May 3, 2010 

Ms. Phyllis C. Borzi 

Assistant Secretary/ EBSA 

US Department of Labor 

200 Constitution Avenue, NW, Ste S-2524 

Washington, DC 20210 

Mr. Mark Iwry 

Deputy Assistant Secretary for 

Retirement and Health Policy 

Department of the Treasury 

1500 Pennsylvania Ave NW 

Office of Tax Policy, Rm. 1000 

Washington, DC 20220-0001 

Filed electronically at e-ORI@dol.gov 

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

The American Society of Pension Professionals & Actuaries (ASPPA) is writing to comment on 

the Request for Information Regarding Lifetime Income Options for Participants and 

Beneficiaries in Retirement Plans (RIN 1210-AB33). ASPPA is a national organization of more 

than 7,500 retirement plan professionals who provide consulting and administrative services for 

qualified retirement plans covering millions of American workers. ASPPA members are 

retirement professionals of all disciplines, including consultants, investment professionals, 

administrators, actuaries, accountants and attorneys. Our large and broad-based membership 

gives ASPPA unique insight into current practical applications of ERISA and qualified 

retirement plans, with a particular focus on the issues faced by small- to medium-sized 

employers. ASPPA‟s membership is diverse but united by a common dedication to the 

employer-sponsored retirement plan system. 

In responding to the Request for Information, we have provided comments and suggestions on 

only those questions for which the expertise and experience of our members is relevant and as to 

which we felt we could provide meaningful assistance to the Department of Labor and the 

Department of the Treasury (the “Agencies”). In addition, for many questions that have 

multiple subparts, we have added letter designations to the subparts and have similarly labeled 

our responses. 
ASPPA Response to RFI on Lifetime Income Options 2

General 

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? 

We believe that the advantages are the following: 

Reduced longevity risk for participants 

Investment risk for participants is reduced or eliminated depending on the lifetime 

income product 

Depending on the product, there is a reduced likelihood (or even elimination of 

the possibility) of prematurely spending a lump sum on current consumption 

We believe the disadvantages are the following: 

For guaranteed lifetime income products generally, there is a level of complexity; that is, 

it may be difficult to understand the options and the benefits. 

For traditional annuity products, there are a number of issues, including: 

Less flexibility if annuitization is involved (might be perfectly appropriate to 

spend down some savings to pay off debt, or to travel, for example, at 

retirement) 

Loss of investment opportunities and the loss of potential upside from 

investment gains 

The potential loss of the principal amount due to premature death 

For both types of products there are cost factors (i.e., both entail a cost for the 

guarantee). There is also an inflation risk, in that the monthly payment is 

generally fixed and is not adjusted for inflation. 

2. What explains the low usage rate of lifetime income arrangements? Is it 

the result of a market failure or other factors (e.g., costs, counterparty risk 

of seller insolvency, etc.)? b) 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? 

a) We believe there a number of factors for the low usage rate of these arrangements. 

One is that participants have been acclimated to taking a lump sum at retirement in 

order to retain control over their own funds. This may in part be a result of the 

emphasis placed in 401(k) plans on participants exercising control over their own 

accounts. In addition, we believe the following factors also play a role: 

Lack of marketing emphasis 

Lack of product development 

Lack of education at all levels of the market, including plan sponsors, consultants 

and participants 
ASPPA Response to RFI on Lifetime Income Options 3

Lack of broad market acceptance of lifetime income products in the adviser 

community 

Regulatory complexities and hurdles – e.g., disclosure obligations, fiduciary 

concerns, etc. 

b) We believe the Agencies need to address both fiduciary issues and plan qualification 

issues and remove regulatory impediments (described in more detail in response to 

Question 25) to facilitate the educational process required to change the behavior of plan 

participants. Plan sponsors, providers, and investment professionals should be 

encouraged to educate participants on the benefits and the drawbacks of electing lifetime 

income. 

Additionally, we believe the Agencies should consider the importance of portability of 

plan assets for plan participants that elect lifetime income solutions within plans. Plan 

participants should be afforded the option of keeping their lifetime income vehicles in 

force in the event that the plan sponsor changes providers or undergoes a merger or plan 

termination. A new distributable event should be created for this purpose. For further 

information on the latter suggestion, see the response to Question 14. 

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? 

