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Submitted Electronically 

To: The Office of Regulations and Interpretations 

 Employee Benefits Security Administration 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, NW.,Washington, D.C. 20210 

E-mail address – e-ORI@dol.gov

In Re: RIN 1210-AB33 

Attn: Lifetime Income RFI 

From: Leonard M. Glynn, Managing Director, Policy, 

Putnam Investments 

1 Post Office Square, Boston, Ma. 

Leonard_glynn@putnam.com 

617-760-1074 

Putnam Investments is pleased to respond to the request for information on lifetime 

income provision in retirement savings plans issued by the Department of Labor and 

the Internal Revenue Service of the U.S. Treasury in the Federal Register of February 

2, 2010. We hope to suggest some general principles that may contribute to a 

vigorous debate on lifetime income solutions and advance the next round of 

retirement system reform. 

The Growing Need for Income Solutions 

This timely request addresses what we believe to be a vital need – helping many millions of 

defined contribution workplace savers convert the assets they have accumulated over a 

lifetime of work into reliable lifetime income streams. Efforts to meet that need are urgent, 

because the structure of American retirement finance is changing rapidly in the direction of 

placing more responsibility on individuals. Workplace savings have become a central pillar of 

retirement security. And while the Pension Protection Act of 2006 made dramatic steps 

towards solving for higher accumulation in workplace plans – via auto-enrollment, savings 

escalation and guidance to better allocation models – the challenge of successfully drawing 

lifetime income from workplace savings remains open. 

Like the preceding generation, many of today’s retirees draw a major share of their income, 

from preprogrammed sources such as traditional pensions and Social Security. But both 

Social Security and defined benefit pensions are on track to decline in terms of their ability 

to replace shares of retirees’ incomes. Social Security’s replacement rate is already 

programmed to fall under current law (due to increases in retirement age and deductions for 

Medicare costs). Defined benefit pension coverage is in a steady, long-term fall to the point 

of now covering less than 20% of America’s private sector workforce. 
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The 76 million-plus Baby Boom generation now reaching retirement age is thus the lead 

edge of what will be a continuing wave of future retirees who will be relying in everincreasing measure on their work-based defined contribution saving plans for retirement 

income. Each year going forward, future retiree cohorts will have to find ways to convert a 

growing share of their own savings, mainly from workplace plans, to provide dependable 

lifetime income. 

At Putnam, we believe that the ability to replace the income people make while working is 

the best measure of success or failure of any retirement system. Clearly, providing for future 

income is the prime rationale for the tax advantages granted to defined contribution savings 

plans like 401(k)s, 403(b)’s 457s and others. But this central goal – lifetime income – has 

often been obscured by an industry – and individual -- focus on asset accumulation, account 

balances, investment choices, asset allocation and other issues. 

 

We strongly believe that the focus of workplace savings policy needs to shift. The transition 

to stronger accumulation models begun by PPA should be continued and refined. But much 

more needs to be done – and soon – to address the distribution phase. We need to provide 

workplace savers with access to better education, guidance, analytic tools and a variety of 

income products they can choose from to convert accumulated retirement plan balances into 

reliable lifetime income streams. 

That said, the workplace savings system itself remains the most effective means of both 

savings accumulation and preparation for lifetime income. What is needed now are a variety 

of ideas on how to build lifetime income options – in the form of either annuities or other 

insured non-annuity income streams – directly into workplace plans or to offer them to plan 

participants as options on termination or “rollover.” 

Obstacles to Adoption 

Experience to date suggests that simply providing lifetime income options in workplace 

plans hasn’t been sufficient. Usage of assured income products has remained low even in 

plans where they have been made available. This low usage – which many economists refer 

to as “the annuity puzzle” reflects 1) a widespread lack of understanding – among both 

participants and plan sponsors -- of how lifetime income options might be used and what 

benefits they might provide to the individual. 2) An understandable wariness among plan 

sponsors about the legal and fiduciary risks involved in offering annuities or other lifetime 

income solutions to their participants. Other obstacles to solving the “annuity puzzle” across 

the workplace savings system include: 

 The complexity and opacity of so many existing annuity and assured income 

offerings 

 The “wealth illusion” – i.e. the common inability to reasonably discount the value of 

a sizeable sum of life savings when they are expressed in terms of guaranteed lifetime 

income 

 Participants’ reluctance to cede control of a sizeable share of their life savings 

 Participants’ concerns about reducing potential bequests to heirs 

 Worries about inflation risk on fixed annuity offerings 
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 Plan sponsors concern about the potential credit risk from any specific insurance 

provider (for either annuity or non-annuity guaranteed solutions) 

Multiple changes in approach – by industry and government, asset managers and insurers, 

plan sponsors and providers -- will be needed to overcome these obstacles to the more 

widespread use of lifetime income options. But a combination of private industry and 

academic innovation with public policy reform -- much as was seen in the years leading up to 

the passage of the Pension Protection Act of 2006 – can, in our view, drive significant, 

positive change. 

