-----Original Message----- 

From: chris@elmincomegroup.com [mailto:chris@elmincomegroup.com] 

Sent: Friday, April 30, 2010 5:56 PM 

To: EBSA, E-ORI - EBSA 

Subject: RIN 1210-AB33 Request for Information-Lifetime Income 

Office of Regulations and Interpretations Employee Benefits Security 

Administration Room N-5655 

U.S. Department of Labor April 30, 2010 

200 Constitution Avenue, NW 

Washington, DC 20210 Via email 

Attention: Lifetime Income RFI 

Re: Request for Information – Lifetime Income (RIN 1210-AB33) 

By way of background, employee benefits have been a focus of my 

professional life for 40 years. This includes 30 years working for two 

Fortune five companies, the last as Vice President for Corporate Human 

Resources. A few years ago, I co-founded ELM Income Group, Inc as an 

online insurance agency specializing in selling only fixed annuities. 

ELM’s mission is to maintain an educational and sales site on fixed 

annuities that employers can use to overcome the “annuity puzzle”- the 

failure of the retirees to purchase fixed annuities, despite many 

economic studies that demonstrate the wisdom of doing so. The ELM 

Annuity site is also available to the public. 

Summary 

I applaud the Departments of Labor and Treasury for issuing this RFI. 

It is an excellent way to start a regulatory process in this area, 

which is both complex and vitally important. In response, I would urge 

that the Department of Labor clarify that employers who educate their 

retirees and near retirees on retirement income planning and the 

potential usefulness of fixed annuities in that undertaking may do so 

without incurring any fiduciary liability. I believe that such 

education- including a marketplace introduction or “referral” -is of 

primary importance now and will be more effective in solving the 

“annuity puzzle” than mandatory programs at this time. 

The DOL and Treasury should be doing this. Q1 

• As indicated in the 2009 GAO study cited in the RFI, fixed 

annuities can 

significantly increase the level of sustainable income in retirement 

for many retirees. The economic studies endorsing this view are so 

numerous that an August 2007 Wharton School Policy Brief said: “The 

value of annuities in retirement seems to be a rare area of consensus 

among economists.” A 2007 CFA Institute Publication “Lifetime 

Financial Advice”, authored by Roger Ibbotson, Moshe Milevsky, Peng 

Chen and Kevin Zhu says “the theoretical arguments in favor of 

annuitization are so powerful that an entire body of economic 

literature has emerged under the title of ‘annuity puzzle’, that seeks 
to discover the reasons so few consumers actively and conscientiously 

embrace these instruments” (p. 72). 

• The Federal Government incurs very large tax expenditures for 

Retirement 

and Savings Plans that is in turn dwarfed by the Private Sector’s 

expense and cash contributions to fund and maintain these programs. The 

ultimate justification for this is the importance of financial security 

in retirement for all the stakeholders, including the labor force. If 

annuities in retirement offer substantially more sustainable income per 

available dollar, the financial implications to the Public and Private 

sector and the retiree populations are enormous. 

Q 11- Mandatory annuitization and default annuitzation are not 

advisable at this time, given the current unpopularity of annuity 

contracts among retirees and the current debate over their proper use. 

• Although the economics community recognizes the power of 

“mortality 

credits” in annuity contracts to substantially increase sustainable 

retirement income, there remains much debate about the best time for a 

retiree to purchase an annuity. For example, the 2007 CFA book cited 

earlier states that purchasing an annuity purchase “prior to age 60 is 

too early”. It goes on to favor gradual annuitization from age 65 to 

age 75 (p.71-72). 

• Other writers also make the case for a later (not before age 65-

70) 

purchase of annuity contracts. (Moshe A. Milevsky, Virginia R. Young, 

“The timing of annuitization: Investment dominance and mortality risk”; 

Insurance: Mathematics and Economics 40 2007, 135–144). 

• In short, there is much less support among researchers for an 

annuity 

purchase at the time of retirement than there is for the idea that 

after age 65, a retiree should use some assets to purchase an annuity. 

• Defaulting into an annuity option at this point is not likely to 

generate much more annuity acceptance judging by the DB lump sum 

experience noted in the 2009 GAO study cited in the RFI. 

• The annuity marketplace is rapidly developing. Plan provisions 

requiring 

default or mandate in the DC area may have difficulty keeping up with 

the pace of change. For example, new retail annuity offers in the last 

three to four years include CPI escalator clauses and enhanced security 

through the use of an insulated separate account. 

