Walter Welsh 

Executive Vice President, Taxes & Retirement Security 

(202) 624-2157 t (866) 953-4149 f 

walterwelsh@acli.com 

James Szostek 

Vice President, Taxes & Retirement Security 

(202) 624-2378 t (866) 953-4149 f 

jimszostek@acli.com 

Shannon Salinas 

Counsel, Taxes and Retirement Security 

(202) 624-2028 t (866) 953-4149 f 

shannonsalinas@acli.com 

Mailed Electronically

May 3, 2010 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, DC 20210 

Attention: Lifetime Income RFI (RIN 1210-AB33) 

Greetings: 

On behalf of the American Council of Life Insurers (“ACLI”), we are writing to provide 

information in response to the Department of Labor (“DOL”) and the Department of the 

Treasury (“Treasury”) (jointly, the “Departments”) Request for Information (“RFI”) regarding 

lifetime income options for participants and beneficiaries in retirement plans, published in 

the Federal Register on February 2, 2010. ACLI is pleased that the Departments have 

undertaken this effort. 

The American Council of Life Insurers represents more than 300 legal reserve life 

insurer and fraternal benefit society member companies operating in the United States. 

These member companies represent over 90% of the assets and premiums of the U.S. life 

insurance and annuity industry. ACLI member companies offer insurance contracts and 

other investment products and services to qualified retirement plans, including both defined 

benefit pension and 401(k) arrangements, and to individuals through individual retirement 

arrangements (IRAs) or on a non-qualified basis. ACLI member companies also are 

employer sponsors of retirement plans for their own employees. 

 1 
The RFI seeks information and comments on matters germane to the Departments’ 

consideration of lifetime annuities and similar lifetime income issues as they relate to 

defined contribution plans. When the ACLI and its members describe lifetime income, we 

are describing payments guaranteed for the life of an individual or individuals. In our 

financial system, such guarantees are only available from life insurers who are regulated 

under a system of insurance laws and regulations that are focused on the protection of 

policyholders. In the case of annuities and other risk protection products, those laws and 

regulations address rules governing reserves and capital necessary to meet the long-term 

commitments made by life insurers. 

In this summary, we will describe: 

1. the role of life insurers in providing guaranteed lifetime income and other risk 

protection products to employer plans (in-plan) and directly to individuals (out-ofplan); 

2. the important role employers have played in helping employees protect against risks 

by providing information about and access to life insurance, disability insurance, 

annuities and other risk protection products; 

3. the variety of annuities and other guaranteed lifetime income options that are 

available today; and 

4. the highlights of our suggestions for steps which may be undertaken by the 

Departments or through legislation to enhance the retirement security of participants 

in employer plans by facilitating the use of guaranteed lifetime income. 

After this summary, we provide responses to the specific questions in the RFI. 

Life Insurers 

The life insurance industry provides protection for individuals and families against 

the risk of adverse financial consequences due to premature death, long-term care needs, 

disability, and outliving one’s financial assets or living at a substantially reduced standard of 

living. Financial protection provided by the life insurance industry to American households 

reaches across all ages and income levels. For example, in 2009, life, disability, long-term 

care and annuity products provided over $142 billion in benefits to contract beneficiaries 

and over 46% of these payments were annuity benefits.1 This protection is offered both 

directly to individuals and through employers. 

Employers 

Employers are a key component in helping individuals obtain financial protection 

provided by life insurers. They provide employees with access to group life insurance, 

disability insurance, long-term care insurance and annuities. Half (51 percent) of all 

employees report obtaining the majority of their financial protection products, such as life, 

disability income, and long-term care insurance, as well as retirement savings plans, through 

 

1 ACLI calculations based on preliminary data release of 2009 NAIC annual statement data.

 2 
the workplace.2 This commitment by employers helps to increase employee awareness and 

understanding of the nature and benefit of these products. Whether employers pay for all or 

a part of these products, or permit employees to pay for them through payroll deduction, the 

availability of these products at the workplace encourages employees to take action to 

protect themselves and their families. 

ACLI members provide these financial protection products through employers (inplan), directly to individuals (out-of-plan), or on a combination in-plan and out-of plan basis. 

Employer engagement has helped Americans understand the importance of life insurance 

and disability insurance. The financial protection which can be provided by guaranteed 

lifetime income may be less understood than the benefits of life and disability insurance and 

other insurance products. This difference may be partly attributed to the prevalence in the 

past of defined benefit plans which provided lifetime income without the need for the 

employee to make a decision to obtain the benefit. As more and more employers choose to 

offer defined contribution plans over defined benefit plans, we believe that employers can 

play a key role in helping employees understand the benefits of, and gain access to, the 

protection provided by guaranteed lifetime income. 

Guaranteed Lifetime Income Products 

The RFI asks about the types of lifetime income that are available from an employer 

plan, i.e., “in-plan,” as well as types of lifetime income that are available “out-of-plan,” such 

as IRAs. There is an array of guaranteed lifetime income options which are generally 

available through ERISA and non-ERISA employer sponsored plans, IRAs including SEP and 

SIMPLE IRAs, or on a non-qualified basis (See Glossary of terms, forms of contracts and 

features after Q-3).3 Payout or “income” annuities provide periodic payments, typically for 

life, commencing “immediately” after purchase or on a “delayed” or “deferred” date such as 

normal retirement or even later in the case of a “longevity annuity” or “longevity insurance,” 

e.g., at age 85. Payout (income) annuities can be purchased with a single premium or 

incrementally on a periodic basis, e.g., by monthly payroll deductions. Annuities can include 

a variety of optional features to address needs such as survivor benefits, liquidity for 

emergencies, and inflation. Deferred accumulation annuities may include optional 

guaranteed living benefits that provide protection during the life of the owner against 

investment risk by guaranteeing a level of annuity payments and/or withdrawal amounts 

prior to annuitization. Annuities may include features that insure against premature death 

such as annuities based on joint lives, annuities that refund the remaining premium, or 

annuities with minimum payment period guarantees. Annuities may include some form of 

adjustment for inflation. Life insurers offer a variety of lifetime income protection products 

to address a variety of needs. 

 

Suggestions to Enhance the Use of Guaranteed Lifetime Income in Retirement Plans 

Academics write of the “annuity puzzle,” i.e., why so few retirees annuitize defined 

contribution benefits when annuities provide much needed income protections. ACLI 

believes that efforts to educate employers and employees about the value of guaranteed 

lifetime income and to reframe defined contribution plan savings as a source of guaranteed 

 

2 7th Annual Study of Employee Benefits Trends, MetLife (2009). 3 The Employee Retirement Income Security Act of 1974 (“ERISA”) covers private employer sponsored qualified 

retirement plans. Governmental plans and many not-for-profit plans are exempt from ERISA. 

 3 
lifetime income will help to solve the annuity puzzle. From a recent survey, employees are 

interested in guaranteed lifetime income options and find it valuable to see how much 

guaranteed lifetime income they could obtain by using their retirement plan savings.4

New rules, regulations and laws can help employers assist their employees with 

guaranteed lifetime income in the same way they have assisted employees with life 

insurance, disability insurance and other financial protection products. New rules, 

regulations and laws also can create an incentive to use guaranteed lifetime income as a 

part of an employee’s overall retirement income plan. 

Education, Information and Illustrations

First, the Departments should adopt rules and regulations and support legislation that 

encourages and makes it easier for employers to provide education and information about 

guaranteed income for life. 

• Education. The DOL should revise and extend Interpretive Bulletin 96-1 beyond 

guidance on investment education to include guidance on the provision of education 

regarding lifetime income and other distribution options, both “in-plan” and outside 

the plan, to assist participants and beneficiaries in making informed decisions 

regarding their distribution choices. 

• Illustration. To reframe retirement savings as a source of lifetime income, ACLI 

supports legislative proposals to include, on defined contribution plan benefit 

statements, an illustration of participant accumulations as monthly guaranteed 

lifetime income in retirement. The Departments should support this legislation. 

• Information. Treasury should modify the 402(f) rollover notice requirements and the 

safe harbor notice to include information on guaranteed lifetime income including 

the importance of income protections and the availability of lifetime income plan 

distribution options, if any, as well as lifetime income options available outside the 

plan. 

Employer Duties in Selecting an Annuity Provider

The Departments should adopt rules and regulations to make the duties of 

employers in selecting providers of guaranteed lifetime income products similar to 

employers’ duties in selecting providers of life insurance or disability insurance or other 

financial protection products. We appreciate the attention that the DOL has already given to 

this important issue. 

The DOL took an important step by changing the so-called “safest annuity standard” 

in Interpretive Bulletin 95-1 by adopting a safe harbor for the selection of annuity providers 

for individual account plans. While this regulation provided some helpful guideposts, it 

contains a requirement that the fiduciary “conclude that the annuity provider is financially 

able to make all future payments.” This standard is difficult to meet, in part because it is 

hard to know how to draw this conclusion. While it is part of a “safe harbor,” this prong 

 

4 ACLI Study on Retirement Choice, Mathew Greenwald & Associates 2010 (see Appendix 2). 

 4 
makes it hard to use the safe harbor and is not a requirement of selection of other financial 

protection products. ACLI believes that changes can be made to these rules which will make 

it easier for employers to meet their duties while at the same time ensuring a prudent 

selection. 

The safe harbor should continue to contain the following rules, i.e., that the fiduciary: 

• engage in an objective, thorough and analytical search for the purpose of identifying 

and selecting providers from which to purchase annuities; 

• appropriately consider and conclude, at the time of the selection, that the cost 

(including fees and commissions) of the annuity contract is reasonable in relation to 

the benefits and administrative services to be provided under such contract; and 

• if necessary, consult with an appropriate expert or experts for purposes of 

compliance with the safe harbor provisions. 

Instead of a determination about the financial ability to make all future payments, the 

safe harbor should require the fiduciary to give consideration to the financial strength and 

other “quality” aspects of the provider. ACLI expects to submit additional commentary and 

suggestions regarding the issue of financial strength and quality of the provider. 

We know that the DOL has already given serious thought to this issue. As you consider 

our request, it is important to recognize the important role of state insurance departments in 

oversight of life insurance companies, including the imposition of NAIC uniform rules for the 

establishment of reserves, the valuation of assets and liabilities, risk-based capital 

requirements, and required capital. The primary functions of the state insurance 

departments are to protect policyholders and oversee company solvency. The insurance 

departments conduct routine reviews of the financial strength of each insurer and its ability 

to meet its commitments. This system of regulation is a factor in the consideration of the 

quality of a provider. 