In our experience, most defined contribution plans, especially 401(k) plans, only offer 

lump sum distribution options, though some do offer annuity and periodic distribution 

options. That said, in terms of products in the marketplace, the following are available 

today: 

Joint and Survivor Annuities (required for pension plans) 

Installments paid out for a specified period of time 

Annuity at retirement 

Guaranteed Minimum Withdrawal Benefit (GMWB) features 

Guaranteed Minimum Income Benefit (GMIB) features 

While some plans do have different combinations of these distribution options, the vast 

majority of participants elect lump sum distributions with systematic withdrawals a 

distant second. 

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 much are such incremental or accumulating 

annuity arrangements structured? 
ASPPA Response to RFI on Lifetime Income Options 4

Based on the experience of our membership, most defined contribution plans do not offer 

qualified joint and survivor (“QJSA”) options due to the perceived administrative 

burdens coupled with the historical lack of interest as participants rarely select it as a 

form of distribution. Studies have shown that less than 10% of participants that have the 

option of taking an annuity payment do so. (Hewitt Associates, “The Survey Findings: 

Trends and Experience in 401(k) Plans,” 2007) Product providers are only recently 

incorporating lifetime income options during the accumulation phase as demand has risen 

in the wake of the recent market downturns. 

5. To what extent are 401(k) and other defined contribution plan sponsors 

using employer matching contributions or employer non-elective 

contributions to fund lifetime income? To what extent are participants 

offered a choice regarding such use of employer contributions, including 

by default or otherwise? 

We do not see many plans offering the opportunity for participants to fund for lifetime 

income, regardless of the source of funds and regardless of whether the opportunity is 

included in the plan by default or otherwise. In our experience, if participants have the 

opportunity to self-direct their accounts, that opportunity generally applies to all accounts 

in the plan, and employers do not differentiate between elective deferrals, matching 

contributions or employer non-elective contributions for this purpose. Again, however, 

because the availability of a lifetime income option is not common, there is no 

meaningful differentiation among the sources of funds used to purchase the option. 

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, such as IRA products, and 

how are such arrangements being structured? 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? 

We are aware of the following types of products designed to provide a stream of income 

after retirement currently available in the marketplace: 

Variable annuities with living benefit riders (GMIB, GMWB). These products 

are offered for a period certain, for the lifetime of the participant or on a joint and 

survivor basis 

SPIA (Single Premium Immediate Annuity) 

“Longevity Insurance,” which is a deferred annuity that begins payment at the 

attainment of a certain age, such as age 85. It is a relatively new product and not 

yet widely available in plans. 

Rolling annuitization strategies where, for example, a five-year period certain 

SPIA is purchased every five years to provide recurring income 
ASPPA Response to RFI on Lifetime Income Options 5

Traditional asset allocation strategies, such as withdrawing a fixed percentage of 

the account balance (4% - 4.5%, for example) per year. This is the typical 

approach used in guaranteed minimum withdrawal benefit products. 

Asset-Liability Management – e.g., investing a portion of a participant‟s account 

(or IRA) in a fixed term annuity to pay current living expenses, a portion in 

relatively stable investments to preserve capital and a portion in more volatile 

investments (typically, equities) to provide the potential for greater return. This 

approach requires fairly sophisticated financial planning and tends to be more 

costly than other alternatives. In our experience, this is rarely if ever available as 

an in-plan option. 

We are aware of a few companies that are setting up IRA rollovers that allow the 

participant to retain the annuity purchase rights available under the plan. 

7. What product features have a significant impact on the cost of providing 

lifetime income or other arrangements designed to provide a stream of 

income after retirement, such as features that provide participants with the 

option of lifetime payments while retaining the flexibility to accelerate 

distributions if needed? 

Level of Benefits. Some hybrid products include “step up” provisions that 

increase both the amount of monthly income guarantees and the cost of those 

guarantees. 

Single Life, Period Certain or Joint Life Expectancy Options. If available, joint 

life and period-certain guarantees increase the cost of the income benefit. 

Investment Alternatives. Many hybrid products restrict the investments available 

when a lifetime income option is selected. Available options may have differing 

expenses than other investment alternatives. 

Income guarantees are generally available only within insurance company 

products. Such products contain expenses that are oftentimes greater than noninsurance investments like mutual funds. Factors such as commissions, mortality 

and expense fees, contract fees, administrative fees, sub-account expenses, costs 

of riders and surrender charges all have an impact on the cost of buying these 

lifetime income products. 

Many of these expenses are tied to the level of the guaranteed payment or asset values 

and may change over time. 

8. What are the advantages and disadvantages for participants of selecting 

lifetime income payments through a plan (in-plan option) as opposed to 

outside a plan (e.g., after a distribution or rollover)? 