Key Changes Needed 

1. From the beginning of an individual’s retirement savings journey, the lens through 

which workers view their job-based retirement savings plan should be changed from 

a focus on the accumulated savings balance to the assets’ potential for generating 

reliable income for life. 

2. Simpler income options need to be provided -- where simpler means less 

complicated product features, clearer fee structures, easier portability across 

accounts, etc. 

3. Public policy incentives – namely tax advantages and/or credits -- should be offered 

to encourage plan sponsors to offer and participants to adopt assured income 

options. 

4. To fully realize the potential of lifetime income options – and provide the workplace 

savings system with an effective solution set for the distribution phase -- a new 

national insurance charter, a new regulatory body and a new FDIC-like insurance 

fund would need to be created. Absent such reforms, we fear, the uptake of lifetime 

income options in workplace plans or at rollover will be limited – even if the first 

three changes mentioned above do come about. 

A New Lens

Workplace savers need to better understand what they are doing by seeing their savings 

balances through a new lens. For years, workplace saving plans have taught investors to 

focus on total balances, investment choices and rates of return. A more appropriate 

approach, in our view, would be to focus workplace savers first and foremost on exactly 

what the lifetime income generating capacity of their plans really is – based on their current 

balances, age, contribution levels and projected retirement date. 

To that end, our own new 401k Participant web site offers immediate access – as the first 

information displayed – to Putnam’s Lifetime Income Analysis Tool®, which enables plan 

participants to measure how much income their savings can be reasonably estimated to 

generate in retirement, see whether they are on track to have sufficient income to maintain 

their current lifestyle once they stop working – and take immediate action to get on track or 

close any income gap the tool discloses. 
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Through this site, then, the “lens” has been changed – and while traditional balance data is 

readily available – it is not primary. A lifelong income planning view is the first angle from 

which participants see their own progress and they are “educated” – dynamically – 

throughout their participation in the workplace plan to measure their progress in terms of 

income replacement, rather than only by raw asset accumulation. 

To make such an income “view” an effective motivator, it is vital that financial service 

providers be permitted to use hypothetical methods (such as Monte Carlo simulations or 

estimates and scenarios based on the actual, long-term investment performance of various 

asset classes) to calculate the income potential of workplace savings at future retirement ages 

– not convert current assets into current potential annuity income. The latter approach can 

actually undermine confidence and de-motivate savers. 

We believe that participants who learn to interpret their workplace savings through the 

“lens” of their future potential to generate lifelong income will be much more willing as they 

approach retirement age to consider products and services designed to convert their balances 

into lifetime income streams. This kind of experience-based “education” can – and should – 

be supplemented over time by traditional communications and information to participants 

about the benefits and trade-offs inherent in either annuity or non-annuity lifetime income 

products and strategies. 

Regulatory and policy action that encourages financial service providers and plan sponsors to 

emphasize an “income” view of workplace savings could help speed the adoption of such an 

approach – and begin changing workplace savers’ mindset about their goals. We would also 

support efforts to offer plan sponsors and advisors strong legal safe harbor for advocating or 

adopting plan design elements that emphasize a lifetime income “view” or offer participants 

education and guidance to appropriate lifetime income products and strategies. 

Simple Options

The real or perceived complexity of many annuity and non-annuity income products has 

significantly retarded their adoption for many years. Any actions that regulators and policy 

makers can take to encourage clear, brief, straightforward lifetime income products – with 

their terms expressed in plain English and with full disclosure of fees and benefits – would 

help channel innovation and competition in this area in the right direction. 

It might well be appropriate for regulators to work with asset managers and insurers to 

develop very basic templates for pure annuity and non-annuity income offerings – without, 

however, limiting competition or innovation to only such basic models. 

Overcoming Obstacles to Lifetime Income Adoption

Government can play an important role in encouraging plan sponsors to offer and plan 

participants to seriously consider lifetime income products and strategies. Lifelong income 

options can have a very positive benefit for many workplace savers – in managing longevity 

risk and raising the lifetime income baseline even for those retirees who deplete all other 
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personal assets. But converting life savings into lifelong income is even more challenging for 

most people than accumulating a nest egg in the first place. 