Annuity Administration

Employers take on a number of duties in administering a retirement plan, and the 

administration of an annuity option would increase those duties. The qualified joint and 

survivor annuity (“QJSA”) rules provide important spousal protections. There are a number 

of ways that the rules can be modified to make it easier for employers to administer this 

important requirement while protecting survivors, including: 

• model amendments for guaranteed lifetime income options; 

• notice requirements describing the benefits of guaranteed lifetime income; and 

• provision for the use of electronic signatures, widely accepted in financial 

transactions today. 

ACLI proposes allowing those employers who choose to do so to transfer the duties and 

liabilities of administering qualified joint and survivor annuity rules to an annuity 

administrator. Also, employers need guidance that confirms that a participant’s purchase of 

incremental deferred payout annuities should not be subject to the QJSA rules until the 

participant has elected to take the annuity payout. 

 5 
Using a Portion of a Retirement Account to Purchase Guaranteed Lifetime Income

ACLI supports efforts to facilitate a retiree’s election to use a portion of his or her 

account to obtain guaranteed income for life. For in-plan arrangements, the Departments 

should provide guidance making clear that plans may provide for using a portion of the 

account value to purchase guaranteed lifetime income, including model amendments to 

simplify adoption. For arrangements outside of a plan, ACLI supports the Administration’s 

proposal, as well as a legislative proposal, to permit the partial annuitization of an 

individual’s annuity savings. 

“Longevity Insurance” in Employer Plans and IRAs

The current required minimum distribution rules frustrate the use of longevity 

insurance, i.e., deferred payout income annuities with an annuity start date later in 

retirement, such as at age 85. ACLI supports and requests the Departments’ support of a 

legislative proposal that would facilitate the use of longevity insurance in qualified plans and 

IRAs by excluding the longevity insurance premium amount when calculating an individual’s 

required minimum distribution. 

Tax Incentive for Guaranteed Lifetime Income. 

Current tax policy provides equal tax treatment to payments in any form made from 

defined contribution plans. Guaranteed lifetime income is treated the same as a single sum 

distribution (i.e., taxable at ordinary rates). ACLI supports and requests the Departments’ 

support of a limited tax incentive to encourage individuals to take all or a portion of their 

retirement savings as an annuity that guarantees lifetime income. 

RFI Questions and Responses 

 

Q-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? 

 

Life insurers offer a variety of annuity contracts (See Glossary of Terms and description of 

Forms and Types of Annuity Contracts) that provide guaranteed lifetime income. Annuities 

with guaranteed lifetime income can help insure that individuals have adequate income at 

advanced ages, even if they live to age 100 and beyond. These lifetime guarantees provide 

a source of income that cannot be outlived. By providing insurance against a drop in 

standard of living, annuities with guaranteed lifetime income are an important tool for 

retirement planning. An annuity with guaranteed lifetime income has the potential to provide 

a higher sustainable level of income than can be achieved with other financial assets.5 The 

lifetime guarantee is an insurance guarantee that relies on the pooling of risks to determine 

the price of the annuity. It can provide a higher level of sustainable consumption than 

alternative approaches and it offers a guaranteed floor of income.6 

While the result of converting assets to a guaranteed lifetime income stream via a single life 

annuity means that the assets will not be available for other uses such as a bequest, 

 

5 Jeffrey R. Brown, “The New Retirement Challenge,” Americans for a Secure Retirement (2004). 6 Ibid. 

 6 
annuities can provide a higher payment amount than would be available by systematic or 

regular withdrawals from a portfolio of investments while also providing a lifetime guarantee. 

In addition, an individual can choose to use only a portion of his or her retirement assets to 

purchase an annuity and retain the remaining portion to provide for bequests or liquidity for 

other needs. Also, the single life annuity is just one of the guaranteed lifetime income tools 

available from insurers. The immediate payout income annuity can offer features such as 

death benefits, provisions for “joint and last survivor” or payments for a “period certain”. 

Also, there are deferred accumulation annuities with various guaranteed living benefits (See 

Q-3 glossary). 

Some form of an annuity with guaranteed lifetime income in retirement will make sense for 

almost everyone. The appropriate amount and form of annuity will depend on the 

individual’s circumstances. Individuals will need information, education and guidance to 

help them choose the amount of income and the form of annuity. 

Q-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? 

 

It is well known that many employer plans and IRAs do not have a guaranteed lifetime 

income feature.7 For employer plans that do, utilization is low.8 The question cites a 

number of possible factors, but does not contain reference to one of the key factors: a

of understanding by employers and participants alike about guaranteed lifetime incom

options. Participants have insufficient information about retirement income options. 

Contrast this to welfare plans where employers have long been engaged in providing 

information and education for their employees about relatively complicated insurance 

products such as life insurance, disability insurance and long-term care insurance. These 

insurance products help individuals respond to risks they face. Through their welfare benefit 

programs, employers have played a critical role in providing the information and education 

to help their employees understand how insurance products such as these can be used to 

ameliorate risks. Information and understanding can help employees who choose to obtain 

risk protection products through their employer and can also help them as they consider 

purchasing other insurance products on their own. If employer plans provide illustrations 

that show the guaranteed lifetime income that may be obtained with a participant’s account 

 lack 

e 

 

7 Annuity based IRAs held approximately 9.6% of IRA assets, Federal Reserve Flow of Funds Data 3rd quarter 

2009. 40% of large and 23% of small 401(k) plans offer an income annuity as a payout option, Transamerica 

Center for Retirement Studies, 9th Annual Transamerica Retirement Survey (2007). 8 Approximately 12% of defined contribution plan retirees receive annuity payments. “Who Prefers Annuities? 

Observations About Retirement Decisions,” Watson Wyatt Insider (April 2008) (citing the Watson Wyatt 

Worldwide 2007 U.S. Surveys of Older Employees’ and Retirees’ Attitudes Toward Lump Sum and Annuity 

Distributions From Retirement Plans). 

 7 
balance as well as education and information about annuities and guaranteed lifetime 

income, participants will be more inclined to choose an annuity option, if the plan has one. 

Alternatively, they may be more inclined to seek one outside of the plan. Types of education 

and information that retirement plans should provide includes the following: 

Annuity illustration on benefit statements. We believe that it is important to reframe 

retirement savings as a source of lifetime income. Academic work has shown that the 

manner and nature in which information is presented affects the decision making process.9 

Today, defined contribution plan benefits are presented as a lump sum. To reframe plan 

benefits from a lump sum amount to a source of monthly income, we propose that plan 

benefit statements include an illustration of participant accumulations as monthly 

guaranteed lifetime income in retirement.10

Focus on future income needs. In addition, there is evidence that annuities are valued more 

favorably when evaluated in terms of a consumption rather than an investment frame. 

“When consumers focus on consumption, annuities are viewed as valuable insurance, 

whereas when they think in terms of investment risk and return, the annuity is a risky asset 

because the payoff depends on an uncertain date of death.”11 It may be that participants 

are placing greater weight on the risk of a short term death than that of a long term life. 

Show how lifetime income can address financial support for spouses and loved ones. As it 

is common for retirees to consider providing for a spouse or other loved ones, it is important 

that retirees learn about the ways in which lifetime income options can address their needs. 

While plans with an annuity option will include a qualified joint and survivor annuity (QJSA) to 

provide spousal protections, as we describe later, other guaranteed lifetime income options 

such as annuities with period certain or cash refund benefits as well as guaranteed living 

benefits may provide a retirement income solution that best fits their needs. Again, it is 

important for retirees to have sufficient information regarding their lifetime income options. 

Address liquidity issues. Liquidity is a concern many have with single life annuities. As we 

describe in more detail in response to Q-3, lifetime income is not an all or nothing 

proposition. 

Q-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? 

 

9 Robert S. Gazzale & Lina Walker, “Behavioral Biases in Annuity Choice: An Experiment” (Williams College 

Department of Economics Working Papers, Series No. 2009-1, March 25, 2009); Jeffrey R. Brown, Jeffrey R. 

Kling, Sendhil Mullainathan, & Marian V. Wrobel, “Why Don’t People Choose Annuities? A Framing 

Explanation,” Retirement Security Project (March 2008). 

10 Two bills introduced in the 111th Congress provide for the disclosure of an annuity equivalent of total 

benefits accrued to participants: S. 2832 the “Lifetime Income Disclosure Act” sponsored by Senator 

Bingaman and H.R. 4742 the “SAVE Act of 2009” sponsored by Rep. Kind. 

11 Jeffrey R. Brown, Jeffrey R. Kling, Senhil Mullainathan, & Marian V. Wrobel, “Why Don’t People Choose 

Annuities? A Framing Explanation,” Retirement Security Project (March 2008). 

 8 
There are a variety of guaranteed lifetime income products which are generally available 

through employer plans, through IRAs, or on a non-qualified basis. The following is a brief 

description of the types of annuity contracts and guaranteed lifetime income benefits that 

exist today, as well as a glossary of terms that we will use in our various responses to your 

questions. 

Glossary of Terms 

In-Plan Annuity – An annuity that is available to plan participants through an employer plan. 

The annuity can take any of the forms or features described below including accumulation or 

plan payout (income) forms. 

Out-of-Plan Annuity – An annuity purchased by individuals through an IRA or on a nonqualified individual basis. The annuity can take any of the forms or features described 

below, including accumulation or payout (income) forms. 

Nonqualified Annuity – An annuity purchased, outside of an employer plan or IRA, directly by 

an individual. The annuity can be in any of the forms described below. 

 

Annuity Commencement Date – The date set forth in the annuity contract on which annuity 

payments will start. Also known as the “annuity start date.” 

Fixed – The term “fixed” can refer to annuity payments which are paid at a “set” or fixed 

amount or it can refer to amounts which are credited to the cash value of a deferred 

accumulation annuity at a fixed rate of interest. 

Variable – The term “variable” can refer to annuity payments that vary on the basis of 

underlying funds, or it can refer to value in a deferred accumulation annuity which depends 

on the market value on underlying funds such as stock, bond or money market. 

 

Annuity Purchase Rates – For a given premium, annuity payments are determined based upon 

the contract’s price or purchase rate. Factors considered in determining the rate include: the 

contract’s benefits and features, the annuitant’s life expectancy, market interest rates, capital 

requirements, administrative and other overhead expenses and anticipated profit. 

