a concern because they will not lose the benefit of the 

ratchet feature.

B. Provider Solvency Risk

Participants are paying for a guarantee today that an insurance company is obligated to make 

payments on in the future. If for any reason that insurance company is unable to pay, 

participants will still have access to their account balance but may lose the benefit of the 

guarantee. 

There are typically two strategies used in GLWB products to address the “ability to pay” risk. 

The first one is controlled by the product provider using an investment strategy referred to as 

“hedging” to ensure that market volatility will not impair their ability to pay promised benefits 

 

3

 Brown, Jeffrey, Ph.D, “Automatic Lifetime Income as a Path to Retirement Income Security”, August, 2009
4 

when due. The goal of the hedge strategy is to offset changes in the value of the guarantee 

with changes in the value of hedge instruments. These sophisticated investment strategies 

utilize derivatives to offset the capital market risks. There are many different strategies 

available to do this, but the most popular programs utilize dynamic hedging. Dynamic hedging 

allows the provider to rebalance their portfolio as necessary in order to maintain the same 

sensitivity to market parameters as the guarantee. 

The other protection against “ability to pay” risk arises from the fact that these products are 

insurance products governed by state insurance laws and may also subject to state and federal 

securities law requirements. Protections under these laws include:

• Maintaining reserves sufficient to cover the level of risk taken 

• Routine, comprehensive reporting to, and examination by, state insurance regulators 

• Mandatory participation in state guarantee associations that protect all policy holders 

within that state

• Review of all marketing materials used to sell the product.

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 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? 

There are a myriad of reasons why participants elect lump sums over lifetime income payments 

at retirement. Based on our experience at Great-West, key reasons include:

• Lack of availability. Many defined contribution plans do not offer or promote lifetime 

income options to their participants. Concerns with fiduciary risk when selecting and 

monitoring lifetime income products, uncertainty regarding their status as QDIAs, lack of 

clarity regarding providing participant education, and concern with compliance costs 

and risks under the survivor annuity rules negatively impact product availability.

• Poor planning during the accumulation phase. Participants to not save enough and/or 

do not invest wisely so their resulting account balances at retirement are not large 

enough to provide meaningful lifetime income payments.

• Lack of professional financial help. For most participants, the first time they are 

presented with an investment option offering lifetime income from their retirement 

plan account is when they retire or otherwise terminate from employment. The 

investment education provided by plan sponsors is typically focused on the 

accumulation phase, not the distribution phase, so participants are not armed with good 

information when making their decisions. The products providing lifetime income have 

different features than mutual funds, which is the type of investment product 

participants get the most education about, so the lack of understanding creates a 

barrier to investing.

• Concern with losing control over their account balance. Many of the products that 

provide lifetime income require participants to annuitize their account balance. 
5 

Participants are concerned with not having access to funds they might need and with

not being able to provide a death benefit to their beneficiaries - particularly if they die 

at an early age.

The Agencies can take steps to increase the likelihood that participants will elect lifetime income 

products. Following is a brief overview of recommended steps, which in some cases are crossreferenced to other RFI responses that discuss the recommended step in more detail.

• Require defined contribution plans to show participants their account balance 

expressed as a lifetime income stream on an annual basis. (Qs 21 – 24). This will 

encourage participants to save more and plan more effectively for retirement during the 

accumulation phase. It will also introduce them to concepts relevant to retirement 

income products, thus making it more comfortable to choose those products.

• Encourage plan sponsors to educate participants about lifetime income products by 

clarifying what is education and what is fiduciary advice in the context of these 

products (Qs 18 – 20). Participants need to receive this education throughout the 

process of planning for retirement, not just when they reach retirement. Plan sponsors 

are in the best position to do this cost effectively, but they are concerned with fiduciary 

risk under current guidelines on what constitutes advice versus education.

• Create a fiduciary safe harbor for selecting lifetime income products that encompasses 

a broad product array (Qs 31-33). The current safe harbor is targeted to annuity 

products and does not encompass other types of lifetime income products. There has 

been significant product innovation in the past few years and that is likely to continue 

and possibly accelerate. Plan sponsors are not familiar with these products or how to 

evaluate them and would be more likely to choose them if the Department of Labor 

were to define safe harbor fiduciary standards for selection. 

• Address potential barriers in the Internal Revenue Code that create administrative 

burdens and/or raise concerns about plan qualification in offering lifetime income 

products (Qs 25-29). Issues under the survivor annuity rules and potentially the 

required minimum distribution rules are an impediment to the inclusion of some “inplan” retirement income products.

• Facilitate portability of lifetime income products (Q 14). Portability of in-plan lifetime 

income products can be a barrier to their inclusion in defined contribution plans. The 

Agencies could improve portability by allowing participants to rollover a lifetime income 

product to an IRA account in the event the guarantee or other product specific benefits 

would otherwise be lost as the result of a vendor change.

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? 

Most defined contribution plans do not offer lifetime income options. Lifetime income 

investment options available to defined contribution plans generally include deferred annuities 

(DAs), guaranteed lifetime income benefits (GLIBs), and guaranteed lifetime withdrawal benefits 

(GLWBs). All of these products allow participants to make ongoing contributions into the 

product during the accumulation phase, guarantee income for life, and involve a benefit 
6 

guaranteed by an insurance company. There are variations within each of these product types, 

but following are key features that are constant.

• DAs – Participant contributions are invested in a fund (a fixed income fund for fixed 

annuities, or an array of funds for variable annuities) and participants have control over 

the fund during the accumulation phase, although early withdrawal charges may apply. 

Once the account is annuitized (generally in connection with a plan distribution) 

participants no longer have control over their account. Fees are embedded in the 

purchase rate. 

• GLIBs – During the accumulation phase participant contributions are invested in mutual 

funds or other investment products and explicit investment and insurance fees are 

charged. Favorable performance of the underlying investments will enhance future 

income but negative performance does not reduce future income. Upon retirement the 

account is annuitized so participants no longer have control over their account and the 

payout rate is set.

• GLWBs – During both the accumulation and distribution phases participant 

contributions are invested in mutual funds or other investment products and the value 

of the guaranteed income amount increases with positive market experience, but does 

not decrease with negative market experience. The account is never annuitized and 

participants retain control over their account balance during both the accumulation and

distribution phases. The guaranteed withdrawal rate is calculated as a percentage of 

the participant’s benefit base. Explicit investment fees are charged from the initial 

investment and an additional guarantee fee is charged at some specified point prior to 

reaching the minimum withdrawal age.

