1

Via Email: e-ORI@dol.gov. 

 Re: RIN 1210-AB33 

The Schwab Position on Lifetime Income Solutions

Charles Schwab & Co. Inc., appreciates the opportunity to comment on the Department of Labor’s 

(DOL) request for Information Regarding Lifetime Income Options for Participants and 

Beneficiaries in Retirement Plans. The Charles Schwab Corporation (NYSE: SCHW) is a leading 

provider of financial services, with more than 300 offices and 7.8 million client brokerage accounts, 

1.4 million corporate retirement plan participants, 768,000 banking accounts and $1.49 trillion in 

client assets1

. 

 

Retirees today and in the future face many risks. Among them is the need to create a stream of 

income that replaces their employer paycheck and supports their financial needs throughout 

retirement. Just as important, they need to protect against the danger of outliving that income 

stream. Financial services companies and their insurance industry partners are in a unique position 

to offer market based lifetime income solutions. 

Poised at the edge of tremendous need and opportunity, we believe demand for such lifetime income 

solutions will grow at a very strong rate in the very near future. 

This need is being driven by several trends: 

 Uncertainty surrounding the continued strength of government sponsored pension programs. 

 Continued decline in private defined benefit plans coupled with continued increase in defined 

contribution plans. 

 Increased expenses in retirement, including health care costs and extended family care costs. 

 A large wave of baby boomers approaching retirement. 

 Increasing life expectancies. 

 Earlier individual retirements. 

 Expanding emphasis on individuals taking on increased ownership and responsibility for 

their retirement security. 

 For most individuals, the need for the retirement nest egg to constitute a large portion of total 

net worth and to serve as the primary source of income in retirement. 

 

[1] The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services. Through its 

operating subsidiaries, the company provides a full range of securities brokerage, banking, money management 

and financial advisory services to individual investors and independent investment advisors. 
2

In our view, an ideal product solution which would be unique relative to annuity product offerings 

currently available in the marketplace will offer these features: 

 Simple in structure and easy to understand. 

 Transparent and fully disclosed fees. 

 Flexible and easy access to investment balance without imposition of exit fees. 

 Increased control of assets. 

 Offers the financial support and backing of multiple insurance companies as opposed to the 

status quo of a single insurance provider. 

 Is portable from a 401(k) plan to an Individual Retirement Account without additional cost. 

The Federal government and its agencies can take several steps to encourage the adoption of lifetime 

income solutions: 

 Encourage a shift in the national conversation from one focused primarily on wealth 

accumulation to one that includes lifetime income replacement. 

 Promote improved product solutions offering simplicity, transparency and flexibility. 

 Ease the financial and regulatory uncertainty for the employer. 

 Develop a safe harbor solution for employer sponsored retirement plans whose employees 

meet certain qualifications. 

 

Individuals need to take ownership of their retirement security and create a stream of income that 

cannot be outlived. This need will grow due to a convergence of demographic trends and the 

diminished strength of traditional retirement resources. By desire or necessity, we believe 

consumers will begin to demand creative, innovative product solutions. Now is a pivotal 

opportunity for the public and private sectors to work together towards this common goal. 

Conclusion

Again, Schwab appreciates the opportunity to provide information and comment on the subject of 

lifetime income during retirement. We welcome the opportunity to work with the DOL on this 

important initiative. If you have any questions or would like to discuss these comments further 

please contact James McCool at 415-667-9603. 

Sincerely, 

James McCool 

Executive Vice President 

Charles Schwab and Co. Inc, 

211 Main Street 

San Francisco, CA 94105 
3

Charles Schwab & Co. Inc. Reponses to the Department of Labor’s (DOL) request for Information 

Regarding Lifetime Income Options for Participants and Beneficiaries in Retirement Plans: 

1) 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? 

True retirement security requires that an individual have a sustainable strategy for converting 

accumulated financial savings and resources into a guaranteed income stream that will last a 

lifetime, regardless of how long one lives or how financial markets perform. 

Retirees must balance two competing risks that arise from uncertainty about length-of-life. If a 

retiree consumes wealth too quickly, he risks outliving the available resources and suffering a 

decline in living standards late in life. If a retiree responds to this risk by consuming too slowly, he 

may subject himself unnecessarily to a lower level of spending and potentially lower living standards 

throughout retirement. 

The primary advantage of lifetime income solutions is that they are designed specifically to help 

eliminate the need to balance these life longevity related risks. 

Potential disadvantages include purchasing unsuitable products because of the financial 

sophistication required to understand complex product solutions, high costs, dependency on the 

financial strength of one or more insurance providers, lack of control and flexibility around the 

investment choice and the possibility of losing savings in the event a retiree dies before receiving the 

full benefit of his or her investment. 