Purchase Rate Guarantee – A price or rate provided in a deferred accumulation annuity for 

conversion of part or all of the annuity balance to annuity payments. 

Forms or Types of Annuity Contracts 

Immediate Payout (“Income”) Annuity - For a sum, the insurer makes periodic payments 

determined by the price or purchase rate for life or a set number of years, e.g. a “SPIA” or 

single premium immediate annuity. 

Deferred Payout (“Income”) Annuity - A payout annuity with a delayed annuity 

commencement date, e.g. at normal retirement. A “longevity annuity” or “longevity 

insurance” is a delayed payout annuity with payments commencing later in retirement, e.g. 

at age 85. 

 9 
Incremental Purchase of Deferred Payout (“Income”) Annuity - An annuity or annuities 

purchased in increments by monthly payroll deductions, for example. 

Deferred Accumulation Annuity - An annuity purchased with a single premium or multiple 

periodic premiums, invested on a fixed, variable or combination basis for accumulation until 

distribution. In addition to single sum or period withdrawals, the annuity contract provides 

the owner the right to elect to convert some or all of the accumulated balance into annuity 

payments at the annuity commencement date at no less than the purchase rate guarantee. 

 

Guaranteed Living Benefits - Features under a deferred accumulation annuity contract that 

provide protection during the life of the owner against investment risk by guarantee of the 

level of annuity payments and/or withdrawal amounts. 

Examples: 

Guaranteed Lifetime Withdrawal Benefit (“GLWB”), a benefit that allows for guaranteed 

withdrawals from the owner's account without having to annuitize the contract (prior to 

the annuity commencement date). The amount that can be withdrawn under a GLWB is 

based on a percentage of the 'benefit base'. 

Guaranteed Minimum Income Benefit (“GMIB”), a guarantee that under certain 

conditions the owner may annuitize (at the annuity commencement date) the contract 

based on the greater of (1) the actual account value at standard annuity payout rates or 

(2) a 'benefit base' at conservative GMIB payout rates guaranteed under the rider. 

 

Optional Life Contingent Benefits and Features 

Single Life - Periodic payments made only for the life of the annuitant. Of all of the various 

life annuity options and features, a single life annuity provides the highest amount of 

guaranteed payments at commencement. Unlike other options, a “straight” single life 

annuity offers no death benefit. 

Joint and Last Survivor - Periodic payments for the joint lives of the annuitants. 

Payments to the surviving annuitant may be, for example, 50%, 75% or 100% of the 

original initial payment amount depending upon the terms of the contract. 

Period Certain - Periodic payments for the life of the annuitant and continued payments 

to a beneficiary during the period certain, i.e., during the 5 year, 10 year or other fixed 

length period set in the contract that commences with the first payment made to the 

annuitant. 

Cash Refund - Periodic payments for the life of the annuitant and a benefit payable to a 

beneficiary upon death equal to the premium(s) paid less payments made to the 

annuitant. 

Inflation Protection - Annuity payments increase annually according to a set percentage or 

formula. 

 10 
Commutation or Cancelation Right - Permits the annuitant to cancel the annuity contract 

after the annuity commencement date during a set period of time and receive premium(s) 

paid less payments made to the annuitant. 

 

Q-4 To what extent are the lifetime income options referenced in question 3 provided at 

retirement or other termination of employment as opposed to being offered incrementally 

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

accumulating annuity arrangements structured? 

 

The most common form of lifetime income offered at retirement is an immediate payout 

annuity. Relatively new are deferred payout (income) annuities offered on an incremental 

basis during the participant’s working years with payments commencing at normal 

retirement age or no later than the participant’s required beginning date under IRC 

§401(a)(9). Due to the minimum distribution rules, deferred payout “longevity insurance” 

annuities are not included as in-plan options at retirement, an issue we address further in 

response to Q-28. The guaranteed living benefits are offered at retirement and may be 

purchased during the participant’s accumulation phase. 

 

Q-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? 

Some plan sponsors have chosen to invest employer contributions directly in lifetime income 

products. This may be the beginning of a trend in which defined contribution plans offer a 

predictable way for employers to provide a guaranteed monthly payment like that provided 

by a traditional defined benefit plan. 

Q-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? 

Some employers have made IRA rollover annuity arrangements available to their 

participants. Under these arrangements, participants may choose from a variety of 

immediate payout “income” annuity providers. These arrangements offer access to on-line 

quotes and other relevant information that allow participants to compare and contrast 

prices and features before rolling over to an individual retirement annuity. 

Guaranteed lifetime income options available outside of an employer plan or in an IRA are 

also offered on an in-plan basis. Immediate and deferred payout (income) annuities are 

available as stand-alone products while guaranteed living benefits are available as options 

under a variable deferred accumulation annuity. Plans offering deferred payout “income” 

annuities allow the participant to roll this annuity to an IRA with the same carrier. Some 

 11 
plans with Guaranteed Living Benefits give the participant the opportunity to roll over the 

annuity benefit to an IRA that preserves the guarantees accumulated by the participant 

while employed. 

 

Q-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? 

There are a wide variety of guaranteed lifetime income products and features designed to 

provide individuals with the financial security tool(s) to fit their particular needs. A single life 

annuity will provide the maximum guaranteed monthly payment available at retirement, in 

today’s market offering between 7-8% of premium annually for life. 

Individuals often choose a somewhat smaller yearly (or monthly) payment as a cost of 

protecting against inflation, providing payments to a spouse or other beneficiary, or to have 

flexibility to cover unexpected expenses. Optional features offered under annuity contracts 

include: 

 

• Inflation Protection. Fixed scheduled payment escalators or increases tied to the CPI can 

help protect against general inflation and increases in the cost of goods and services 

such as utilities and food. While these features lead to lower initial guaranteed 

payments than a straight life annuity, over time payments may well exceed those of a 

straight life annuity. 

• Ancillary Benefits. Death benefits, including a joint and last survivor benefit, a cash 

refund of remaining premium or a period certain providing a set number of guaranteed 

payments to the annuitant or his or her beneficiary offer a way for individuals to provide 

for a spouse or loved one. 

• Liquidity Features. Annuities can offer contract owners the right to take ad hoc 

payments, increase payments, or cash out of the contract at any time. These features all 

raise the cost of the annuity by providing smaller guaranteed yearly (monthly) payments. 

• Guaranteed Living Benefits - Features under a deferred accumulation annuity contract 

that provide protection during the life of the owner against investment risk by 

guaranteeing the level of annuity payments and/or withdrawal amounts. 

Q-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)? 

Since many people have the majority of their savings in retirement plans, introducing 

participants to lifetime income options in-plan may increase the likelihood that participants 

will consider the use of lifetime income options whether in-plan or outside the plan. An inplan approach clearly offers participants a convenient way to elect lifetime income. 

 12 
One advantage to out-of-plan options is the variety in products and providers available to 

choose from. With the broad variety of lifetime income options available in the marketplace, 

participants may find an out-of-plan option that better suits their needs. Some lifetime 

income options and features may not be available in their plan. Features such as inflation 

protection and cash refund options are not always available. A plan may limit the 

employee’s retirement income options by requiring an all-or-nothing approach, but we are 

recommending that all plans with annuities allow a portion of the retirement account to be 

taken as guaranteed lifetime income. 

With the qualified joint and survivor rules, an in-plan annuity option will introduce 

participants to the spousal protections offered by joint and last survivor annuities. These 

rules may also be viewed as unnecessarily burdensome by participants. 

Another in-plan convenience, the incremental purchase of a deferred payout (income) 

annuity, with each contribution or through investment transfers, provides participants with 

the benefit of dollar-cost averaging purchase rates over the purchasing period. Plans may 

also provide employees the option of purchasing guaranteed living benefits before 

retirement. 

While employers may find group annuities provide participants with income at a higher level 

than comparable individual annuity products purchased out-of-plan, such differences 

depend on many factors and may change over time. In-plan annuity options are required to 

be priced on a unisex basis, which generally provides women with a higher payout rate than 

a sex-distinct retail product. Men may find that out-of-plan products, with sex-distinct 

pricing, provide a larger benefit, although group annuity pricing may off-set this difference. 

Q-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? 

Providing participants with in-plan lifetime income options may help attract and retain 

quality employees by giving them access to a defined benefit type option at a time when 

such plans are rarely offered. It helps employers prepare their employees for retirement, 

providing them with the resources they need to make and implement a retirement income 

strategy. 

Despite these advantages, many employers have reservations regarding in-plan lifetime 

income. Employers are concerned about increased fiduciary responsibilities and potential 

liabilities attendant to the selection and provision of in-plan annuity options. Employers are 

concerned about additional administrative burdens and the lack of portability associated 

with some lifetime income options. Currently, many employers address these concerns by 

avoiding in-plan annuity options. In our responses to several of the questions below, we will 

suggest changes to existing rules which may ameliorate these concerns. 

Q-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 

 13 
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? 

Our members find that most plans that offer lifetime income options provide participants the 

right to elect an in-plan lifetime income option for a portion of their account balance. 

However, some employers choose not to permit partial purchases to avoid what is assumed 

to be administrative complexity. 

ACLI is concerned that there may be a misperception that the decision to annuitize 

retirement assets is an all or nothing decision. ACLI believes that participants benefit with 

an option to choose lifetime income for a portion of their account balance. Guidance from 

the Departments to the employer and employee community to clarify that plans may offer 

participants the flexibility to annuitize a portion of their account balance would be helpful. 

ACLI also believes that, in addition to this flexibility, participants need education regarding 

retirement in general and lifetime income in particular, including the use of lifetime income 

as a component part of their retirement income plan. Even when a partial annuity option is 

available according to the terms of the plan document, often plan information is presented 

to participants in a way that suggests an all-or-nothing choice among the options. Education 

would ensure that participants understand their ability to annuitize a portion of their 

account. Unfortunately, employers are concerned that providing such education will subject 

them to more fiduciary liability. Clear guidance and fiduciary protections regarding the 

provision of retirement income education (such as the expansion of the Department’s 

Interpretive Bulletin 96-1, as discussed in Q-19) would likely result in an increase in 

educational resources for participants. 

Q-11 Various “behavioral” strategies for encouraging greater use of lifetime income have 

been implemented or suggested based on evidence or assumptions concerning common 

participant behavior patterns and motivations. These strategies have included the use of 

default or automatic arrangements (similar to automatic enrollment in 401(k) plans) and a 

focus on other ways in which choices are structured or presented to participants, including 

efforts to mitigate “all or nothing” choices by offering lifetime income on a partial, gradual, 

or trial basis and exploring different ways to explain its advantages and disadvantages. To 

what extent are these or other behavioral strategies being used or viewed as promising 

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

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

use of behavioral strategies in this context? 