Great-West recently introduced a GLWB product to its customers. Specific features of the 

Great-West product are:

• It is offered in the context of an overall strategy for retirement plan investing that is 

individualized at both the plan and participant level.

• The date for commencing investment in the guarantee component of the GLWB is 

generally age 55 or 10 years prior to the participant’s expected retirement date.

• Contributions to the GLWB are invested in index funds packaged as either a balanced 

fund or a target date fund. 

• Contributions and earnings establish a benefit base, which is used to determine the 

guaranteed income withdrawal amount. Investment earnings increase the benefit base 

(and therefore the guaranteed withdrawal amount) on the “ratchet date”. Excess 

withdrawals (i.e. withdrawals in excess of the guaranteed amount) decrease the benefit 

base but negative market experience does not.

• Excess withdrawals allow the participant to withdraw any amount up to their account 

balance at any time. This allows the participant absolute flexibility in managing 

unexpected expenses. 

• The guaranteed withdrawal amount is a specified percentage of the participant’s benefit 

base that varies based upon the age when payments begin. For example, a 65 year old 

would receive payments at a 5% rate, while an 80 year old would receive payments at a 

7% rate. The earliest a participant can begin receiving guaranteed payments is age 55.
7 

• Guaranteed withdrawals are funded from the participant’s account balance until 

exhausted, at which point the payment obligation is assumed by Great-West as the 

insurer. Any amounts remaining in the participant’s account upon death is passed to 

their beneficiary.

• Participants have flexibility re/the manner in which guaranteed payments are received, 

including the option to take a single or joint and survivor form of lifetime payments, as 

well as the schedule for receiving payments.

• Participants entitled to receive an eligible rollover distribution have the option of rolling 

in to an IRA that mirrors the plan product (once approved in the participant’s state and 

declared effective by the Securities and Exchange Commission), so they do not lose any 

of the benefits through rollover.

• Depending on the GLWB fund, participants pay an investment management fee and, 

once the guarantee period begins (generally age 55), a fee for the guarantee feature. All 

fees are fully disclosed to both plan sponsors and plan participants and plan sponsors 

pay no fees for including this product in their plan.

• Great-West utilizes a hedging strategy to manage its risk in offering and supporting this 

product.

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

or other termination of employment as opposed to be offered incrementally during the 

accumulation phase, as contributions are made? How are such incremental or accumulating 

annuity arrangements structured? 

All of the products referenced in item #3 above are offered incrementally during the 

accumulation phase. Key challenges to offering these options during the accumulation phase 

include real or perceived risks to plan fiduciaries and compliance costs and challenges posed by 

the survivor annuity and other tax qualification rules. Product features vary in key respects, 

including:

1. The extent to which participants have access to, and control over, the underlying account 

balance during both the accumulation phase and the guaranteed withdrawal phase.

2. The type of investments underlying the product (mutual fund based or fixed income) and 

the extent to which exposure to positive market earnings continues during the withdrawal 

phase.

3. The manner in which fees are charged (explicit fee, embedded in earnings rate or level of 

guaranteed payments, or a hybrid).

4. The consequences of early withdrawals (additional fees, reduction of guaranteed payments, 

etc.).

5. The extent and manner to which additional contributions and earnings affect the level of 

guaranteed lifetime payments.

6. Whether there is a “waiting period” (i.e. a period during which a fee for the guarantee 

feature is charged but guaranteed payments are not available).

7. Whether the product provider is also the insurer and the manner in which the risk of the 

guarantee is managed by the insurer.

8. The level of access participants have to their account during both the accumulation and 

withdrawal phases (loans, hardship withdrawals and other distributions).
8 

9. Restrictions to access such as minimum and/or maximum ages, ability to roll or transfer 

funds in from other accounts or investments, etc.

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? 

In the Great-West product participants can choose to invest salary deferrals, matching 

contributions, and employer nonelective contributions in the lifetime income investment. Plan 

sponsors can also choose to utilize the lifetime income fund as the plan’s default fund. Investing 

employer contributions into a lifetime income fund may be particularly attractive to plan 

sponsors who either have eliminated, or are considering eliminating, a defined benefit plan.

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? 

Participants in some plans can elect either an in-plan immediate annuity or an out of plan 

rollover annuity. The key distinction is that the annuity option available is chosen by the plan 

sponsor for in-plan annuities, while participants can elect from a wide array of annuity providers 

when selecting a rollover annuity. In either event the participant’s benefit is annuitized at the 

time of purchase and they no longer have any account balance to control or access.

There are also IRA products with features similar to the GLWB products described in response to 

Question 3. With state approval and once declared “effective” by the Securities and Exchange 

Commission, participants who invest in the Great-West GLWB product can roll to a Great-West 

IRA and retain the guarantee and 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? 

If a product feature is added to lifetime income product it could add additional costs. By 

providing additional benefits or flexibility with respect to the guaranteed payments, the amount 

that an insurance company will have to charge will increase as the amount of risk increases. In 

the case of products that offer flexibility in the underlying investments, the more aggressive the 

investment option the more it costs the insurance company to maintain the future guarantees. 

While the participant could enjoy an increased return, the flexibility will increase the risk for the 

insurance company and those costs will be added to the product. 
9 

Another concept to consider is risk pooling. The more participants that go into a pool, the more 

guaranteed lifetime income the participants can receive. When participants have the ability to 

withdraw from pool, it has implications for the reserves annuity providers are required to hold. 

Product features offer a great deal of benefits for participants and each insurance company will 

price options differently depending on the hedges they use to back the guaranteed payments.

Other product features that impact cost include:

• Providing the guarantee on investment vehicles which cannot be hedged

• Frequency of benefit base changes

• Escalation features

• Regulations which require significant hard copy communication or disclosures that 

cannot be provided electronically

• Features that potentially increase the payout rate.

• Payment structures that do not create incentives for participants to delay starting 

payouts 

• Service provider compensation

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)?

The advantages and disadvantages to participants vary based on the type of lifetime income 

product utilized. The response provided below is applicable to participants using GLWB type 

products. Additional information on the advantages of GLWB products is contained in response 

to Q 1.

• A key advantage of in-plan GLWB products is that they allow participants to have an 

extended period of time (typically 10 or more years) of participation in the investment 

before retiring while being protected from downside market risk. This provides the 

security of a known “floor” of retirement income and protects against the risk that a 

market correction at or near their retirement date may significantly reduce the amount 

of retirement income available. 