There is another potential disadvantage in having a retiree potentially lock in a fixed payment stream 

based on current interest rate levels. Some degree of flexibility, even if limited, should be granted in 

order to allow a change to the income stream, as market rates change and or life circumstances 

require access to financial assets. 

High fees and product complexity have traditionally also been further deterrents to usage. 

2) Currently the vast majority of individuals who have the option of receiving a lump sum 

distribution or ad hoc periodic payments from their retirement plan or IRA choose to do so and do 

not select a lifetime income option. What explains the low usage rate of lifetime income 

arrangements? Is it the result of a market failure or other factors (e.g., cost, complexity of 

products, adverse selection, poor decision-making by consumers, desire for flexibility to respond 

to unexpected financial needs, counterparty risk of seller insolvency, etc.)? Are there steps that the 

Agencies could or should take to overcome at least some of the concerns that keep plan 

participants from requesting or electing lifetime income? 

Based on feedback from our 1.4M retirement plan participant base, 863 employer sponsors of 

retirement plans and 3.8 million IRA and Keogh accounts we believe some of the reasons that 

individuals do not choose lifetime income options are summarized as follows: 
4

 Lifetime income solutions have traditionally been expensive, complicated, and have allowed 

limited flexibility, control and access to funds. 

 Most plan sponsors and participants have focused communication and education on savings 

and wealth accumulation and have largely ignored issues in the withdrawal or distribution 

phase. 

 While many investors are knowledgeable about financial matters, some portion of the 

population continues to struggle with complicated financial matters. While financial literacy 

has improved, the majority of population struggles with complex financial instruments and 

related matters.

 Plan sponsors have worried about the fiduciary implications of offering such options, in 

particular in the event of a decline in value of the option (eg. provider insolvency).

 Lastly, the market has been subject to adverse selection, meaning that most products are 

purchased by individuals who believe they will experience a longer than expected life and 

not purchased by individuals who believe they will experience a shorter than expected life. 

This has the net effect of increasing product costs. 

Certain actions taken by the agencies could increase the use of lifetime income solutions: 

 Encourage plan sponsors to provide access to lifetime income products. 

 Ease the regulatory environment and reduce fiduciary concerns that employers have around 

offering lifetime income solutions, by providing a safe harbor to employers who meet certain 

requirements. These same recommendations were contained in the November 2005 final 

report to the Secretary of Labor from the ERISA Advisory Council. 

 Shift the dominant paradigm among plan sponsors and participants from one that is focused 

on the process of wealth accumulation to one that is focused more broadly on the objective of 

retirement income security. This recommendation is consistent with The 2007 ERISA 

Advisory Council final report on Financial Literacy of Plan Participants where the report 

recommended that the Department of Labor expand the reach of IB 96-1 to address 

information, education, and advice needs in the de-accumulation stage as well as the 

accumulation phase 

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? 

The marketplace currently offers a variety of annuity products, all promising a guaranteed income 

stream for life. Current products are multi-featured, including fixed, inflation adjusted, and variable 

annuities, both immediate and deferred. The challenge has not been a lack of products, but a lack of 

products offering simplicity, transparency, control, flexibility and the financial backing of multiple 
5

insurance providers, all at a reasonable cost. We also support a plan/product that is portable between 

the plan and an Individual Retirement Account (IRA), is simple and operates under the same fee 

structure. The ability to roll plan accumulations into an IRA while retaining the annuity purchase 

rights gained under the employer is not common. The supply of these types of products is small and 

they are not generally offered by employers

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)? 

There are potential advantages for participants to select lifetime income within the plan. These 

include: 

 The plan may be in a position to conduct a more robust due diligence product search than an 

individual investor. 

 The plan should be able to negotiate a lower cost as an institutional investor than an 

individual investor. 

 The participant may benefit from a higher level of communication and education surrounding 

the product option(s) available. 

Potential disadvantages may include: 

 The participant may be required to gather additional private or extensive financial 

information, such as specifics about their spouse’s retirement plan. Also, they may simply be 

called upon to put more effort into the endeavor than anticipated. 

 Portability to other retirement plans, or the ability to continue the option while breaking ties 

with the employer, may be cumbersome. 

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? 

There are potential advantages for employers to offer lifetime income within the plan and may 

include: 

 Offering the option of a guaranteed income stream in retirement may ease the continuing 

transition away from traditional defined benefit plans. 

 Substantial cost savings and / or product enhancements can be negotiated using the 

employer’s leverage and passed on to an individual employee. While primarily an advantage 

to the employee, this may also benefit the employer in the form of enhanced goodwill, as 

participants may perceive the option to be a valuable extension of existing benefit offerings. 

 Employers have the comfort of knowing that they have provided their employees with an 

important tool for their retirement years. 
6

Potential disadvantages for the employer may include: 

 The employer may lack the internal expertise, or be unable or unwilling to engage outside 

experts, to conduct a thorough due diligence search for product offerings. 