Negative market experiences in 2000-2002 and 2008-2009 illustrate the severe risks that “fat 

tail” or “black swan” events can pose even to diversified retirement portfolios. These risks 

are seriously compounded if an individual needs to be actively withdrawing from declining 

asset portfolios to provide current income. Selling into a downturn sharply heightens 

depletion risk. Having a substantial element of guaranteed income can lower that risk – and 

provide a higher baseline income even if depletion occurs. Yet a variety of obstacles 

mentioned earlier – such as loss of control of assets and inability to reasonably value lump 

sums in terms of lifetime income – make the decision to commit to a long-term income 

solution quite difficult. We therefore, believe that it would be reasonable for public policy to 

offer workplace savers some real financial incentives to consider choosing an assured 

lifetime income option. 

Specifically, we believe that workplace savers who choose to adopt lifetime income 

guarantees – whether annuity or non-annuity versions -- should receive additional tax breaks 

for choosing a more secure withdrawal strategy. Perhaps the first $10,000 a year in protected 

income should be tax free. But we do have one vital caveat: There should be no bias 

between annuities and non-annuity lifetime income products. 

Today’s financial services industry is actively innovating in the income arena – and neither 

current policy nor future legislation should stymie this fruitful ferment by defining a single 

exclusive income product as the government-favored option. To the contrary, policy-makers 

and regulators should foster lively competition, debate and collaboration on lifetime income 

options between asset managers and insurers. We should also consider creating a national 

institutional infrastructure that could help make lifetime income options more attractive and 

more widely available. 

A Regulatory Infrastructure for Lifetime Income 

Putnam believes that if we want to see more widespread, systemic adoption of lifetime 

income vehicles, we will need to see game-changing, psychology-changing reforms at the 

national level. Specifically, we favor the creation of an option national insurance charter, a 

new national regulatory body focused on lifetime income offerings – and a national fund 

analogous to the FDIC in banking, to back-up lifetime income product promises and make 

participants whole in case of a specific provider’s failure. 

Such reforms, in our view, would change America’s entire view of the value and reliability of 

lifetime income products and strategies. The way would be opened for intense competition 

and innovation in these products by both insurers and asset managers. With a coherent 

national market, a regulator empowered to approve or deny approval to both annuity and 

non-annuity income products, and an industry-based fund to ensure them, we would see the 

full potential of an American lifetime income industry unfold – freely, and in accord with the 

needs of individual retirement savers. 

 
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Political and Policy Pitfalls to Avoid 

There are, however, some key political risks and policy pitfalls which could derail or delay 

any chances of such an outcome. 

 Neither annuities nor non-annuity income options should be forcibly mandated. 

Even though they have real value for many retirement savers, these options are not 

appropriate for everyone. We strongly believe, for example, that the option for 

workplace savers to choose – or decline – a lifetime income option should remain 

exactly that – a choice. There is much data to show that Americans do not want – 

and would actively resist – a forced mandate to either annuitize or choose some nonannuity income vehicle. 

 A far better course towards more widespread adoption of income options lies 

through adopting a new “lens” or focus on income, plus workplace-based education 

plus the explicit tax incentives for assured income that were mentioned above. At the 

same time, policy-makers should consider strong legal safe harbor coverage for plan 

sponsors who structure their plans to emphasize income and offer their participants 

education and information on lifetime options. Experience pre-and-post the Pension 

Protection Act shows that absent such protection uptake of new plan policies is 

glacial – with it, adoption becomes very rapid. Taken together, these policy elements 

would be a “nudge” not a mandate. But we believe they could significantly lift the 

share of workplace savers who choose assured income solutions in retirement – 

without triggering sharp, potentially crippling resistance. 

 Both annuity-based solutions, and non-annuity assured income options should be 

encouraged – with no bias between them. It is critical that retirement income policy 

foster robust innovation and experiment – not lock in or privilege any specific 

product-based solution. Besides curbing the dynamism of an American lifetime 

income industry, any such effort to limit choices to a single solution would also 

generate major political resistance – and needlessly. Policy makers and legislators 

concerned with retirement income should therefore make every effort to foster 

collaboration and inclusion of asset managers, insurers and other financial service 

providers as this debate proceeds. We need as broad a coalition as possible to solve 

America’s lifetime income security challenge. 

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