• GLWBs contain a “ratchet” feature whereby the value of the benefit base (and 

consequently the lifetime income payments) is increased on a periodic basis (typically 

annually) to reflect positive earnings in the underlying account. The benefit base is not 

reduced by market downturns. This provides participants the opportunity to continue 

to benefit from exposure to the equity markets without risk of loss to their retirement 

income. 

• Participants have the flexibility to add contributions to their lifetime income account 

including contributions subject to IRC limits, transfers from other investments in the 

plan, or rollovers from other retirement plan accounts. During the time period where 

these options are available they are receiving information at least annually, and have 

access to planning tools on a daily basis, informing them of the level of lifetime income 

their account will provide. Participants can take advantage of this extended time period 
10

during which they have multiple options to increase their investment in lifetime income, 

as well as reliable information about where they stand, in order to plan effectively for 

retirement.

• The selection of in-plan GLWBs is done by a plan fiduciary subject to ERISA’s fiduciary 

due diligence rules, which also require ongoing monitoring of the investment. Out of 

plan options are typically chosen by the participant who may or may not have access to 

expert help in selecting the product.

• Plan sponsors provide ongoing education and support around the lifetime income 

investment product.

• Participants will typically pay less for in-plan options due to the advantages of 

institutional pricing as compared to retail pricing.

There are some disadvantages to in-plan GLWBs. Key disadvantages are:

• Under the current regulatory structure there are real or perceived additional fiduciary 

risks to plan fiduciaries, compliance risks, and administrative costs involved with offering 

in-plan GLWBs. See our response to Q 14 for more detail re/these issues.

• In the current marketplace there are challenges to the portability of in-plan GLWBs. If 

the plan sponsor elects to move to a new service provider that does not support the 

GLWB product the participant is invested in and the participant is not eligible for a 

distribution, there is a risk the participant will lose the value of the guarantee. GreatWest is currently working on an industry initiative through SPARK to address the 

portability concern and we expect that solution to available no later than December 31, 

2010.

 

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?

The advantages and disadvantages to plan sponsors vary based on the type of lifetime income 

product utilized. The response provided below is applicable to plan sponsors using GLWB type 

products.

Key advantages to plan sponsors are:

• GLWBs can significantly increase the likelihood that participants will be able to retire 

with guaranteed income, particularly when used as the default investment option in an 

automatic enrollment plan. See our response to Q 1 for a full list of benefits to plan 

participants from investing in GLWBs. Successful financial outcomes for participants 

increase employee satisfaction and decrease the risk of claims against plan fiduciaries.

• Many plan sponsors maintain frozen defined benefit plans, creating a situation where a 

portion of their work force has access to a retirement plan offering guaranteed lifetime 
11

income and a portion of their work force does not. Offering a lifetime income option 

helps to address issues of fairness across the employee population.

• Offering a lifetime income option gives plan sponsors the opportunity to educate and 

support participants through both the accumulation and distribution phases of 

retirement.

Key disadvantages to plan sponsors are:

• As with all plan investments, the plan sponsor bears the fiduciary responsibility for

selecting and monitoring the product.

• Participants require information and education about this type of investment.

• GLWB products may not be fully portable and may pose challenges if the plan sponsor 

wishes to move to a new service provide that doesn’t support the product. The industry 

is working to address this problem through a cooperative effort and we anticipate 

having a solution in place no later than 12/31/2010.

• There are compliance concerns under existing Agency rules, discussed more fully in Q

14. 

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? 

Within the Great-West customer base annuity options are typically not offered due to the costs 

associated with complying with the survivor annuity rules. In the Great-West GLWB product 

there are no minimum contribution requirements or other restrictions on the portion of a 

participant’s account that can be invested in the product so participants can effectively 

accomplish partial annuitization of their account balance.

We believe that by offering participants flexibility regarding how much of their account to invest 

in a lifetime income product, particularly in a context where they do not lose control over, or 

access to, the funds invested in the guaranteed product, participants will be more likely to invest 

in a lifetime income option. The simplicity of GLWBs in terms how easy it is for participants to 

change their mind about how much income they need to plan for and what withdrawal amounts 

they need also encourages the choice of a lifetime income option.
12

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 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 mean 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? 

Great-West’s GLWB target date funds are available to plan sponsors as a QDIA and we believe 

that use of defaults in connection with lifetime income products is essential to creating 

retirement income adequacy in the United States. We know from research on behavioral 

science applied in the context of retirement plan investing that a significant percentage of 

participants will never take the time to educate themselves about lifetime income products or, if 

they do, will never act on the education they receive.4

 Many experts who have studied the 

problem of retirement income adequacy have recommended that some or all of participants’ 

accounts in defined contribution plans be defaulted in to a distribution option that provides 

guaranteed lifetime income payments.5

 This research supports the view that if we take a “wait 

and see” approach to see if encouraging voluntary action will be enough to close the income 

gap, we are unlikely to be satisfied with the result and will have lost valuable time needed to 

close the gap.

While Great-West strongly supports the use of lifetime income options as a default, we also 

believe it’s critical that defaulted participants have the opportunity to opt out of the default 

without penalty, both before the default action occurs as well as for some administratively 

reasonable period of time after it occurs. There will always be a segment of participants who 

want to actively manage their account during retirement or who have other reasons why a 

lifetime income solution is not the right solution for them and we believe it is critical to support 

this category of participants, as well as those who are less active investors.

One of the key barriers in using defaults to cause participants to invest in lifetime income 

products and or to take distribution in the form of lifetime income vehicles has been the 

irrevocability of the investment decision. Lack of control over account balances and the “all or 

nothing” choice inherent in many annuity products are core reasons why plans don’t offer inplan lifetime income products and participants don’t select them when taking a distribution 

from the plan. More recent products, such as GLWBS, address this problem by allowing 

participants control over how much of their account to invest in a lifetime income option, 

allowing them to invest gradually over time and make changes to their investment elections, 

 

4 Mitchell, Olivia and Stephen Utkus, ”Lessons from Behavioral Science for Retirement Plan Design”, published by 

the Wharton School of the University of Pennsylvania’s “Pension Research Council”, 2003; Brown, supra note 2.

5 GAO-09-642, “Alternative Approaches Could Address Retirement Risks Faced by Workers but Pose Trade-offs”, 

July, 2009; TIAA-CREFF Institute, “Perspectives on Retirement System Reform for the 21st Century”, December, 

2009; ERISA Advisory Council” Approaches to Retirement Security in the United States”, 2009
13

and allowing access to and control over their account in the lifetime income investment during 

both the accumulation and withdrawal phases. 