 It may receive an undeserved and disproportionate share of the blame if the solution 

experience does not meet employee expectations. 

 The duration of the employer / employee relationships may be extended beyond what is 

desired or considered optimal. In other words, the employer may want the relationship with 

the employee to end at the termination of employment and an income solution may serve to 

extend it. 

 The employer may be subject to liability claims (legitimately or otherwise) related to product 

performance or benefits brought by employees. Employer liability concerns may discourage 

participation in in-plan option programs. 

 There may be additional administrative burdens including increased recordkeeping and 

administration expenses and QJSA compliance requirements. 

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? 

Plan sponsors do not commonly offer participants the option of purchasing a lifetime annuity, nor do 

participants elect an annuity option, in whole or part, for reasons detailed in prior answers. For 

example, within our own line of business, we examined a large sample of retirement distributions 

from defined contribution plans and a very small minority (only 4 of 100,000) elected an annuity 

option. Offering participants a solution for partial/future income represents additional flexibility of 

choice and thus would generally be viewed as a positive. The optimal method of framing a full or 

partial lifetime income option would be one that is focused on simplicity, transparency and 

flexibility. 

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?

The Schwab Center for Financial Research generally believes that 20 – 25% of the final account 

balance should be annuitized. Alternatively, an annuity stream that roughly approximates the 

amount of fixed monthly or annual expenses can be considered. These guidelines should be 

considered in the context of other sources of retirement income available to the retiree and other 

retirement expenses that may arise. 
7

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? 

Mandating or requiring of Lifetime Income adoption is not viewed as likely or practical. However, 

the goal should be to provide tools to the participant to determine the best form of distribution for 

their plan assets. The formation and creation of these tools should be encouraged by the government 

and its agencies. We do not believe that Lifetime Income option should be a default distribution 

option. This should be based on each individual participant’s circumstances. 

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? 

Impediments to employers offering lifetime income options have been: 

 QJSA requirements which might be triggered by the mere presence of a lifetime income 

option within a plan. 

 Employers have not had sufficient incentives along with many unanswered questions around 

the potential fiduciary and liability implications of offering in-plan annuity solutions. 

 Such an option has not been viewed to have significant value as it relates to recruitment and 

retention. 

 .Employees have not demanded such options or even expressed strong interest. 

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 provide it, and when and how is it 

provided to them? 

Participants need information regarding: 

 Suitability. 

 Product cost – including the allocation of cost between the various expenses associated with 

lifetime income solutions – especially investment management fees, mortality charges and 

administrative expense. 

 Features and benefits. 

 The significance of the insurance component. 

 Risks and product limitations. 
8

 Financial strength of provider(s); protections in the event of provider(s) insolvency. 

 Guidance, advice and / or other tools to determine income needs in retirement. 

The information should be presented twice: in a group or educational setting and again at the point 

of sale or enrollment. This redundancy will serve to enhance the message and reinforce product 

features, benefits and limitations. Again, few employers currently offer lifetime income options so 

there are not many examples of current materials from which to draw. Generally, the materials that 

have supported the product offering have been of the kind typically associated with a defined 

contribution education effort, i.e. product brochures and marketing materials. 

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

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

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

take to address such concerns? 

Legal concerns include the possibility that education and counseling about lifetime income 

arrangements could give rise to fiduciary status and/or the provision of investment advice, regulatory 

action with respect to the sponsor’s choice of a provider or option and lawsuits from unhappy 

participants. Government agencies can diminish these fears by clarifying the investment education 

rules, providing a class exemption for counseling participants on the advantages and disadvantages 

of lifetime income options and offering fiduciaries a “safe harbor” from liability with respect to the 

selection and monitoring of lifetime income solutions. Certain protections could be offered in 

exchange for a properly executed, comprehensive due diligence search and selection process, in 

particular where there is diversification with respect to the underlying insurance providers so as to 

minimize risk of loss. 

We again reference and support recommendations from The 2007 ERISA Advisory Council final 

report on Financial Literacy of Plan Participants where the report recommended that the Department 

of Labor expand the reach of IB 96-1 to address information, education, and advice needs in the deaccumulation stage as well as the accumulation phase.

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. 

We believe that more accurate and timely calculations are available through many of the current 

advice programs offered through plans. We believe the focus should be on making current web tools 

more concise and easier for participants to understand their total benefits. However, great care 

should be taken with juxtaposing a current account balance (accrued benefit) in a 401k plan or IRA 

balance into a ‘theoretical’ lifetime payment stream that is not guaranteed. 