 

Behavioral strategies such as automatic enrollment have had positive effects on 

participation in retirement plans. It is not yet known whether such an approach with lifetime 

income would be viewed favorably by participants or have the same positive result. Since 

the Pension Protection Act the number of plans with auto enrollment has increased from 

23.6 percent in 2006 to 39.6 percent in 2008.12 

 

12 PSCA 52nd Annual Survey Reflecting 2008 Plan Experience, September 2009. 

 14 
In considering an approach similar to automatic enrollment, concerns have been raised 

regarding the appropriateness of defaulting participants into an irrevocable lifetime income 

option without regard to the participant’s expected health or longevity, other savings, assets, 

and sources of retirement income. A default approach does allow participants to make their 

own choice by overriding the default, but there are concerns about a change of mind. A 

default into a lifetime income option that offers liquidity for some period of years might 

address these concerns, but would result in a lower benefit than a straight life annuity. In 

spite of these concerns, some believe that a lifetime income default would be beneficial as 

it would force consideration of lifetime income as a retirement income solution. 

 

Another behavioral strategy that we believe would prove effective is a tax incentive to 

participants who elect lifetime income options.13 Coupled with a strong program aimed at 

educating participants about lifetime income and that they may annuitize a portion of their 

account, these behavioral strategies may lead more participants to elect lifetime income as 

a means to secure their retirement.

 

Q-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? 

A number of factors should be considered when a participant is developing a plan for his or 

her retirement, e.g., current health, expected longevity, needs relating to spouse and family, 

retirement goals, different forms of income and the size of their retirement account. 

Guaranteed lifetime income options, when used appropriately, have the ability to benefit a 

wide variety of participants. Those who have saved an adequate amount can gain security 

and those who have not can maximize their income. Participants should consider their 

income needs in retirement. By determining the amount they must have to meet their basic 

necessities, participants can better appreciate the options available to develop a retirement 

income plan that includes guaranteed lifetime income. 

One approach recognized by the financial services industry is to align fixed or essential 

expenses with guaranteed lifetime income sources such as Social Security, an employer 

sponsored pension plan and lifetime income products obtained either in-plan or out-of-plan. 

Any remaining savings would be used to cover discretionary expenses. There are currently a 

number of calculators, available at no charge through a variety of sources, which incorporate 

this approach. 

 

Q-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? 

The consideration of any new plan requirement should be pursued with caution. We have 

described a number of steps which may be taken to make it easier to add annuities or 

guaranteed lifetime income options to defined contribution plans. These include: 

 

13 S. 1297, the “Retirement Security for Life Act of 2009” sponsored by Sen. Conrad and H.R. 2748, the 

“Retirement Security Needs Lifetime Pay Act of 2009” sponsored by Rep. Pomeroy. 

 15 
improvements to the rules for the selection of an annuity provider; transfer of the burden of 

the QJSA; and providing annuity illustrations and other information about guaranteed 

lifetime income to participants. We think these steps have a strong potential to increase the 

interest of participants in guaranteed lifetime income options and the willingness of 

sponsors to include such options. The use of default options may be a worthwhile 

consideration for some plans, but we think that, at this time, the better course is to pursue 

increased use of annuities through the steps that we have outlined. 

 

Q-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? 

When considering potential plan designs, employers commonly weigh the advantages and 

disadvantages of annuities. In general, the employer’s overriding goal is to sponsor a plan 

that will advance its business objectives of attracting and retaining a skilled and qualified 

workforce by providing employees with means to save and attain a secure retirement through 

participation in the plan. Balanced against that objective are cost and burden considerations 

– pure and simple. Employers tend to weigh the retirement security advantages of a 

particular design feature against the potential costs and burdens that accompany that 

feature. Plan features that tend to be selected are those that present obvious advantages 

relative to cost. In the case of guaranteed lifetime income, many believe they do not have 

enough knowledge or experience to understand the costs or benefits. 

The advantages of guaranteed lifetime income options for retirement security goals should be 

obvious, but employers need to have access to more information. One problem is that when 

employers evaluate the potential costs and burdens that accompany those options, they 

either cannot measure the costs and burdens or conclude that they outweigh the benefits. 

Many of the concerns that currently impede employer selection of lifetime income options are 

a by-product of perceived fiduciary risk and administrative burden. Below, we will discuss a 

number of smart, sensible and effective policy measures that, if implemented, may reduce the 

perceived and actual costs and burdens in employer considerations of lifetime income 

options. By making thoughtful changes to the regulations governing plans, it is possible to 

change the cost/benefit dynamic to favor the inclusion of lifetime income options. 

Employer Fiduciary Liability. It is difficult to overstate the high level of concern about 

fiduciary liability that currently impedes lifetime income option selection. The DOL’s 2008 

clarification that the safest available annuity standard does not apply to defined contribution 

plans was an extremely positive first step to reducing the magnitude of the fiduciary liability 

impediment, but additional guidance is needed (See Q-31). 

Annuity Administration Relief. Second to fiduciary liability, the costs associated with the 

administration of lifetime income options need to be reduced. The qualified joint and 

survivor annuity (“QJSA”) rules add a layer of administrative complexity and attendant 

liabilities that employers can simply avoid by excluding annuities from their plans, and most 

do. In addition, current law requires that QJSA rules be administered with paper documents. 

 16 
We propose that ERISA be modified to permit plan sponsors to shift the responsibility (and 

attendant liability) for QJSA administration to qualified lifetime income administrators. The 

ability to shift annuity administration and potential liabilities to another party would make 

annuity options more attractive to plan sponsors and could result in a significantly wider 

availability of such annuity payment options under defined contribution plans. Insurance 

companies have experience in managing annuity administration and risk. Of course, the 

selection of an annuity administrator remains a fiduciary act. 

At the same time, the use of electronic means of QJSA administration is needed to promote 

efficiencies and reduce costs. Electronic alternatives to paper that simplify and lower the 

cost of administration should be considered. Electronic administration is commonplace in 

all aspects of modern life including the management of individual financial affairs from 

banking to tax filings. Any party responsible for QJSA administration and its attendant 

liabilities is sufficiently motivated to utilize effective electronic security processes to 

safeguard participant and spousal rights. 

Q-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? 

Many insurers are providing annuities and long-term care combination products through 

nonqualified annuities, annuities purchased outside of an employer plan or IRA. The tax 

rules regarding such combination products were effective for the first time in 2010. It 

makes sense to monitor the market response to these products for a period of time before 

considering the utilization of such products in employer plans. 

 

Q-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? 

ACLI has not conducted its own research on this issue, but we are aware of several recent 

studies that suggest the existence of important differences between demographic groups in 

the context of retirement security. A recent study by the Employee Benefit Research Institute 

indicates that participation and contribution rates do vary, in some cases significantly, 

across demographic groups based on age, gender, race, education level, income level, 

marital status and geographic location.14 The Center for Retirement Research at Boston 

College also found higher participation and contribution rates among white workers than 

among African American or Hispanic workers.15 Similarly, research conducted by one of our 

member companies in 2007 showed that women are far more worried than men about 

retirement risks, including such risks as inflation and longevity.16 

 

14 Craig Copeland, “Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 

2008” Employee Benefits Research Institute (Issue Brief November 2009 No. 336).

15 Alicia H. Munnell & Christopher Sullivan, “401(k) Plans and Race,” Center for Retirement Research at 

Boston College (November 2009, Number 9-24).

16 “Why Women Worry,” research report published by The Hartford and the Massachusetts Institute of 

Technology AgeLab (2008).

 17 
We applaud the Departments for recognizing that such distinctions might exist and for 

seeking ways to address them. We believe that education should be a central element of 

any effort to reduce or eliminate the impact of these differences. Educating participants 

about these differences will help them to more effectively consider all relevant factors when 

making important retirement planning decisions. 

Q-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? 

To make an informed decision regarding whether to select a guaranteed lifetime income 

option, participants need a basic understanding of the options available to them and the 

advantages and disadvantages of each. Currently very few participants have even a basic 

understanding of guaranteed lifetime income options and how they work. Even plans that 

offer a guaranteed lifetime income option provide little education about it, if any. The best 

way to assist those in the process of planning their retirement is to ensure they have 

information about guaranteed lifetime income solutions such as an illustration of how the 

account balance translates into guaranteed lifetime income, education necessary to use 

such solutions and resources available to assist them with questions and planning. Many 

providers are able to assist employers by making this type of information available to 

participants using a combination of different mediums including paper, e-mail, CD, DVD, 

internet and call center (although regulatory changes would enhance the ability to provide 

certain required disclosures through electronic mediums). However, most employers are 

reluctant to provide this type of education due to fiduciary concerns. Clear guidance and 

fiduciary protection regarding the provision of retirement income education (such as the 

expansion of the Department’s Interpretive Bulletin 96-1, as discussed in Q-19) would be 

likely to encourage employers to provide the resources necessary for participants to make 

these decisions. 

Basic items that should be covered regarding guaranteed lifetime income include: 

 Costs and the amount of the guaranteed lifetime income benefit; 

 anticipated life expectancy; 

 survivor benefits; 

 relative value of income options; 

 inflation factor; 

 tax treatment; 

 premium taxes; 

 guaranteed payment periods; 

 liquidity features; and 

 cash refund. 

 18 
Participants need information on not only guaranteed lifetime income options, but also other 

distribution options such as lump sums and systematic withdrawals in order to compare the 

advantages and disadvantages of these various options. They need to understand longevity 

risk, investment risk, and inflation risk as they consider ways to address their retirement 

income needs. 

To put lifetime income options vis-à-vis other income options in perspective, participants 

need to be able to weigh the benefits and disadvantages of each option. Many participants 

also believe that target date funds as well as income replacement funds include some 

investment and longevity risk guarantee. It is important that, for these non-guaranteed 

“lifetime like” income options (i.e., non-insurance options that do not address longevity risk), 

participants understand the absence of a lifetime guarantee. Participants should also 

understand their continued responsibility for the management of their account balance, 

even when using a target date fund, including factors such as investment risk and longevity 

risk inherent under “sustainable withdrawal rates.” Even at half the monthly income 

available through a life annuity, a non-guaranteed approach cannot provide a 100% 

probability of payments for life. 