Creating a regulatory structure that would allow plans to default participants in to lifetime 

income investments and distribution options is essential for addressing the risk that participants 

will outlive their retirement savings. However, participants must have sufficient flexibility after 

the default has occurred to align the retirement income investment with their individual 

retirement income needs. Please see our response to Q 13 for more detail on this topic.

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?

Participants need to have flexibility in determining how much of their retirement account to 

annuitize or convert to guaranteed payments based on their individual circumstances such as 

the existence of other retirement accounts, the likelihood of inheritance, or health concerns. It 

is critical that participants do the analysis to understand how much income they will need in 

retirement and where that income will come from. 

Great-West believes that the best way for participants to determine the portion of their account 

balance to annuitize is to take advantage of the financial advisory services that are made 

available to them as plan participants. This typically includes on-line modeling tools, but may 

also include generic and/or individualized investment help. As more participants are nearing 

retirement age, retirement plan advisors have been building better communication tools to 

assist with the decumulation phase of retirement and we believe they are the best resource for 

participants to use for individual retirement planning. 

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? 

Yes. Requiring defined contribution plans to offer a lifetime income distribution option, and 

further requiring that this option be the default distribution option, will further the goal of 

improving retirement income security.

Participants would be given access to low-cost, institutionally priced lifetime income options 

selected in accordance with fiduciary due diligence requirements. There is significant product 

innovation currently occurring with respect to lifetime income products and the Agencies should 

fashion rules that encourage future development by defining “lifetime income distribution 

option” in broad terms. 

According to a 2009 Hewitt study6

 

6 Hewitt Associates LLC, “Trends and Experience in 401(k) Plans, 2009

, 84% of 401(k) plan participants take distribution in the form 

of a lump sum payment and only 1% elect an annuity. With this wide a gap, relying on voluntary 

choices by plan sponsors and plan participants will not be sufficiently effective in promoting 

retirement income adequacy. Using a lifetime income option as the default distribution option 
14

is necessary to address the risk that a substantial number of participants will outlive their 

retirement income. Protections similar to those offered in the context of automatic 

enrollment, such as notice requirements and the opportunity to opt out without penalty, are 

essential to effective use of a default strategy. The products used as a default must be flexible 

enough to accommodate the necessary flexibility and must be attractive enough to defined 

contribution plan participants to promote a high “stick rate” similar to what we’ve experienced 

using automatic enrollment. 

We believe the entire account balance should default to these products. If participants must 

proactively elect the portion of their account to which the default applies, it defeats the purpose 

of setting it as the default because you lose the benefit of inertia. 

We believe that if lifetime income options are required as the default distribution option with 

appropriate protections for plan sponsors (including protections similar to those offered under 

the QDIA rules), it will encourage plan sponsorship because it will make the plan more valuable 

to employees and will reduce the risk of claims brought by participants based on insufficient 

retirement income.

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? 

Key impediments to plan sponsors are lack of products that are compatible with defined 

contribution plans, unfamiliarity with the products that do exist , concerns with compliance risk 

under plan qualification rules, concerns with fiduciary risk in selecting and monitoring these 

products as well as with educating participants about them, and concerns with lack of product 

portability. The Agencies can address some of these concerns by providing guidance on the 

following issues:

• Clarifying safe harbor standards for plan fiduciaries to follow when selecting and 

monitoring lifetime income products.

• Expanding the guidance on what constitutes education versus fiduciary advice so 

that plan sponsors are comfortable educating participants about these products.

• Amending the joint and survivor annuity rules such that lifetime income products 

meeting certain criteria are not “life annuities” triggering application of the spousal 

annuity rules. Please see our response to Qs 26 and 27 for more detail on this issue.

• To the extent necessary, harmonizing the required minimum distribution rules with 

product features in lifetime income products.

• Addressing portability concerns by 1) clarifying the standards a plan fiduciary should 

follow when evaluating portability at the time of purchase, as well as when 

evaluating the impact on individual participants of a change in vendors that results 

in the loss of investment benefits, and 2) allowing participants to rollover the 

portion of their account invested in a lifetime income product in circumstances 

where benefits or rights of the product will otherwise be lost due to a vendor 

change.
15

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?

In our experience reverse mortgages and long term care insurance are not investment choices 

utilized in the defined contribution plan market.

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? 

Great-West has conducted research on its customer base indicating that there are differences in 

how defined contribution plans are utilized by different demographic groups and we would be 

pleased to provide this analysis if so requested by the Agencies. Our focus in conducting the 

research was to assist plan advisors in designing effective participant communication and 

education programs. 

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.

Participant Education 

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? 

Behavioral research suggests that when communicating to participants about lifetime income 

options the manner in which the conversation is framed and the language used to describe the 

investment will significantly impact the type of reaction participants have to the information. 

For example, in a study published by TIAA-CREF Institute7

, participants were presented with the 

choice of preferring an annuity or a lump sum payment. Half of the participants had the choices 

described to them in an investment or accumulation framework talking about savings. The 

other half heard them described in a consumption framework talking about having enough 

money to live on during retirement. Only 20% of the participants who listened to the “savings” 

discussion preferred an annuity, while 70% of those who listened to the “consumption” 

discussion preferred it. This research highlights how critical it is to change how participants 

think about their 401(k) plan benefit and how important effective communication is when 

talking about lifetime income solutions.

 

7 Brown, Jeffrey, King, Jeffery and Wiens, Garth, “Framing, Reference Points and Preferences for Life Annuities”, 

TIAA-CREF Research Dialogue, November, 2008
16

With respect to in-plan options, participants are typically offered only one lifetime income 

investment product selected by a plan fiduciary so the information they need is limited to 

information that is relevant to the decision of whether, and to what extent, they should invest in 

the product. With respect to out-of-plan options, participants need the same information as 

they do for in-plan options, but also need to understand information relevant to the selection of 

the product itself. Our response is limited to information relevant to in-plan options.

In order to make informed investment decisions, participants need the following basic 

information:

• A general explanation of how lifetime income products work

• General guidance on how to calculate lifetime income needs

• How lifetime income payments are calculated in the product

• Events that impact the amount of lifetime income payments

• The extent to which investors remain exposed to market volatility – up or down

• The availability of withdrawals from the account at various stages

• The degree of control participants have over the account at various stages

• Information about the underlying investments

• Full disclosure of any fees they will pay related to the investment 

• Any restrictions or limitations on the investment

• Distribution methods available

We believe that all of the information described above is important for participants to receive 

when making decisions about investing in a lifetime income product. Participants should receive 

this type of information at the time they are making their initial investment decision. 