Is the absence of annuity purchases really a puzzle? Or is it the lack 

of participant education and preparation for retirement? Q 17-20 

Rubik’s cube is a puzzle the world over. However, many countries seem 

to have solved their annuity puzzle. One of them-Switzerland- has an 

employer sponsored pension system that offers the choice of either a 
lump sum or annuity payout at retirement. According to the 2003 GAO 

study cited in the RFI, in Switzerland “most people receive their 

pension benefits as a monthly annuity” (p.38). The Swiss experience, 

with its high voluntary annuitization, has been the subject of several 

independent studies that conclude that what I will call “workplace 

culture” is a large factor in the annuity preference. 

Since 1994, the annual EBRI/Greenwald Retirement Confidence Survey has 

shown that no more than half the workers try to calculate how much 

money they will need in retirement. In the 2007, 2008 surveys, the only 

time the question was asked, half of the retirees said they did not 

consider how long their retirement might last when planning for 

retirement! 

Given this lack of informed preparation for retirement planning, can 

we honestly say it’s a puzzle why retirees are not purchasing annuities 

in the US? Neither will it be a puzzle in the future if retirees suffer 

a much lower standard of living due to the continued absence of 

informed retirement planning. 

Q17. Employees and retirees first need information about the prudent 

rate of inflation-adjusted withdrawal from their retirement assets. 

Then they need to understand the impact on this level of withdrawal and 

their residual assets if they include a fixed annuity in their asset 

mix, with or without a CPI rider. Without this information, in my 

opinion, they cannot understand the concept of retirement income 

planning, much less the usefulness of an annuity. 

 The EBRI/Greenwald Retirement Confidence Surveys indicate that 

retirees are much more likely to use information provided by or through 

their employer than information provided in the general marketplace. 

Thus, if they wish to do so, employers should be able to provide 

information to retirees on retirement income planning, without fear of 

fiduciary liability. This information should include the pros and cons 

of including a fixed annuity in their asset mix-all this in general 

advisory terms and/or by referral to a third party source. 

Q18. There is a need for guidance from the government on the use of 

plan assets to provide information on the theories of prudent 

retirement income planning including the use of annuity products in 

retirement. The absence of any mention of retirement income planning 

and annuity products in IB 

96-1 has created a question, in the minds of some people, about what is 

permitted. 

Q19. In my experience, Company counsel is extremely conservative about 

approving any Company communication on the use of qualified funds. In 

the absence of specific mention of lifetime income or annuities in a 

“safe harbor” or advice from the DOL, most Company counsel I have 

spoken with will not sanction a communication on these subjects. 

Q 20 &Q6 The guidance offering the greatest practical assistance in 

increasing retirees’ understanding of the value of annuities in 

retirement would sanction the ability of an employer to make a 

“referral” to one or more annuity providers in the general marketplace, 

without incurring fiduciary liability . This introduction to the 
marketplace would be done for those already retired, who the economists 

agree are the most likely to benefit from an annuity purchase. 

• State insurance law permits a “referral” by a non-licensed 

person, in 

this case an employer. (In contrast, an “insurance solicitation” can 

only be made by a person licensed to solicit). In the case of a fixed 

annuity product, a referral would include mention of an annuity broker 

or provider but without any significant discussion of specific annuity 

provisions and without a recommendation. Employers should be permitted 

to offer such referrals to one or more fixed annuity providers (brokers 

or insurers) in the public marketplace of their choosing, without any 

ERISA liability, even if the funds involved in the purchase would be 

rollover funds from qualified plans. As a precaution against 

inappropriate referrals, the Department of Labor may wish to require 

any such referral to recommend comparison with other offerings in the 

public marketplace before purchase. 

• A referral by a trusted source-in this case the employer- will 

generate 

the interest and inquiry from retirees, which is a foundation for any 

movement toward fixed annuities in retirement. 

• I believe making an annuity “referral” to retirees is the easiest 

action 

an employer can undertake to help solve the annuity puzzle, provided 

the Department of Labor agrees that there is no fiduciary liability 

involved. 

The “market test” most employers would want to justify a referral would 

be readily available from the market place. 

Thank you very much for the opportunity to comment on this important 

endeavor. I would be pleased to offer additional comments, if you wish. 

Yours truly, 

Chris O'Flinn 

President 

ELM Income Group, Inc. 

1666 K St. NW 

Suite 700 

Washington, DC 20006 

www.elmannuity.com