 

Q-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? 

DOL guidance allows for the use of plan assets to pay for participant investment education 

related to retirement income. However, additional guidance is necessary to encourage plan 

sponsors to take full advantage of this opportunity. DOL Field Assistance Bulletin 2007-01 

provides that fiduciaries “may use plan assets to pay reasonable expenses in providing 

investment advice (and/or investment education) to plan participants and beneficiaries.” In 

addition, DOL Interpretive Bulletin 96-1 allows and encourages plans to provide participants 

and beneficiaries with “general financial and investment information” including materials 

that inform participants and beneficiaries about their “future retirement income needs.” This 

guidance clearly allows for the use of plan assets to educate participants about lifetime 

income needs in general. However, this guidance may not provide sufficient assurance to 

sponsors who wish to use plan assets to cover the cost of providing participants with 

information regarding lifetime income options. The Department should clarify that plan 

assets may be used to educate participants about lifetime income options including those 

typically available outside of the plan. Without this clarification, plan sponsors, who are in 

the best position to ensure that participants receive this information, may hesitate to do so 

and plan service providers may be reluctant to include education on lifetime income as part 

of their service models. 

Q-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? 

 19 
Employers and plan sponsors have concerns that providing participants with information 

outlining the advantages and disadvantages of annuities and other lifetime income options 

could be construed as “advice.” To encourage plan sponsors to provide retirement income 

education, the Department should provide guidance on when information provided to 

educate employees about lifetime income options available in-plan or out-of-plan is 

educational in nature and not advice. 

A number of factors, including the current economic situation and lengthening life spans, 

have made it more important than ever to encourage employers to provide information 

about guaranteed lifetime income options and to educate their participants on all of the 

options available to them, both inside and outside of the retirement program, as well as the 

merits and limitations of both guaranteed lifetime income options and other approaches. 

Many employers are still hesitant to offer this benefit due to fiduciary liability. Plan sponsors 

are concerned that providing participants with information outlining the advantages of 

guaranteed lifetime income options could cross the line between “providing investment 

education and/or retirement planning information” and “offering investment advice.” There 

are concerns that the investment education rules do not cover situations in which the plan 

sponsor provides information regarding the benefits and features of the plan’s lifetime 

income options. In particular, there is a concern that participants would consider the 

information as a specific “recommendation” of an insurer’s lifetime income product. 

However, we believe that the dissemination of information regarding the plan’s various 

distribution options should be viewed the same as the dissemination of information on, for 

example, the benefits of investment diversification, asset allocation models, time horizons, 

risk tolerance, and asset classes with no specific recommendation as to which fund of funds 

to choose. 

Clear guidance for employers regarding educating participants about lifetime income or 

other arrangements designed to provide a stream of income after retirement would likely 

encourage employers to provide the resources necessary for participants to make these 

decisions. Fiduciaries should be afforded protection for the dissemination of information on 

plan distribution options as well as information on other retirement options including options 

outside of the plan, e.g., information regarding the fact that participants may purchase 

lifetime income options from another provider via a rollover to an IRA or with the proceeds of 

a lump sum. We agree with the recommendations made in both the 2007 and 2008 ERISA 

Advisory Council reports to expand Interpretive Bulletin 96-1 to explicitly cover education 

regarding “decumulation” strategies such as lifetime income options. A model notice may 

prove to be helpful to plan sponsors. 

 

Q-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 that the suggestions described above in the response to question 19 would 

encourage plans to provide or promote this education. 

 

 20 
Q-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? 

 

Current law and common plan design encourage participants to consider their account 

balances as single sums available for payment upon retirement. This can and often does 

create a false sense of wealth. ACLI supports changes to the ERISA plan benefit statement 

rules to include an illustration of the participant’s account balance as a guaranteed monthly 

income payment for life commencing at normal retirement. Illustrations would be based on 

either a plan’s existing guaranteed lifetime income product or a table prescribed by the 

Departments using interest rates, such as the PBGC rates, and life expectancy assumptions 

set by regulation. ERISA should explicitly state that plans and plan fiduciaries are not liable 

for payments in the amount illustrated under these rules. The DOL should provide model 

language that plans may include on statements to make clear that the payment amount is 

illustrative. 

Illustrations will help educate participants as to their account values’ retirement income 

potential. This information will assist them in evaluating such factors as their income need, 

savings adequacy, and the amount of income devoted to retirement savings. It reframes the 

defined contribution plan as a retirement plan that can generate retirement income and not 

just a capital accumulation or savings plan. 

Q-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? 

As noted in Q-21, ACLI believes that a lifetime stream of income payments should be 

expressed as a monthly amount beginning at the plan’s normal retirement age. Plans 

should not be precluded from providing additional information such as the amount of annual 

lifetime stream of income payments or projections based on future contributions. To ease 

administration, the illustration should be made in the same manner without regard to 

whether the individual is married or single. Thus, a plan should not be precluded from 

illustrating a joint and last survivor annuity based upon a single assumption. Using 

assumptions base on future voluntary contributions might be misleading. All that should be 

required is an illustration based on current account values. 

 

Q-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 

 21 
that lifetime income payments are merely estimates for illustrative purposes? Should the 

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

payments be disclosed to participants? Should the assumptions used to convert accounts 

into a lifetime stream of income payments be dictated by regulation, or should the 

Department issue assumptions that plan sponsors could rely upon as safe harbors? 

Please see our response to Q-21. Regarding disclosure, participants should be made aware 

that the benefit shown is for illustrative purposes only. While it may also be helpful to tell 

the participant on a general level whether the illustration is based on government tables or 

current quotes from options available under the plan, providing more detailed information 

regarding assumptions such as the mortality and interest rates may not be meaningful and 

may confuse participants. 

 

Q-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 preretirement 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? 

Although an income replacement ratio may be helpful as a way to illustrate to participants 

the true value of their retirement funds and to approximate the amount needed for 

retirement, an individual benefit statement may not be the best vehicle for this information. 

The plan sponsor or provider normally will not have the necessary information to provide a 

meaningful estimate, and incomplete history regarding spousal information, other sources 

of income and tax requirements may create a false picture. To determine income needs, the 

participant may need advice and access to information and online tools 

 

Q-25 How do the 401(k) or other plan qualification rules affect defined contribution plan 

sponsors' and participants' interest in the offering and use of lifetime income? Are there 

changes to those rules that could or should be made to encourage lifetime income without 

prejudice to other important policy objectives? 

The qualification rules primarily affect the plan sponsor. When considering whether to offer 

an annuity option, the plan sponsor must consider the qualified joint and survivor rules 

(“QJSA”). There is additional complexity and administrative issues associated with the QJSA 

and qualified pre-retirement survivor annuity rules and the applicable spousal consent 

requirements. These rules also bring liabilities, as a failure to follow the QJSA rule may 

 22 
require the plan sponsor to make additional payments to a surviving spouse. For example, a 

plan administrator may rely on a participant’s certification of marital status to permit a lump 

sum payment, but the employer may be held accountable for a spousal survivor benefit if 

some other person at the company had information to the contrary.17 

As the attendant administrative cost and potential liabilities under the QJSA rules may be 

avoided by excluding an annuity option from the plan, it is not a surprise that the majority of 

today’s plans do not include such options. 

On changes to the existing rules, we offer the following suggestions to help clarify and 

simplify plan administration and compliance to broaden the utility of lifetime income 

products in qualified plans: 

• Provide lifetime income model amendments which preserve reliance on pre-approved 

documents to defray employer costs to facilitate adoption. Examples include model 

amendments with an annuity as the normal form of benefit, lump sum as the normal 

form of benefit with spousal consent triggered when an annuity is actually elected by the 

participant, and permitting the annuitization of a portion of a participant’s account 

balance. 

• Modify 402(f) notice requirements and safe harbor notice to include information on 

lifetime income including the importance of income protections and noting the 

availability of lifetime income plan distribution options, if any, as well as lifetime income 

options available outside the plan (e.g., a rollover to an individual retirement annuity). 

 

17 From REA Committee reports: 

"If the plan administrator acts in accordance with the fiduciary standards of ERISA in securing spousal 

consent or in accepting the representations of the participant that the spouse's consent cannot be 

obtained, then the plan will not be liable for payments to the surviving spouse. For example, if the plan 

administrator receives a notarized spousal consent, valid on its face, which the administrator has no 

reason to believe is invalid, the plan would certainly be allowed to rely on the consent even if it is, in fact, 

invalid. In addition, if a third party payor relies on a consent obtained or determination made by a the plan 

administrator who acts in accordance with the fiduciary standards, or if a third party payor acting in 

accordance with such standards (whether or not the payor is a plan fiduciary under ERISA) establishes that 

consent cannot be obtained, then the payor will be relieved of any liability for payments to the surviving 

spouse." 

Some court cases addressing include Lasche v George W Lasche Basic Profit Sharing Plan (11th Circuit, 

1997), where the court ruled even though spouse acknowledged signing an alternative beneficiary 

designation, that the consent is invalid if not properly witnessed. In Hearn v. Western Conference of Teamsters 

Pension Trust Fund, (9th Circuit, 1995), a plan had to provide a survivor annuity to the spouse, where the plan 

administer had relied on a participant's false statements he was unmarried. In a similar case, Lester v. Reagan 

Equipment Co. Profit Sharing and Employee Savings Plan (1992, CC LA) the District Court determined a Plan 

Administrator could not rely on a participant's notarized letter claiming his spouse could not be located. The 

Court reasoned that a Plan Administrator is only relieved of liability where he or she acts according to fiduciary 

standards of conduct including the prudent man standard of care. The court concluded that the Plan 

Administrator had not acted prudently in simply accepting the participant's assertions on their face. 

 23 
• Clarify that age limitations imposed with respect to Guaranteed Living Benefits, whether 

by the insurance company or by the plan sponsor under the terms of the plan, are not 

subject to current and effective benefits testing under §1.401(a)(4)-4. For example, the 

plan sponsor may determine that a particular guaranteed living benefit product should 

only be available to participants age 50 or older. 

Q-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? 

We believe that the Qualified Preretirement Survivor Annuity (“QPSA”) notice and consent 

rules should be revised to eliminate the age 32/35 provision which adds unneeded 

complexity, confusion and compliance risk as this odd provision may lead to inadvertent 

notice failures. 