Participants should also receive information at all “decision points” relative to the particular 

product. For example, if they are electing to take a withdrawal from a lifetime income product 

that will result in a reduced amount of guaranteed income payments, they should receive notice 

to that effect. Similarly, if there is a guarantee or other fee that will be triggered by a date or 

action, participants should be notified of the application of the fee near the time it is scheduled 

to commence. Finally, as participants near the date they will be eligible to receive guaranteed 

payments, they should receive information regarding how the timing of beginning withdrawals 

will impact the amount of lifetime income payments.

There should be flexibility in terms of the manner in which information is provided to meet the 

needs of the relevant employee population, but electronic modeling tools are essential for 

planning with these products and should be available to all participants. We believe it’s also 

essential to promote simplicity of communication to the extent possible to get core concepts 

across to participants, such as by using charts, illustrations and examples. We also encourage 

the Agencies to enhance the availability of electronic communication by simplifying the 

electronic delivery rules that apply to required notices and disclosures.

In the Great West product participants are given the following information:

o An explanation is provided of how the GLWB product works and core product 

features. This includes a description of how the actions of the participant such 

as investing contributions in the product, transferring funds in to the product, 
17

taking non-guaranteed withdrawals, or selecting a particular retirement age or 

form of lifetime payment (single or joint) impact the amount of guaranteed 

lifetime income payments. It also describes the level of control participants 

have over their account during both the accumulation and withdrawal phases.

o An explanation is provided of the underlying investment choices available, 

including a “fund fact sheet” providing detailed information on risk and return, 

fees (both investment management fees associated with the underlying funds 

as well as the cost of the guarantee), objectives, portfolio detail, and how the 

guarantee associated with the investment works.

o Graphs and case studies are provided illustrating key features of the product, 

such as the ability to “ratchet” or benefit from positive market experience while 

being protected against negative market experience. These graphs and case 

studies also explain the difference between the participant’s fund value and the 

benefit base used to calculate the amount of lifetime income payments they will 

receive.

o Participants are given information about Great-West as the insurer of the 

product, including ratings information.

o Participants are provided with general information about the risk of outliving 

their retirement income.

In addition to this information, participants are given access to online tools to help them model 

individual retirement income scenarios.

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? 

Yes, there is need for clearer guidance that plan assets can be used to pay for expenses related 

to helping participants make informed decisions about lifetime income options. Plan fees have 

received an enormous amount of attention in recent years and are an area of great concern to 

plan fiduciaries. Lifetime income products, particularly the hybrid products currently being 

offered, present new communication and education challenges as they incorporate concepts 

and language that many participants are unfamiliar with. While the rules regarding when plan 

assets can be used to pay for education are fairly clear, plan sponsors, may be more likely to 

offer these options if it were clearer that the cost of education can be paid from plan assets. 

The guidance should address the types of help that can be offered in the context of education 

and should be flexible in accommodating various methods for providing the education and the 

people or entities providing it.
18

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 

steam of income after retirement? What actions, regulatory or otherwise, could the Agencies

take to address such concerns? 

Plan sponsors, particularly in the small employer market, are concerned that if they provide 

education about a specific product they will be held to a fiduciary standard. In order to address 

this concern it would be helpful to expand Interpretive Bulletin 96-1, or to provide separate 

guidance relative to educating participants about lifetime income products. The guidance 

should allow plan sponsors or service providers to provide general information such as life 

expectancies, historic investment returns, and the impact of an investment loss at or near 

retirement on retirement income, simulated withdrawal rates, etc. It should also allow for 

information about general features of annuities, GLWBs, or other lifetime income products. 

Finally, since there is typically only one lifetime income investment option available in a plan, 

the guidance should allow for a discussion of specific product features as discussed more fully in 

response to Q 17.

We believe it is critical for the Agencies to provide this guidance and protection. These products 

are unfamiliar to many small plan sponsors and require a level of long term commitment by 

participant investors that is not present in the investment products available in most 401(k) 

plans today. Plan sponsors may be reluctant to add these products if they do not believe they 

can help participants make well informed decisions without taking on additional fiduciary risk.

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?

We believe plans should be strongly encouraged to provide or promote education about the 

advantages and disadvantages of lifetime annuities or similar lifetime income products. 

For most plan participants their retirement plan benefit and their Social Security payments will 

be their sole sources of retirement income. In the current environment, participants do not 

calculate what they need for retirement and compare it to what they will receive from Social 

Security, but nonetheless tend to think of their retirement account as a source for lump sum 

withdrawals rather than as a source for lifetime income payments. It is critical that we start 

now to change this way of thinking and get participants to plan more realistically for retirement 

and confront the possibility that they may outlive their assets. Providing education about 

lifetime income products and how the future might look different with or without such a 

product is an essential part of making this change and should be strongly encouraged. Guidance 

that would help facilitate this is described in more detail in Q 19.

ERISA section 105 required defined contribution plans to furnish each participant an individual 

benefit statement, at least annually, that includes the participant’s “accrued benefits,” i.e., the 

individual’s account balance. 

Disclosing the Income Stream that can be provided from an Account Balance

(Bingaman Bill concept)
19

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?

Yes, we believe that requiring individual benefit statements to present the participant’s benefit 

in the form of a lifetime income stream as well as an account balance will further the goal of 

improving retirement income security. Throughout the history of 401(k) and other deferred 

compensation plans participants have become accustomed to thinking about their retirement 

plan like a savings account with a lump sum of cash available for immediate withdrawal upon 

retirement. We currently reinforce that perception by routinely showing participants their 

benefit only in that format. The research referenced in response to Q. 17 highlights how critical 

it is to change how participants think about their 401(k) plan benefit if we want them to treat it 

as a source for retirement income rather than as a savings account. 

Showing participants their benefit in the form of lifetime income may improve the savings rates 

of plan participants and help them plan more effectively for retirement. For example, showing a 

participant who makes $40,000 a year an account balance of $250,000 may seem like a lot of 

money and give them a false sense of security, but if you also show that $250,000 may generate 

annual lifetime income payments of $12,500 or less you help them to see the relationship 

between their current income needs and the amount of money their retirement account will 

provide. In addition to encouraging additional savings and planning on the part of plan 

participants, showing benefits as a lifetime income stream may encourage plan sponsors to 

improve plan design, such as by adding automatic enrollment or increasing their matching 

contributions and earnings.