The advantages and disadvantages of an in-plan option vs. outside-the-plan options may 

vary by product type, as mentioned in our response to Question 1. With this in mind, we 

believe that the advantages of an in-plan option are the following: 
ASPPA Response to RFI on Lifetime Income Options 6

Institutional pricing in the plan vs. retail pricing of products available to the 

participants outside of the plan (especially for larger plans) 

Plan sponsors may be more sophisticated buyers in assessing the benefits and costs of 

the products than individual participants 

There is a potential for greater retirement income awareness for participants within 

plan through education offered by the plan and benefit statements with hypothetical 

projected benefits, etc. 

Under a lifetime income building framework, participants could incrementally build a 

retirement income base as they contribute to their defined contribution plans over 

time rather than having to make a point in time decision at retirement. This would 

have the dual benefit of creating an income mindset for participants (rather than 

simply evaluating their account balances) and it would allow the income stream to be 

purchased over multiple business cycles at varying market interest rates similar to 

dollar cost averaging. When interest rates are low, annuities are relatively expensive, 

and when interest rates are high, they are relatively cheap. 

The fiduciary standard is applicable to selection of the benefit provider, so that 

participants presumably receive greater protections through the applicability of these 

standards. 

We believe the disadvantages are the following: 

Lack of flexibility and choice 

Lack of portability 

Credit risk could be greater for an in-plan distribution strategy (potential for underfunding or employer bankruptcy). 

Costs to plan (annual Form 5500 independent audits, other plan administration fees) 

Inability to combine all retirement savings in one place 

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 a plan distribution? 

We believe the advantages from the standpoint of the plan sponsor are the following: 

Having an in-plan option may satisfy employee needs more effectively than 

leaving the participants to their own efforts to secure such a vehicle 

An in-plan option should result in lower cost to participants 

By offering an in-plan option, the plan sponsor is also able to provide employees 

with information regarding the product 

An in-plan option creates more opportunities for making investment advice and 

rollover assistance available to the participants. 

The disadvantages we perceive are the following: 
ASPPA Response to RFI on Lifetime Income Options 7

The plan sponsor has fiduciary liability exposure for the selection of the provider 

and the product. For this reason we suggest that the DOL modify or adopt a 

separate fiduciary safe harbor related to the selection of lifetime income products 

and providers. For further information on this issue, see our response to Question 

32.

To the extent the guarantee is not portable, participant accounts may remain in the 

plan, which increases fiduciary exposure with respect to terminated employees 

(which plan sponsors generally wish to avoid) and may increase plan costs. For 

example, if participant accounts remain in the plan, the participant count can more 

easily exceed 100, resulting in mandatory audit of the Form 5500 

The lack of portability of some products creates issues for the sponsor (as well as 

the participants) in the event of a change in vendors, plan mergers and the like 

There is an increased employee education burden for the plan sponsor 

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? b) Why do some plan sponsors make this 

partial annuity option available while others do not? c) 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?

a) We do not see this as an option in plans, in our experience. 

b) See disadvantages under our response to Question 9. 

c) It may be desirable from the employee‟s perspective. Offering more options to 

employees could make a difference but it would be difficult to quantify. 

However, adding more options will complicate plan administration and 

potentially overwhelm employees unless there is an effective means of educating 

them on the choices available. 

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. a) To what 

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

promising means of encouraging more lifetime income? b) Can or should 

the 401(k) rules, other plan qualification rules, or ERISA rules be modified, 
ASPPA Response to RFI on Lifetime Income Options 8

or their application clarified, to facilitate the use of behavioral strategies in 

this context? 

a) These options are not commonly available in the „small‟ plan arena.

b) Regarding modification of the 401(k) rules, we have the following observations: 

If automatic enrollment to a lifetime income option is imposed, there may be 

expenses to get out of or switch investment options, though many providers of 

guaranteed minimum withdrawal benefit products are now offering products that 

allow participants to switch out of the product with no penalty. 

Products are not yet available to avoid an exit penalty which acts to the detriment 

of the employee. 

If an employee takes a lump sum option at retirement or termination of 

employment, the employee would have paid extra fees for options that ultimately 

were not utilized. 

Fiduciary relief for the automatic enrollment would be needed. 

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?

This will be up to the unique needs and circumstances of each employee, especially with 

respect to other employer plans, outside assets, family obligations, health issues and the 

like. We believe it would be difficult to design products or programs to address these 

issues except in the most generic way. 