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

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

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

a future retirement age based on the assumption of continued contributions? Should lifetime 

income payments be expressed in the form of monthly or annual payments? Should lifetime 

income payments of a married participant be expressed as a single-life annuity payable to the 

participant or a joint and survivor-type annuity, or both? 
9

Answered within question 21 

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

arrangements) or similar lifetime income products currently used as investment alternatives under 

ERISA 404(c) plans? Are they typically used as core investment alternatives (alternatives intended 

to satisfy the broad range of investments requirement in 29 CFR 2550.404c-1) or non-core 

investment alternatives? What are the advantages and disadvantages of such products to 

participants? What information typically is disclosed to the participant, in what form, and when? 

To what extent could or should the ERISA 404(c) regulation be amended to encourage use of 

these products?

In as much as the 404(c) regulation contemplates core investment alternatives, the regulation could 

be amended to make clear that 404(c) protection will apply to an otherwise eligible investment 

alternative regardless of whether or not a lifetime income feature is associated with the investment 

alternative. The safe harbor for default elections could be similarly amended. In addition, 

participants may desire (or need) personalized counseling for determining whether a lifetime income 

option is an appropriate choice. The 404(c) regulation and/or Interpretive Bulletin 96-1 could be 

amended to specifically include assistance provided by non-fiduciary counselors to participants with 

respect to selection among various plan distribution options, which might include a lifetime income 

option. 

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

annuity contracts or similar lifetime income products? What are the advantages and 

disadvantages of such products to participants? What information about the annuity feature 

typically is disclosed to the participant, in what form, and when? To what extent could or should 

the ERISA 404(c) regulation be amended to encourage use of these products? 

 

In as much as the 404(c) regulation contemplates core investment alternatives, the regulation could 

be amended to make clear that 404(c) protection will apply to an otherwise eligible investment 

alternative regardless of whether or not a lifetime income feature is associated with the investment 

alternative and that a lifetime income feature does not otherwise impact availability of the 404(c) 

safe harbor. The safe harbor for default elections could be similarly amended. In addition, 

participants may desire (or need) personalized counseling for determining whether a lifetime income 

option is an appropriate choice. The 404(c) regulation and/or Interpretive Bulletin 96-1 could be 

amended to: specifically include assistance provided by non-fiduciary counselors to participants with 

respect to selection among various plan distribution options, which might include a lifetime income 

option. 

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

similar lifetime income features ancillary to the investment fund, product or model portfolio, such 

as a target maturity fund product that contains a guarantee of minimum lifetime income? What 

are the most common features currently in use? Are there actions, regulatory or otherwise, the 

Agencies could or should take to encourage use of these lifetime income features in connection 

with qualified default investment alternatives? 
10

Annuities, whether fixed or variable, are rare in 401(k) plans unless administered by an insurance 

company. Lifetime income options offered in conjunction with model portfolios or target date 

portfolios are also rare. 

There are a number of actions the government and / or its agencies could do to encourage greater use 

of such products: 

 First and primary, ease employer uncertainty over fiduciary responsibilities associated with 

including retirement income products within their retirement plan(s). 

 Encourage employers to assess their employee population and, where appropriate, make a 

lifetime income option the default investment choice (for those participants over a certain 

age), while providing employers who meet certain qualifications with safe harbor 

protections. 

 With respect to the above, the lifetime income options would have characterics such as 

transparency, portability, multiple insurer backing, reasonable fees and ability to access 

account value if needed. 

 Encourage the marketplace to develop creative product solutions that are affordable, 

transparent, flexible and secure. 

 Encourage the shift of education from one focused primarily on wealth accumulation to one 

that includes the need to provide lifetime income. 

 Provide safe harbor protections to employers meeting certain qualifications. 

 Encourage decreased reliance on social security as a retirement income resource. 

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. 

We expect higher recordkeeping costs, but this will vary by plan size and by service provider. 

In addition, there are certain to be wide ranging product costs, including the cost of the underlying 

investment vehicle and the cost of an insurance guarantee, if applicable. We encourage all costs to 

be fully disclosed and completely transparent. 

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

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

consideration, if any, is needed for these small entities? 

There are no unique costs to smaller plans. However, just as with the cost of offering a retirement 

plan, some fixed administrative costs must be distributed across a smaller employee base. This has 

discouraged many small employers from offering retirement plans and may have a similar effect on 

lifetime income options within such plans. Where small employers have adopted plans, they have 

done so at a higher cost, due to the nature of the products available in that space. We believe this 

trend, to higher costs, may continue for smaller plans that may offer a Guaranteed Income Solution. 
11

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? 

It is difficult to impact employee contribution rates. The most progress in this area has been made 

by encouraging plans to sponsor automatic enrollment and, more significantly, automatic 

contribution increases. Continuing this trend is viewed as being the most impactful step that can be 

taken. Making lifetime income options a default benefit payment option is unlikely to impact 

contribution rates in any meaningful way. Nevertheless, we believe lifetime income options should 

be made more available to employees through employer plans.