22. If the answer to 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 join and survivor-type annuity, or both? 

There should be a standardized format for showing lifetime income payments so that 

participants can readily compare statements from multiple accounts or from different vendors 

in the event their plan moves to a new service provider. The DOL should create a safe harbor 

“core” standard, but should also provide fiduciary protection for providing projections in 

addition to the core standard.

The core standards should be simple and readily understood by participants. For example, they 

should show benefits commencing at the participant’s social security retirement age in the form 

of both a single and a joint and survivor annuity payable monthly. 

In order to avoid incurring the same overconfidence problem we face today, the core standard 

should require showing future lifetime income based on the current account balance without 

making any assumptions about future contributions, but the fiduciary protection for showing 

projections in addition to the core standard should allow for projections assuming future 

contributions and earnings.
20

Plans should be encouraged to offer participants access to online calculators enabling them to 

model various lifetime income scenarios based on their individual circumstances.

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 on as safe harbors?

In order to project lifetime income payments actuarial assumptions will need to be made. 

Great-West does not offer a specific set of recommended assumptions, but cautions that the 

assumptions used in the core disclosure will be most useful in terms of promoting future savings 

if they do not project future contributions, or include an inflation factor that participants may 

not recognize as such. The most effective core projection may be what their current account 

balance could buy in lifetime income payments expressed in current dollars assuming 

retirement at their Social Security retirement age. Additional projects could be included and 

should be protected in the safe harbor, but participants should always understand what their 

current savings will buy them.

Participants should be given information about the material assumptions used and any potential 

weaknesses related to the assumptions. They should understand that the projection is an 

estimate and not a guarantee of income. We believe that the Department should create a safe 

harbor protecting plan fiduciaries that provide this information. We do not believe that the 

assumptions should be dictated by regulation.

In addition to providing fiduciary protection for the core disclosure, the safe-harbor should also 

extend to other illustrations as long as reasonable assumptions are used. Plan fiduciaries should 

be able to show illustrations based on particular products in a plan, features unique to a 

particular employee population or plan design, or other variables as long as the assumptions are 

reasonable, consistently applied, and disclosed to participants.

Our recommendations for the safe harbor are as follows:

• It should protect all plan fiduciaries from claims brought by plan participants, beneficiaries, or 

others arising from reliance on any information contained in a lifetime income projection (in 

paper, electronic, or other format) that meets the conditions of the safe harbor.

• One of the conditions of the safe harbor should be that participants receive information on their 

benefit in the form of an account balance and a lifetime income stream using reasonable 

assumptions and methodologies as defined in the safe harbor. 
21

• The safe harbor should also provide protection for including additional illustrations and 

projections that may be more relevant to a particular population of participants (for example, 

participants who also are covered by a defined benefit plan, or who have access to a guaranteed 

lifetime income investment product inside the plan) as long as reasonable assumptions are 

used. The determination of “reasonableness” should be broad enough to encompass future 

product innovations and should be determined at the time the assumptions were selected.

• Participants should be provided with information about the assumptions used and should also 

be given general information to assist with understanding the projections (such as an 

abbreviated mortality table and definitions of key terms – like “guarantee”.) The DOL should 

provide a safe harbor notice.

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 post-retirement inflation assumptions, and what are the impediments for 

plans to present the ratio in a meaningful way to participants on an individualized basis?

We believe this type of disclosure should be encouraged through a fiduciary safe harbor but 

should not be required. In order to be meaningful, income replacement calculations require 

incorporating information that is unique to each participant and that is not maintained on 

retirement plan record keeping systems. For example, any such illustration should incorporate 

the availability other income or assets (such as spousal income or assets), opportunity for 

inheritance, health, and other factors. Further, the concept of a replacement ratio based on 

current income levels is not relevant to all age groups. For example, a 22 year old may expect to 

be earning 2-3 times their current rate of pay in their peak earning years so an income 

replacement ratio based on their current rate of pay would not be meaningful.

Many plan sponsors today do provide general information about income replacement ratios 

and/or participant specific ratios generated through individualized communication about the 

participant’s unique financial circumstances. We believe that this practice should be 

encouraged by 1) clarifying that providing this information is education and is not fiduciary 

advice, and 2) including in the safe harbor referenced in response to Q 22 protection for 

fiduciaries that use reasonable methods and assumptions when illustrating income replacement 

ratios.

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 CFR 1.417(e)-1.

401(K) and Other Plan Qualification Rules 
22

25. How do the 401(k) or other plan qualification rules affect defined contribution plan sponsors’ 

and participants’ interest in 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?

As described more fully in our response to Q 26, the current rules on qualified joint and survivor 

annuities pose a barrier to adopting GLWBs and other types of lifetime income products that are 

not pure annuities and changes to those rules would encourage utilization of lifetime products 

without jeopardizing spousal protections. Also, as more fully described in our response to Q 14,

allowing participants to rollover lifetime income investments when the benefits of the 

investment would otherwise be loss due to a change in service providers would encourage the 

use of these products.

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? 

The qualified joint and survivor annuity rules present administrative burdens and complexities 

when applied in the context of certain lifetime income products and changes to those rules

would encourage the use of lifetime income products without compromising spousal 

protections.

The vast majority of 401(k) plans today take advantage of the option under IRC § 

401(a)(11)(B)(iii) and Treas. Reg. § 1.401(a)-20, Q&A 3(a) to provide for a 100% spousal death 

benefit (unless waived) in lieu of offering QJSA or QPSA benefits. The reason most 401(k) plans 

are designed this way is that most participants and beneficiaries waive the QJSA and QPSA 

benefits even when they’re available, and implementing the survivor annuity rules creates 

significant costs and administrative burdens due to the notice, waiver, revocation and spousal 

consent requirements. 

Under current IRS rules if a plan offers payment in the form of a life annuity the exception to the 

survivor annuity rules is no longer available and plans must comply with the QJSA and QPSA 

rules. It is not clear under the code and regulations, or under recently issued Private Letter 

ruling 200951039, whether lifetime income products like GLWBs that do not involve 

annuitization of participant accounts trigger application of the survivor annuity rules and this 

confusion can be a barrier to adoption of these lifetime income products.

We recommend that the Agencies clarify that lifetime income products in which participants 

maintain and control an account balance supporting the lifetime income guarantee and where 

the participant’s account balance is never irrevocably converted to an annuity are not life 

annuities for purposes of the survivor annuity rules. The result should not vary due to the 

possibility that at some point during the payout phase (after the supporting account balance is 

depleted) the lifetime income payments will be paid by the guarantor. The result should also 

not vary based on the fact that a single election by the participant triggers payment from their 

account balance until depleted and from the insurer after depletion. 