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? 

We have concerns about the administrative cost and complexity involved with 

offering additional forms of distribution, particularly in the small plan environment. 

We therefore recommend that if the Agencies conclude that inclusion of a lifetime 

income distribution option in defined contribution plans should be encouraged, it 

should not in any case be mandated. For example, defined contribution plans could 

be encouraged to include lifetime income options by permitting a life annuity option 

without triggering the QJSA requirements and the accompanying administrative 

burden, or by permitting electronic consent if a QJSA is not mandatory. 

We do not recommend requiring that a lifetime income option be the default 

distribution option for defined contribution plans. Lifetime income distributions have 

been the default in pension plans for many years, and the additional cost and 

complexity have not resulted in substantial take-up of lifetime income options. We 
ASPPA Response to RFI on Lifetime Income Options 9

submit that it would be inappropriate to add this burden to defined contribution plans 

that are not already subject to the QJSA rules. 

Further, the retirement income needs of participants are unique to each person so a 

blanket solution is unlikely to meet the needs of all participants. Many of the 

retirement income products available today do not offer the flexibility of transferring 

to another investment without penalty, so defaulted participants would be at risk of 

being stuck in an unsuitable investment. 

In the event that future product innovation and regulatory changes makes these 

products less expensive, easier to administer, and more flexible, the Agencies may 

wish to reconsider mandating the availability of a lifetime income option in defined 

contribution plans. 

14. What are the impediments to plan sponsors‟ including lifetime income 

options in their plans, e.g., 401(k) or other qualification rules, other federal 

or state laws, cost, potential liability, concern about counterparty risk, 

complexity of products, lack of participant demand? 

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

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

compliance risk under plan qualification rules, concerns with fiduciary risk in selecting 

and monitoring these products as well as with educating participants about them, and 

concerns with lack of product portability. The Agencies can address some of these 

concerns by providing guidance on the following issues: 

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

monitoring lifetime income products. 

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

plan sponsors are comfortable educating participants about these products. 

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

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

annuity rules. 

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

product features in lifetime income products. 

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

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

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

investment benefits, and/or 2) allowing participants to rollover the portion of their 

account invested in a lifetime income product in circumstances where benefits or 

rights of the product will otherwise be lost due to a vendor change. 

15. 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? 
ASPPA Response to RFI on Lifetime Income Options 10

We are not aware of products that combine annuities with the types of investment 

products described above and believe that any such combination would be too 

complicated for plan sponsors and participants to understand. 

16. OMITTED 

Participant Education 

The Department of Labor issued Interpretive Bulletin 96-1 (29 CFR 2509.96-1) to clarify that 

the provision of investment education, as described in the Bulletin, will not be considered the 

provision of “investment advice” which would give rise to fiduciary status and potential liability 

under ERISA for plan participants’ and beneficiaries’ investment decisions.

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? 

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

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

limited to information that is relevant to the decision of whether, and to what extent, they 

should invest in that product. With respect to out-of-plan options, participants need the 

same information as they do for in-plan options, but they also need to understand 

information relevant to the selection of the product itself. 

In order to make informed investment decisions with respect to in-plan options, 

participants need the following basic information (not all features are relevant to all 

products): 

A general explanation of how lifetime income products work 

General guidance on how to calculate lifetime income needs 

How lifetime income payments are calculated in the product 

Events that impact the amount of lifetime income payments 

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

The availability of withdrawals from the account at various stages 

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

Information about the underlying investments 

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

Any restrictions or limitations on the investment 

Distribution methods available 
ASPPA Response to RFI on Lifetime Income Options 11

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

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

should receive this type of information at the time they are making their initial investment 

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

the particular product. For example, if they are electing to take a withdrawal from a 

lifetime income product that will result in a reduced amount of guaranteed income 

payment; they should receive notice to that effect. Similarly, if there is a guarantee fee or 

other fee that will be triggered by a date or action, participants should be notified of the 

application of the fee near the time it is scheduled to commence. Finally, as participants 

near the date they will be eligible to receive guaranteed payments; they should receive 

information regarding how the timing of beginning withdrawals will impact the amount 

of lifetime income payments. 

With respect to out-of-plan options selected by the participant, information regarding the 

issuer of the option should also be reviewed. Participants will generally need the help of 

an investment professional when reviewing out-of-plan options that are not pre-selected 

by their employer. 

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

meet the needs of the relevant employee population, but computer modeling tools are 

essential for planning with these products and should be available to all participants. 