Also on the administration of the QJSA and QPSA rules, the Departments should provide a 

consistent and flexible means to provide notices and secure consents electronically. We 

believe that changes to permit electronic administration of these rules would encourage the 

use of lifetime income without compromising spousal rights and protections. Since these 

rules were first enacted, electronic administration has become widely used for a vast variety 

of transactions including sensitive financial transactions, e.g. online banking, 401(k) 

account management, tax filings. It is preferred by the public for its convenience and by the 

industry because it is cost efficient, effective and accurate. Participants and spouses should 

have the ability to effect transactions electronically, recognizing that a paper process may be 

preferred by some individuals and should be available to participants and spouses. 

 

Q-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 clarifying the application of the QJSA rules to Incremental Purchases of 

Deferred Payout (“Income”) Annuities would be appreciated. In addition, guidance clarifying 

the application of these rules to guaranteed living benefits would be helpful as well. Please 

confirm that products in these categories are not subject to the QJSA rules until such time 

as the participant elects a distribution in the form of an annuity. The selection of these 

options over a participant’s working life (which may begin quite early in the participant’s 

working years) is more akin to the investment options that he or she is making, and not an 

election of a distribution option. Applying spousal consent rules to these products prior to 

an election of an annuity distribution would not be appropriate. 

 

Q-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? 

 24 
One approach to mitigating longevity risk is to encourage individuals to annuitize a portion of 

their retirement savings through the purchase of “longevity insurance,” or a deferred payout 

(income) lifetime annuity that begins payments at a future date, for example when the 

individual reaches age 85. These deferred payout annuities are available “out-of-plan” but 

are generally not used “in-plan” because of concerns about the application of the minimum 

distribution rules. 

ACLI supports a legislative proposal that would facilitate the use of longevity insurance or 

longevity annuities by excluding the premium amount from the individual’s required 

minimum distribution (“RMD”) calculation under Code Section 401(a)(9).18 Since the 

Code’s RMD rules apply only to tax-qualified retirement savings vehicles, this would 

encourage plan participants and IRAs owners to use a portion of their account balance to 

purchase longevity insurance. 

 

For purposes of this proposal, longevity insurance is a deferred payout (income) annuity 

that: (a) is payable no later than a year after an individual reaches age 85 (or would have 

attained age 85), (b) is paid out in substantially equal periodic payments (not less frequently 

than annually) over the life of the employee or the joint lives of the employee and the 

employee's designated beneficiary, (c) does not allow pre-death commutation benefits or 

have cash surrender value, and (d) has a limited pre-commencement death benefit (return 

of premiums paid, plus a reasonable interest rate). 

The primary benefit of longevity insurance is the mitigation of “longevity risk.” Individuals 

purchasing a longevity insurance contract at retirement age would know that guaranteed 

monthly payments would begin at age 85, for example, and that those monthly payments 

would be made for the rest of his or her life. 

In addition, excluding the amount of the longevity insurance from an individual’s minimum 

required distribution calculation permits retirees to benefit from a longer deferral period on 

the contributions made to workplace savings plans or IRAs. Upon reaching age 70 1⁄2, 

individuals would subtract the value of their longevity insurance contract when calculating 

how much in required distributions they must take. 

 

Q-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 are not familiar with plans that permit such purchases. ACLI is supportive of the defined 

benefit plan system and would follow the development of new policy with great interest. 

18 H.R. 2748, the “Retirement Security Needs Lifetime Pay Act of 2009” sponsored by Rep. Pomeroy. 

 25 
Q-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? 

It has been the experience of our member companies that the safe harbor is an 

improvement over the “safest available annuity” rule, but it has not been broadly used. 

 

Q-31 To what extent could or should the Department of Labor make changes to the safe 

harbor under 29 CFR 2550.404a-4 to increase its usage without compromising important 

participant protections? What are those changes and why should they be made? 

The regulation should be revised to modify or eliminate the requirement that fiduciaries 

make a determination as to whether “an annuity provider is financially able to make all 

future payments under an annuity contract.” This standard is difficult to meet in part 

because it is hard to know how to draw this conclusion. While it is part of a “safe harbor,” 

the requirement makes it hard to use the safe harbor and is not a requirement of selection 

of other financial protection products. ACLI believes that changes can be made to these 

rules which will make it easier for employers to meet their duties while at the same time 

ensuring a prudent selection. 

The safe harbor should continue to contain the following rules, i.e., that the fiduciary: 

• engage in an objective, thorough and analytical search for the purpose of identifying 

and selecting providers from which to purchase annuities; 

• appropriately consider and conclude, at the time of the selection, that the cost 

(including fees and commissions) of the annuity contract is reasonable in relation to 

the benefits and administrative services to be provided under such contract; 

• if necessary, consult with an appropriate expert or experts for purposes of 

compliance with the safe harbor provisions. 

Instead of a determination about the financial ability to make all future payments, the safe 

harbor should require the fiduciary to give consideration to the financial strength and other 

“quality” aspects of the provider. ACLI expects to submit additional commentary and 

suggestions regarding the issue of financial strength and quality of the provider. 

We know that the Department has already given serious thought on this issue. As you 

consider our request, it is important to recognize the unique role of state insurance 

departments in oversight of life insurance companies including the imposition of NAIC 

uniform rules for the establishment of reserves, the valuation of assets and liabilities, riskbased capital requirements, required capital. The insurance departments conduct routine 

reviews of the financial strength of each insurer and its ability to meet its commitments and 

the insurance departments have a number of powers to intervene and protect policy holders 

(see Appendix 1 for a brief summary of the state insurance regulatory system). This system 

of regulation is a factor in the consideration of the quality of a provider. We will be providing 

other aspects of financial strength and quality to be considered. 

 26 
One additional note regarding the regulation, ACLI suggests that the regulation be revised to 

make it clearer that when a fiduciary meets the safe harbor in selecting an annuity provider, 

the fiduciary will not be liable for future changes in circumstances with respect to the 

provider’s financial stability. Currently, safe harbor protection is afforded for decisions made 

at the “time of selection.” We understand that plan fiduciaries continue to be concerned 

that they remain at risk should a provider unexpectedly fail in the future. 

Q-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? 

Fiduciaries need clear and effective guidance regarding their duties when selecting 

guaranteed lifetime income products. The safe harbor should address all such products. 

However, as noted in our responses to Q-30 and Q-31, ACLI also believes that the safe 

harbor should be revised to become a more effective tool. 

 

Q-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? 

 

To encourage the use of guaranteed lifetime income products, the regulations should be 

amended to provide specific guidance on how guaranteed lifetime income products qualify 

for ERISA section 404(c) protection as non-core funds, particularly relating to the transfer 

and timing restrictions that are inherent in these products. 

The use of deferred payout (income) annuities, including incremental purchases, and 

guaranteed living benefits is fairly new. When a guaranteed lifetime income product 

includes a restriction on transfers out to other plan investments, it would not qualify as a 

core investment alternative and therefore is not used for that purpose. 

The advantages and disadvantages of the guaranteed lifetime income products are 

discussed elsewhere in this response. When guaranteed lifetime income products are made 

available as an investment alternative, participants are informed of: any applicable fees; the 

nature and method of determining benefit guarantees; restrictions relating to transfers 

between the product and other investment alternatives; and the effect of any such transfer 

on the benefit guarantees. 

Q-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 

 27 
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? 

 

It is imperative that regulatory guidance be developed and promulgated under which plan 

sponsors would be allowed to enjoy the same fiduciary protections with respect to 

participant selection of guaranteed lifetime income options that they now enjoy under the 

Section 404(c) regulations with respect to participant selection of accumulation investment 

options. Under a 404(c) plan, plan sponsors and fiduciaries are shielded from any potential 

liability that might otherwise arise from the investment results resulting from a participant’s 

exercise of investment control over his or her account balance. A similar construct could and 

should be developed under which participants would be provided information about their 

distribution options including the features and risks of a broad range of lifetime income 

options. With the proviso that plan fiduciaries remain responsible for the prudent selection 

and monitoring of the lifetime income option products, it should be made absolutely clear 

that the plan sponsor and fiduciary will be insulated from liability for the results of a 

participant’s choice. 

The potential fiduciary liability that beleaguers so many plan sponsors can be summed up 

rather easily: What, plan sponsors worry, will happen to me and my business, if the 

guaranteed lifetime income provider I prudently select today fails to perform by reason of 

financial impairment some ten or twenty or thirty years down the road? It is simply not a 

reasonable or a logical construct to ask plan sponsors to assume the risk that they might be 

called upon to effectively indemnify participants who purchase lifetime income options 

through their own exercise of account balance control. This does not mean to suggest that 

participants should be left on their own and without recourse in the event of provider failure 

to perform. Rather, we would suggest that participants who have made a 404(c)-like 

selection of lifetime income over other distribution options should seek recourse through 

consumer protections that are available to participants who purchase lifetime income 

vehicles outside of the plan.19

Q-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? 

 

The DOL could and should encourage the use of guaranteed lifetime income features in 

connection with QDIAs by addressing the prudent selection and monitoring of a QDIA. 

Today, plan fiduciaries fear the existence of an unknown standard for selecting investment 

 

19 In the unlikely event of an insolvency/liquidation, the state guaranty association coverage will protect 

policyholders, including those holding annuity obligations. While the state guaranty fund protections are 

limited, there has been a strong tendency to increase these limits. Coverage ranges from $100,000 to 

$500,000 of the contract’s present value with most states at or above $200,000.19 As a result, in the unlikely 

event of an insolvency and liquidation, the majority of plan participants would be fully protected. 

 28 
alternatives for use as QDIAs, one they expect is more rigorous than the standard for 

selecting non-default investment alternatives. 

We request that the Department issue safe harbor guidance on the selection and monitoring 

of default investments generally. We suggest that the Department focus on any 

considerations unique to selection of a default, note reasonable assumptions and permit 

the selection of an investment alternative that is suitable broadly for the entire default 

population without the need for separate consideration of the specific circumstances of 

population subgroups or of individual participants. 

The Department should reaffirm that investment alternatives that include guaranteed 

lifetime income features are eligible for treatment as a QDIA. We request that the 

Department clarify and confirm that an employer may use such QDIAs generally including in 

the context of a “re-enrollment.” For example, if a QDIA with guaranteed lifetime income 

guarantees is determined to be an appropriate investment only after participants have 

attained a certain age, employers should be able to transfer all or a portion of participants’ 

funds into the QDIA, subject to the notice and election rules, and receive the same 

protection available for initial enrollments. 