 
23

Clarifying that certain lifetime income products are not life annuities triggering compliance with 

the QJSA and QPSA rules will not diminish spousal protections enjoyed under the current 

structure. The vast majority of 401(k) plan distributions today are made to participants in the 

form of a lump sum distribution upon separation from service with no spousal protections. 

Lifetime income and annuity products are almost universally offered in the form of either a 

single or joint and survivor payout structure and, with respect to guaranteed minimum 

withdrawal type products, any account balance remaining at the time of a participant’s death is 

paid to their beneficiary, which is typically the spouse. Therefore, even without the QJSA and 

QPSA rules applying, spouses may receive a larger portion of 401(k) plan distribution amounts if 

a lifetime income product is selected than they do when benefits are paid in the form of a lump 

sum distribution upon separation from service.

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?

Yes, further guidance on application of the qualified joint and survivor rules to in-plan annuities 

is necessary. Please see our response to Q 26 for more detail on this issue.

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? 

In our experience the required minimum distribution rules do not pose a barrier to using GLWBs 

as these products can be designed to accommodate the minimum distribution rules. We have 

no comment regarding whether the utilization of other types of lifetime income products may 

be impeded by these rules.

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? 

We do not believe that facilitating rollovers from defined contribution plans in to defined 

benefit plans is an effective strategy for promoting use of guaranteed lifetime income 

distribution elections. Many employers do not sponsor defined benefit plans, many of the 

newer “DC friendly” lifetime income products would not work well in DB plans, and participants 

have demonstrated a lack of enthusiasm for the type of irrevocable/inflexible annuity payments 

offered by DB plans. We believe that amending the defined contribution plan rules to better 

facilitate the use of lifetime income options in DC plans will be more effective than DB rollovers 

in promoting the use of lifetime income options. 
24

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. 

Selection of Annuity Providers 

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? 

In our experience 401(k) plans, particularly those in the small to mid market, do not offer 

traditional annuities as a benefit distribution option and therefore do not use the current safe 

harbor for selecting annuities. The administrative costs of complying with the QJSA and QPSA 

rules and the lack of clarity in the current safe harbor are some of the reasons why annuity 

options are not typically offered.

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 usage without compromising important participant protections? 

What are those changes and why should they be made? 

It is not clear whether the current regulatory safe harbor for annuities applies to GLWB type 

products or, if it does, how to apply it in the context of these products. It would be helpful to 

create a new fiduciary safe harbor providing guidance on the selection and monitoring of GLWBs 

or other lifetime income products that do not work like traditional annuities. 

Fiduciaries will be most comfortable relying on the safe harbor if it is very clear on the steps 

they must take and the variables they should consider when selecting lifetime income products. 

Small employers may be reluctant to utilize the safe harbor if they cannot conduct an 

appropriate level of due diligence without the help of a paid expert. The guidance should be 

flexible enough to accommodate a broad array of lifetime income products to both facilitate the 

current product array, and encourage product innovation. Following are areas of core concern 

to fiduciaries that should be addressed by the safe harbor.

• Selecting the Insurer of Lifetime Income Payments: Plan fiduciaries are concerned 

about their potential liability in selecting a guarantor and in particular the risk they take 

if the insurer is not able to make promised payments in the future. The safe harbor 

should identify the specific type of information that should be reviewed when selecting 

an insurer (ratings information, performance history, etc.). Fiduciaries should be able to 

rely on publicly available information unless they have actual knowledge of non-public 

information. Strong deference should be given to state insurance law protections, since 

state regulators are in a much better position to evaluate insurance company solvency 

than plan sponsors and plan by plan evaluation of providers is likely to involve 

significant cost. The safe harbor should clarify that if the decision to select a particular 

insurer was prudent at the time made, plan fiduciaries will not be held liable if at some 

point in the future the financial circumstances of the guarantor change. Participants in 

this situation will receive the benefits offered by state insurance laws, as discussed more 

fully in response to Q 1.
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• Monitoring the Guarantor of Lifetime Income Payments: Lifetime income products pose 

a unique challenge to fiduciaries in fulfilling their obligation to monitor plan investments 

and to respond appropriately if an investment is found to no longer be suitable for the 

plan. If a plan decides to eliminate a lifetime income investment altogether, 

participants already invested in the product may pay substantial early withdrawal 

penalties, or may lose the benefit of guarantees they’ve already paid for. The safe 

harbor should clarify that if the selection of the insurer was prudent at the time made, 

and if upon determining that current investment in the product is no longer prudent the 

plan fiduciary disallows access to new investors, fiduciaries will not be liable for any 

losses suffered by pre-existing investors. 

• Evaluation of Product Features: The safe harbor should identify key product features 

that plan fiduciaries should evaluate when selecting an appropriate product for their 

plan. The list should be presented as representative and not all inclusive in order to 

take in to account future product development. The representative list should include 

features such as:

o The level of guaranteed payments offered 

o Any conditions or restrictions on receiving the guaranteed payments

o The level of access participants have to their account balance during both the 

accumulation and distribution phases

o The effect, if any, on market experience on the level of guaranteed payments 

and, if there is such an effect, the quality of the underlying investments

• Product Portability: Many lifetime income products are not readily transferable in the 

event of a change in service providers. Plan sponsors are concerned with balancing 

their fiduciary role in selecting and monitoring service providers with their fiduciary 

responsibility to plan participants in not causing them to lose benefits or incur 

unreasonable expenses. This problem could be resolved by allowing participants in this 

situation to roll their lifetime income investment in to an IRA, as discussed more fully in 

response to Q 14. Absent this change to plan distribution rules, plan sponsors should be 

given guidance on how to evaluate portability. For example, they should be protected 

from liability if there are a reasonable number of other providers who will either record 

keep the guaranteed product, or who will cooperate with the current product provider 

to maintain the product in the plan.

• Fees: Lifetime income products charge fees in a variety of ways and plan fiduciaries 

should be given guidance about how to compare cost in relation to specific product 

features, as well as in comparison to other similar products.
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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?

See response to Q 31.

ERISA Section 404(c)

ERISA section 404(c) and 29 CFR 2550.404(c)-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 investment requirement in 29 CFR 2550.404c-1) or noncore 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 ERISA 404(c) regulation be amended to encourage use of 

these products?