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? 

The general guidance on when plan assets can be used to pay for educational expenses is 

fairly clear. Having stated that, plan fees have received an enormous amount of attention 

in recent years, and this is an area of great concern to plan fiduciaries. As a result, 

additional clarity may be helpful, and it may be most useful if included in the fiduciary 

safe harbor on what constitutes education versus advice. Clarity is particularly necessary 

in the context of discussing out-of-plan options. Any guidance should be clear about 

what types of help can be offered in the context of education, but should be flexible in 

accommodating various methods for providing the education and the people or entities 

providing it. 

19. What specific legal concerns do plan sponsors have about educating 

participants as to the advantages and disadvantages of lifetime income or 

other arrangements designed to provide a steam of income after 

retirement? What actions, regulatory or otherwise, could the Agencies take 

to address such concerns? 

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

provide education about a specific product they will increase their exposure to fiduciary 
ASPPA Response to RFI on Lifetime Income Options 12

risk. In order to address this concern it would be helpful to expand Interpretive Bulletin 

96-1, or to provide separate guidance relative to educating participants about lifetime 

income products. The guidance should allow plan sponsors or service providers to 

provide general information such as life expectancies, historic investment returns, general 

features of guarantees and annuities, the impact of an investment loss at or near 

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

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

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

plan, the guidance should allow for a discussion of specific product features as discussed 

more fully in response to Question 18. 

It would also be helpful for the safe harbor to clarify that plan participants can be given 

the tools and information necessary for them to individualize their investment decision as 

long as the educator does not recommend any particular investment or level of 

investment in the lifetime income product. Investing in lifetime income products requires 

a level of individualized investment planning and analysis beyond what is required for a 

mutual fund investment and plan sponsors should be encouraged to provide this help as 

long as they are not making specific investment recommendations. 

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

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

commitment by participant investors that is not present in the investment products 

available in most 401(k) plans today. Plan sponsors will be reluctant to add these 

products if they do not believe they can help participants make well informed decisions 

without taking on additional fiduciary risk. 

We also note that current efforts to educate participants on the tax effects of distribution 

through the IRC §402(f)) notice and on options regarding distributions from a pension 

plan may lose their effectiveness because of the length and complexity of the documents. 

Admittedly, the issues are complex, but it would be most helpful to participants if the 

Agencies, in conjunction with the private sector, could work on simplifying the 

disclosures to make them more understandable to the average participant. Otherwise, we 

are concerned that participants may be implicitly encouraged to elect a lump sum (as they 

may be now in the case of pension distributions) because lump sum distributions are 

easier to understand. 

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? 

For most plan participants, their retirement plan benefit and their Social Security 

payments will be their sole sources of retirement income. In the current environment, it 

is our experience that participants do not calculate what they need for retirement and 

compare it to what they will receive from Social Security. In addition, they tend to think 

of their retirement account as a source for lump sum withdrawals rather than as a source 
ASPPA Response to RFI on Lifetime Income Options 13

for lifetime income payments. It is critical that we start now to change this way of 

thinking and get participants to start planning more realistically for retirement and 

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

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

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

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

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

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?

ASPPA is supportive of efforts to help participants understand the true retirement value 

of their accounts. Providing this information could be a useful incentive to participants to 

encourage greater savings. Any such effort needs to be both meaningful and cost 

effective, not further increasing the cost burden of plan administration. There are also 

concerns about the potential liability to plan fiduciaries for distributing information to 

plan participants who may place too much reliance on a projection that may ultimately 

not be accurate. 

We propose that any such mandated benefit statement requirement be provided under a 

fiduciary safe harbor. The safe harbor should include a simple set of core assumptions 

and disclose the assumptions and techniques on the statement, which would be uniform 

for all plans subject to this requirement. This uniformity would enable a meaningful 

comparison that would not vary as the participant changes employers, and would 

facilitate financial planning for families and couples who rely upon more than one 

retirement plan. 

It may be useful as well for the Agencies to maintain a set of calculators on their 

websites, which could also provide valuable information about annuities. 

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?

We recommend that the benefit be stated as a single life benefit, provided in two different 

ways. The first is as a monthly annuity benefit based upon what the current account 

balance would purchase at normal retirement age, using standardized assumptions. The 

second is using a projected benefit, based upon the current account balance with 
ASPPA Response to RFI on Lifetime Income Options 14

standardized assumptions related to the growth of the account balance, including 

additional contributions, through the assumed retirement age. It would be useful for a 

fiduciary safe harbor to be established which would provide the standardized 

assumptions. We recommend that the number and type of alternatives be limited for the 

sake of simplicity, with a proviso that there are other alternatives and include directions 

to participants on how to obtain information about them. 