Investment alternatives with ancillary lifetime income features that are made available only 

to participants who have attained a certain age, e.g. age 50, should not be considered 

discriminatory regardless of the participants’ age and income demographics. It is reasonable 

to limit these options to older employees approaching normal or early retirement ages. A 

limitation on the availability of a lifetime income feature to participants who have attained a 

certain pre-retirement age creates a separate “benefit, right or feature” that must be 

subjected to nondiscrimination testing under Treasury Regulation Section 1.401(a)-4. This 

test is to ensure that benefits are currently or effectively available to all employees on a 

nondiscriminatory basis. The potential burden to plan sponsors of additional 

nondiscrimination testing is an impediment to the availability of investment products with 

ancillary features. 

This burden is unreasonable. We request that the Internal Revenue Service/Treasury 

amend Code Section 1.401(a)-4 to disregard age conditions with respect to the availability 

of lifetime income features available to plan participants prior to a distributable event. 

Q-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. 

If efforts to educate employees on the benefits of guaranteed lifetime income generate an 

interest in these products, then for plan sponsors, adding these products to the plan will be 

viewed by its employees as an enhancement to the plan. As for costs, please note our 

suggestions regarding fiduciary liability and attendant administrative costs. 

 

Q-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? 

 29 
Small employers may lack staff dedicated to the management and administration of benefit 

plans. Thus, there may not be resources to cover additional duties and tasks. Efforts to 

simplify administrative and fiduciary duties such as the ones we have suggested will lower 

resource demands. 

Q-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? 

ACLI members have not seen evidence that plans with an annuity as the normal form of 

benefit have contribution rates that differ from plans with lump sum as the normal form of 

benefit. However, adding estimated lifetime income payout information to participant 

statements and other communications could help increase contributions by enhancing 

participants’ awareness of how plan balances convert to income streams in retirement. 

 

Q-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 we have noted, our members find that most plans that offer lifetime income options 

provide participants the right to elect an in-plan lifetime income option for a portion of their 

account balance. However, ACLI was not able to gather sufficient data to provide a 

meaningful response to these questions. 

***** 

On behalf of the ACLI member companies, thank you for consideration of these 

comments. We welcome the opportunity to discuss these comments and engage in a 

productive dialogue with the Department on these important issues. 

Sincerely yours, 

Walter C. Welsh James H. Szostek 

Executive Vice President, Vice President, 

Taxes & Retirement Security Taxes & Retirement Security 

 

Shannon Salinas 

Counsel, Taxes & Retirement Security 

 30 
Appendix 1 

 

State Insurance Regulatory System 

Life insurance companies are subject to robust and extensive state regulation far exceeding 

the standards imposed on other entities offering “lifetime like” income products. All states 

impose detailed rules related to the establishment of reserves, the valuation of assets and 

liabilities, risk-based capital requirements, surplus rules, and presale approval of insurance 

contracts (with actuarial justification). 

State insurance departments provide regulatory oversight of the life insurance industry. 

These insurance regulators routinely gauge the financial strength of insurers and conduct 

complex analysis to determine an insurer’s ability to meet its future commitments under its 

lifetime income products. This is much more than can be expected of any employer or any 

expert a plan fiduciary may retain at significant cost (which itself is a deterrent to offering 

these types of options). The insurance regulators have access to far more information than 

employers or their hired experts, including quarterly reviews of the financial statements of 

insurance companies domiciled and/or authorized to do business in their states, and the 

ability to gain the attention of senior management to address concerns about the insurer’s 

financial situation. The following is a brief overview of the various layers of state regulation 

that exist to protect consumers against insurance company failures. 

State insurance regulators impose extensive scrutiny on insurance companies in their 

licensing and approval processes, far exceeding the standards imposed on other kinds of 

entities. Insurers are subject to detailed rules related to the establishment of reserves, 

valuation of assets and liabilities, risk-based capital requirements, surplus rules, 

requirements that products (contracts) must be approved prior to sale (with actuarial 

justification), and restrictions on dividends to holding companies apply. Most of these 

quantitative criteria are based upon the protections established by a well respected national 

association, minimizing the potential risk that a state may be unduly influenced by the 

industry. It is important to note that these requirements and restrictions were significantly 

enhanced in the mid-1990s. 

When an insurance company is found to be financially unstable, the insurance department 

in its home state will generally step in and take control of the company (known as the 

“receivership process”) and attempt to improve the company’s financial status (known as 

“rehabilitation”). States have broad powers to intervene and take over insurers early in any 

developing problem/downward spiral to prevent insolvency or liquidation. This broad 

rehabilitation authority enables the state to fully protect the insurer’s financial soundness, 

and thus, policyholder interests, are fully protected. 

If a company’s financial difficulties are too great to overcome, the state can declare the 

company insolvent, and the receivership process moves into the next stage, known as 

“liquidation”, in which the receiver (usually, the commissioner or someone appointed by the 

commissioner) attempts to maximize the company’s assets to pay off as many creditors as 

possible, including policyholders. 

Appendix 1 1 
Appendix 1 2 

 

In addition, the state may seek to have one or more other insurance companies take over 

the struggling insurer’s “book of business” and agree to pay policyholders in full. In some 

cases, the state may provide financial support to the assuming insurers. 

As policyholders, annuity contract holders (including holders of group annuity contracts 

issued to qualified plans and their participants) are given a priority status over all general 

creditors and many otherwise protected parties (i.e., employee claims). Few if any claims 

are superior to the policyholder claims (generally only the state’s administrative costs and 

any guaranty association costs). Life insurer creditors seldom have extensive security 

interests, so policyholders have access to virtually all of the insurer’s general assets. 

As a result of this protective regulatory process, the number and size of annuity carriers that 

have gone into liquidation is quite small, and account policyholders have generally received 

the full contractual benefits guaranteed under their contracts. 

In the unlikely event of an insolvency/liquidation, the state guaranty association coverage 

will protect policyholders, including those holding annuity obligations. While the state 

guaranty fund protections are limited, there has been a strong tendency to increase these 

limits. Coverage ranges from $100,000 to $500,000 of the contract’s present value with 

most states at or above $200,000.1 As a result, in the unlikely event of an insolvency and 

liquidation, the majority of plan participants would be fully protected. 

 

 

1 Limits in some states may vary depending on whether the annuity is in payout status or not, depending on the 

type of annuity, or depending on whether the annuity has been annuitized. In addition, each state may have 

special rules regarding how the limit is applied. Additional information can be found at the following web 

address: http://www.nolhga.com/factsandfigures/main.cfm/location/lawdetail/docid/8

Note that most states have laws prohibiting insurance agents and companies from using the existence of the 

guaranty association system in any advertising or as an inducement to purchase insurance. Some stated 

require that a notice about guaranty protection accompany a policy at issuance.
Appendix 2 

ACLI Retirement Choices Study 

Online Survey with 

Near-Retiree Defined Contribution Plan Participants

Report of Findings 

Prepared for: 

by: 

Mathew Greenwald & Associates, Inc. 

April 2010 

Appendix 2 1 
Table of Contents 

Introduction and Methodology...................................................................................2 

Key Findings................................................................................................................3 

Detailed Findings ........................................................................................................5 

 Retirement Outlook.............................................................................................5 

 Interest in Information On and Options for Guaranteed Lifetime Income............8 

 

Appendix 2 2 
Introduction and Methodology 

In an effort to gauge retirement plan participants’ interest in (1) having their employers 

offer additional options for what they can do with their retirement plan accumulations 

after they retire and (2) being able to see an illustration of how much guaranteed lifetime 

income they may be able to get using the money in the plan, the American Council of 

Life Insurers (ACLI) commissioned independent research firm, Mathew Greenwald & 

Associates, to conduct a study of plan participants nearing retirement. 

An online survey was conducted with 750 workers ages 45 to 65, who are participating 

in a defined contribution plan available through their current employer. Respondents 

were also screened to ensure that they had a minimum retirement plan account balance 

of at least $40,000 and were not expecting any retirement income from a defined benefit 

pension plan. 

• Potential respondents for this study were selected from among members of eRewards 

Consumer Research Panel. 

• The survey fielded between March 26 and March 31, 2010. 

The survey data were weighted by gender, age, and education to reflect the 

composition of retirement plan participants ages 45 to 65 with account balances of at 

least $40,000. Population statistics were based on data from the 2007 Survey of 

Income and Program Participation (SIPP). 

A similarly-sized random sample of 750 respondents would have a margin of error at 

the 95% confidence level of plus or minus 3.7 percentage points. 

Key findings and a detailed discussion follow this section.* 

 

*Percentages in the tables and charts may not total to 100 due to rounding and/or missing categories. 

 

Appendix 2 3 
Key Findings 

Seeing an illustration of how much guaranteed monthly income they could get for life 

may prompt many plan participants to save more. 

• Just over nine in ten respondents say that it would be valuable to have their employer 

show them an illustration of how much monthly income they could get guaranteed for life 

based on the value of their retirement plan account, including more than half who feel 

that it would be very valuable. 

• Three out of five say that if this illustration showed that the monthly income that could be 

generated would not be enough to meet their needs, they would start saving more 

immediately. Another one-third say that, after seeing this illustration, they would monitor 

how their savings affected the illustration and consider saving more later. 

• Eighty-five percent express an interest in having this information available in their regular 

retirement statement or on a secure website hosted by either their employer or their plan 

provider. 

An overwhelming majority support the idea of having employers offer an option in their 

retirement plans that would use some of their retirement plan savings to provide 

employees with guaranteed monthly income for the rest of their lives once they retire. 

• Nearly nine out of ten plan participants surveyed report that they favor a proposal to 

have employers offer an option that would use their plan savings to generate a 

guaranteed stream of income for life. 

• A similar share – fully 90% – say they favor the idea of their employer offering them this 

type of option, and would be interested in learning more about it, if it were available. 

Given the overall favorable impression of this option, it’s not surprising that positive 

statements about why such an option should be made available resonate more than 

arguments against it. 

• More than nine in ten agree that employers should be encouraged to offer choices to 

help employees attain financial security, and nearly all agree that an option that offers to 

guarantee income for life can help accomplish this. 

• Although a large majority of respondents say they feel at least somewhat confident 

about their ability to personally manage their finances after they retire, this confidence 

may be an overstatement, since more than nine in ten agree that it is difficult for “many 

workers” to know how to manage their money after they retire, and feel it would be 

helpful if employers offered an option to help with this. 