In GLWB products the portion of the participant’s account attributable to the lifetime income 

investment is typically invested in asset allocation funds, such as a balanced fund or a target 

date fund. These products are available in ERISA 404(c) plans. Since 401(k) plans today 

typically offer 15 or more funds for participants to select from, most or all of which are 

internally diversified, the distinction of “core” versus “non-core” funds is not a distinction that 

plan sponsors focus on. 

The advantages and disadvantages of these investment products are discussed in response to Q 

1. The information typically provided to participants is discussed in response to Q 17. 

In our experience, plan sponsors are very interested in the relief offered by 404(c) and are 

reluctant to include any investment choices in their plans that do not qualify for 404(c) 

protection. They would be more likely to incorporate lifetime income products in their plans if it 

were spelled out more clearly by regulation that these types of investments are appropriate in a 

404(c) plan and how the rules on disclosure of investment related information apply in the 

context of guaranteed income products. Specific concerns that it would be helpful to address 

area:

• If a plan offers only one lifetime income option along with a broad range of mutual fund 

options, 404(c) protection extends to the lifetime income option and plan sponsors will 

not be viewed as unduly influencing the participant’s election by virtue of the fact that 

there is only one lifetime income choice.

• Fees for lifetime income products can vary within a range over time. It would be helpful 

to clarify that fee disclosure is adequate for 404(c) purposes of the potential range of 

fees is disclosed.

• The rules under 404(c) regarding disclosure of any restrictions on transfers in and out of 

the investment should be expanded to encompass lifetime income products.
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• The general disclosure requirements under 404(c) should be amended to incorporate 

information that is relevant to lifetime income 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 the use of these products? 

See response to Q 33.

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 Departments Regulation 29 CFR 2550.404c-5 

describes the types of investment products that are qualified default investment alternatives 

under ERISA section 404(c) (5).

Qualified Default Investment Alternatives 

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 target maturity fund product that 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? 

Few plans are using default investment alternatives that include guarantees or similar lifetime 

income features. For the most part these products are new and many plan sponsors and 

advisors are waiting for more guidance before including these products in their plans as QDIAs. 

The Great-West GLWB product offered through target-date funds is newly available as a default 

investment alternative. The default contributions are invested in an age appropriate target date 

fund consisting of five index funds with varying risk and return characteristics. Participants can 

invest in this fund at any time, but the lifetime income guarantee, and the fee for providing that 

guarantee, do not commence until the participant attains age 55. The value of the participant’s 

investment in the fund at that time establishes a benefit base upon which future guaranteed 

income payments are calculated. On an annual basis the participant’s account balance is 

compared to the value of their plan account. If the value of the account is higher due to market 

experience, the benefit base is ratcheted up to the higher value, resulting in higher guaranteed 

lifetime income payments. If the account value is lower than the benefit base due to market 

experience, the benefit base remains the same – it is never reduced as a result of market 

experience. Participants have access to and control over their account balance at all times, 

although any distributions made in excess of the guaranteed withdrawal amount will reduce the 

amount of future guaranteed payments.
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We believe the Agencies can and should take action to encourage the use of lifetime income 

products as qualified default investment alternatives. The QDIA regulation should be amended 

to clarify that if the underlying funds in a lifetime income product qualify as a QDIA, then the 

addition of a guarantee feature will not change that result. This could be accomplished by 

clarifying that the addition of a guarantee is considered an ancillary feature of the investment 

fund under the terms of the existing QDIA rules, or by amending the regulation to specifically 

permit the addition of guarantees to a QDIA fund. 

The Agencies should clarify how disclosure and opt out standards for QDIAs apply in the context 

of lifetime income products. For example, the disclosure should contain information explaining 

key features of the product and how guaranteed future income is calculated. Participants 

should also be given a period of time in which they can opt out (perhaps 30 days) without paying 

a fee for the guarantee. With these participant protections in place, the DOL should clarify that 

plans can use a re-enrollment process to default participants in to lifetime income products as a 

QDIA.

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 areas identified in questions 36 through 39.

Comments Regarding Economic Analysis, Regulatory Flexibility Act and Paperwork Reduction 

Act

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. 

Please see our responses to Qs 7 and 9.

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

similar lifetime products as an in-plan option to their participants? What special consideration, 

if any, is needed for these small entities?

Small plans are always faced with the problem of how to spread plan costs. Therefore, many of 

the recommendations regarding how to reduce fiduciary risk, simplify decision making and plan 

administration, and provide standardized educational materials will benefit small employers. 

Small employers will typically not have the negotiating power to cause a new vendor to perform 

the system changes necessary to record keep a guaranteed product from a prior record keeper 

on their system so adding a distributable event as described more fully in Q. 2 would be 

particularly valuable to small employers. 
29

The industry initiative that Great-West is participating in through the Society of Pension 

Administrators and Record Keepers (SPARK) to facilitate portability by creating standardized 

data fields and formats should be of particular benefit to small employers who are not in a 

position to negotiate system changes impacting only their plan.

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?

Plan participants do not generally pay attention to their plan’s distribution options until they are 

approaching a distribution event. Therefore, simply making a lifetime income product the 

default distribution option would not appear to have any impact on employee contribution 

rates. However, if the default strategy was used in conjunction with routinely showing 

participant’s their account expressed as a lifetime income stream, routine education framed in 

a “consumption” model, and individualized income gap analyses, participants would have a 

more realistic picture of the future which would encourage additional savings among those 

participants who are not saving enough today. Participants who are concerned with market 

volatility may be particularly encouraged to increase their savings rate if their contributions 

were investment in a lifetime income product.

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? 

As noted earlier from the Hewitt survey8, only 1% of 401(k) plan participants today elect to take 

their benefit in the form of an annuity (although note only 7% of plans surveyed in this study 

offered an annuity option). In our own research on pension leakage from defined contribution 

plan accounts we found that in all types of defined contribution plans there appears to be a 

significant problem with leakage affecting 47% to 53% of participant accounts depending on the 

type of plan.9

 

 While most of these plans did not offer an annuity option, this research 

demonstrates that pension leakage is a significant problem and policies which promote the use 

of guaranteed lifetime income options are essential to ensuring retirement income adequacy.

 

8 Hewitt, supra note 5

9 BenefitsCorp, “Pension leakage: Will it be affected by Portman Cardin? A Comprehensive Evaluation of Lump 

Sum Distributions from 401(k), 401(a), 403(b), & 457 Defined Contribution Plans”, 2000