Appendix 2 4 
• Likewise, seven in ten disagree that employees know how to use their savings to 

generate a retirement income for themselves and don’t need an option from their 

employer to do it for them. 

• Half disagree with the statement that “employers have no responsibility for helping 

employees determine what to do with their retirement plan savings after they retire.” 

Respondents’ confidence in being able to manage savings and investments after 

retirement is lower than their confidence about managing money prior to retirement. 

• Currently, eight in ten plan participants feel at least somewhat knowledgeable when it 

comes to selecting the savings and investment options within their plan that are best for 

them. 

• Yet, fewer seem as optimistic about their ability to manage their assets after they retire – 

including being able to pick the appropriate savings and investment products, determine 

the right withdrawal amounts, and making their money last for the rest of their lives. 

While about one-quarter strongly agree that they are knowledgeable about selecting 

their investments right now, half as many describe themselves as being very confident in 

their ability to manage their money after they retire. 

• Moreover, just 7% feel very confident in their ability to make savings and investment 

decisions once they reach their 80s or 90s. 

• Perhaps as a result, three out of four plan participants indicate that they are concerned 

about not having enough money in retirement to meet their needs. 

 

 

 

Appendix 2 5 
Detailed Findings 

Retirement Outlook

Eight in ten plan participants say they are knowledgeable when it comes to 

selecting investment options inside their workplace retirement plan. 

• Most plan participants (83%) describe themselves as knowledgeable when it comes to 

selecting savings and investment options within their employer-sponsored retirement 

plan, though just one-quarter strongly agree that they are knowledgeable in this area 

(27%). 

– Men are more likely to feel knowledgeable about selecting retirement plan 

investment options (86% v. 78% women). 

• At the same time, nearly one-third (31%) strongly agree that not having enough money 

in retirement is a concern, and another four in ten (42%) suggest they are at least 

somewhat concerned about running out of money. 

• In fact, one out of three (31%) agree that they are worried about having to rely on their 

children or other relatives for financial help in their later years. Women are especially 

likely to worry about this (38% v. 27% men). 

Retirement Outlook 

 

Appendix 2 6 
Fewer feel confident that they will be able to pick the appropriate products, 

determine withdrawal amounts, and make their money last after they retire. 

• Although 27% strongly agree that they are knowledgeable about selecting current 

retirement plan options, only 15% of plan participants feel very confident that – when 

they retire – they will be able to pick the appropriate savings and investment products, 

determine the right withdrawal amounts, and be able to make their money last for the 

rest of their of lives. 

• A far larger share (56%) feel somewhat confident, and one-quarter (28%) say they are 

not too or not at all confident in their ability to manage their money in retirement. 

• Even fewer feel very confident (7%) that they will maintain their financial decisionmaking ability into their 80s or 90s, though most (51%) remain at least somewhat 

confident that they will be able to make sound savings and investment decisions in their 

later years. 

Confidence in Managing Retirement Finances 

Appendix 2 7 
A majority have given at least some thought to what they will do with their 

retirement plan assets when they retire and how much they can withdraw each 

month. 

• More than eight in ten retirement plan participants (82%) say they have given at least 

some thought to what they will do with their retirement plan assets once they retire. Still, 

only one-third have given this a great deal of thought, and two in ten (18%) indicate that 

they haven’t given it too much thought at all. 

– Not too surprisingly, the likelihood of having thought this issue through increases 

with age (and proximity to retirement), such that 92% of those ages 60 to 65 say 

they have given at least some thought to what they will do with their plan assets, 

compared to 73% of those ages 45 to 49. 

• Nearly as many say they have given at least some thought to how much they will need 

to withdraw each month from their retirement savings in order to meet their financial 

needs, though half (50%) say they have given this just some thought. 

– Those who are older (and closer to retirement) (88% of those age 60-65) are 

more likely than younger plan participants (72% of those age 45-49) to say they 

have thought about this to at least some extent. 

Thought Given to Retirement Plan Assets and Withdrawals 

Appendix 2 8 
Interest in Information On and Options for Guaranteed Lifetime Income

Almost eight in ten would be interested in having their employer tell them more 

about what they can do with their retirement plan assets once they retire. 

• Nearly eight out of ten (78%) express an interest in having their employer provide them 

with more information about what they can do with their retirement plan savings once 

they retire, including three in ten (30%) who would be very interested. 

Interest in Information On Options for Retirement Plan Assets 

Appendix 2 9 
An overwhelming majority feel it would be valuable to see how much guaranteed 

lifetime income they could get using their retirement plan savings. 

• Just over nine out of ten plan participants (91%) suggest that it would be valuable to 

have their employer show them an illustration of how much guaranteed monthly income 

they could get for life, starting at age 65, based on the current value of their retirement 

plan account. This includes more than half (52%) who feel such an illustration would be 

very valuable. 

– Plan participants who presumably still have more time to plan for retirement (92% 

of 45-59 year olds) are more likely than those who are older (86% of 60-65 year 

olds) to feel that this illustration would be at least somewhat valuable. 

– Those with incomes under $100,000 (95%) are also more likely than their 

counterparts (89% of those with $100k+) to feel an illustration of how much 

guaranteed monthly income they could get would be valuable. 

– Interestingly, those who have not given a lot of thought to what they will do with 

their retirement plan savings after retirement (96%) are especially apt to say this 

type of illustration would be valuable, compared to those who have already 

thought about what they will do (90%). This suggests that showing plan 

participants this type of illustration may help some begin thinking about how to 

use their retirement savings who haven’t previously given it much thought. 

Value of Guaranteed Monthly Income Illustrations 

Appendix 2 10 
An illustration of how much guaranteed monthly income could be generated 

would prompt many to save more, if the current amount seemed insufficient. 

• Six in ten plan participants (61%) say that if they saw an illustration that suggested the 

amount of guaranteed monthly income that could be generated by their retirement plan 

account would not be enough to meet their needs, it would prompt them to start saving 

more. 

– Plan participants between the ages of 45 and 49 (68%) are particularly likely to 

suggest they would start saving more (v. 58% of those ages 50-65). 

– Those with incomes of $100,000 or more (69%) are more apt than those with 

lower household incomes (55%) to react by saving more. 

• One-third (32%) say they would continue to monitor how their savings affected the 

illustration and would consider saving more later. 

• Others (32%) indicate that seeing an illustration like this would cause them to reevaluate and change their asset allocation. 

• Only 6% say they would continue saving the same amount and less than 1% would save 

less as a result of seeing the illustration. 

Response to Inadequate Income Illustration 

Appendix 2 11 
Five in six (85%) want to see an illustration of how much guaranteed monthly 

income they could get on a regular basis, only 12% want it available only on their 

request. 

• Eighty-five percent of plan participants indicate that the best way for them to see an 

illustration of how much guaranteed monthly income they could get is either in their 

regular retirement statements or on a secure website hosted by either their employer or 

their retirement plan provider. 

Showing Illustration of Guaranteed Monthly Income 

Appendix 2 12 
Nearly nine in ten plan participants favor a proposal to have employers offer an 

option of receiving guaranteed income for life. 

• Eighty-six percent of plan participants surveyed favor a proposal that would have 

employers offer their employees an option in their retirement plan that would use some 

of the participants’ assets to generate a guaranteed stream of income for life. 

– Women (92%) are significantly more likely than men (83%) to favor this proposal. 

– This proposal is viewed especially positively by plan participants nearing 

retirement, as 48% of those ages 55 to 59 say they strongly favor the proposal, 

which is significantly higher than those older (32% of 62-65 year olds) and those 

younger (36% of those age 45-54). 

– Those with incomes under $100,000 (91%) are more likely than higher earners 

(82%) to express their support. 

 

Attitude Toward Employers Offering Guaranteed Income for Life Option 

Appendix 2 13 
Nine in ten favor the idea of their own employer offering them an option for 

guaranteed lifetime income. 

• Fully ninety percent say they strongly (36%) or somewhat (54%) favor the idea of their 

employer offering an option that, once they retire, they could use some of their 

retirement plan savings to produce a guaranteed monthly income for the rest of their 

lives. 

– Again, women (94%) and those with household incomes under $100,000 (93%) 

are more inclined than their counterparts to say they favor the idea of their 

employer providing this option (88% of men, 87% of those earning $100,000 or 

more). 

– Plan participants who say they tend to be investment risk averse (52%) are more 

likely than those who are willing to take average to above average investment 

risk (35%) to strongly favor having their employer offer this option. 

Desire for Own Employer Offering Guaranteed Income for Life Option 

Appendix 2 14 
Given these positive reactions, it’s not surprising that nine in ten also say they’d 

be interested in learning more about this option, if it were available. 

• Nearly half of plan participants (48%) say they would be very interested in learning more 

about this option, if their employer offered it. And another four in ten (42%) say they 

would be somewhat interested in learning more. 

– Those who favor the proposal overall (96%) are more likely than those who 

oppose it (56%) to say they would be interested in learning more. 

– However, plan participants who have not previously given much thought to what 

they will do with their retirement plan assets (97%) are especially likely to say 

they would want to learn more about a guaranteed lifetime income option (v. 89% 

of those who have already given some thought), suggesting that the very offer of 

this option might prompt some to think through these issues in more detail. 

– Those with retirement plan account balances between $40,000 and $75,000 

(96%) are more apt than those with higher balances (87%) to express an interest 

in more information on this option. 

 Interest in Learning More About Guaranteed Income for Life Option 

Appendix 2 15 
Nine in ten believe that employers should offer choices to help employees attain 

financial security in retirement; many feel it may be difficult to do this on their 

own. 

• Half of plan participants (51%) strongly agree, and more than four in ten somewhat 

agree (42%), that employers should be encouraged to offer their employees choices for 

how to attain financial security in retirement. 

• Moreover, 91% of plan participants strongly or somewhat agree that it is difficult for 

many workers to know how to manage their assets after they retire and it would be 

helpful if employers offered options to help with this. 

Agreement with Statements in Favor of Employers Offering Guaranteed Income Option 

Appendix 2 16 
Appendix 2 17 

Seven in ten disagree that employees know how to use their income to generate 

income in retirement and do not need the help of employers. 

• Half (51%) disagree with the statement that employers have no responsibility for helping 

employees manage their retirement plan savings after they retire. 

• Still, the vast majority – seven in ten (70%) – disagree that employees know how to use 

their retirement savings to generate retirement income for themselves and therefore do 

not need an option from their employer to do this. 

 Agreement with Statements Against Employers Offering Guaranteed Income 

Option