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? b) 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? c) 

Should an expense load be reflected? d) 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? e) 

Should caveats be required so that participants understand that lifetime 

income payments are merely estimates for illustrative purposes? f) 

Should the assumptions underlying the presentation of accrued benefits as 

a lifetime income stream of payment be disclosed to participants? g) 

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?

a) Actuarial or other assumptions would include mortality, interest, retirement age, and 

expense load. In addition, the amount available (e.g., $100,000 versus $1,000,000) will 

affect what types of products will be available and their expense loads. Also, whether the 

annuity will be provided in the plan or outside of the plan will affect the calculation. 

b) For deferred benefits, currently available deferred insurance rates, including current 

interest, mortality, etc. would be necessary. For a comparison to defined benefit plans, it 

would be helpful to do both an accrued benefit calculation (payable at normal retirement 

date) versus a projected benefit calculation. The accrued benefit would be based on the 

current account balance, without regard to future contributions. The projected benefit 

would add in future contributions. The simplest to program would take the current year 

contributions and assume they are continued to normal retirement date, however adequate 

disclosure that future contributions are not by any means guaranteed would be absolutely 

necessary. 

The Agencies should establish “standard assumptions” as a safe harbor that could be 

utilized. The employee benefit statement should contain a disclaimer that the information 

is based on assumptions that may or may not prove to be accurate. If the plan provides a 

specific product, the insurance company product rates could be utilized (again with any 

appropriate disclaimer). 

c) Yes, expense loads should be reflected. 
ASPPA Response to RFI on Lifetime Income Options 15

d) There are no authoritative tools that we are aware of. A possible source, PBGC 

rates, with an added expense load. The PBGC publishes rates monthly to value 

immediate and deferred annuities. These rates reflect group annuity insurance rates, so 

will be higher than rates that will be available to small employers. 

e) Yes, in our view it would be essential to include a caveat that the lifetime income 

payments are merely an estimate. 

f) Yes, disclosure of the assumptions used for the calculation would be essential. 

g) Safe harbor assumptions promulgated through either a regulation or other “safe 

harbor” would be absolutely necessary.

24. Should an individual benefit statement include an income replacement ratio 

(e.g., the percentage of working income an individual would need to 

maintain his or her pre-retirement standard of living)? If so, what 

methodology should be used to establish such a ratio, such as preretirement 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?

No. Income replacement ratios are very personal, and rely on matters outside the 

purview of a 401(k) plan. A requirement to provide this information could create 

expensive and undue burdens (and potential liability) on the plan and plan fiduciaries. As 

a result, it would be difficult to provide information that would be meaningful. It may 

also be beneficial for the Agencies to provide an online calculator to assist individuals 

with determining their retirement income needs, though we note that there are a number 

of such calculators already available on the internet. The statement could provide a link 

to that calculator. 

401(k) and Other Plan Qualification Rules 

Income Tax Regulations that apply specifically to lifetime annuities include: 26 CFR 1.401(a)-

11, 26 CFR 1.401(a)-20, 26 CFR 1.401(a)(9)-1 through 26 CFR 1.401(a)(9)-9, 26 CFR 

1.417(a)(3)-1, and 26 CFR 1.417(e)-1. 

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 current 401(k) and other plan qualification rules were all designed to provide plan 

participants access to their account balances at the time of retirement, and this bias is 

built into nearly all of the qualification rules. The rules were never designed to support 

guarantees of any sort. Even the annuity provisions that do exist – especially, the joint 
ASPPA Response to RFI on Lifetime Income Options 16

and survivor annuity provisions – were written so that plans with individual account 

balances could be easily managed in such a way as to avoid the application of such rules. 

The primary goal in successfully providing guarantees through the defined contribution 

plan system is to avoid turning defined contribution plans into defined benefit plans, as 

then the factors which have caused defined benefit plans to struggle will come into play 

and undermine annuitization efforts. This goal could be accomplished by focusing on the 

qualification (and other rules) which relate to treating the guarantees as investments 

within the defined contribution plan, and the payouts (or other guarantees) as being either 

a guarantee on the investment or a distribution of the investment (in cash or in kind) from 

the plan. 

The next goal should be to make sure that, whatever regulatory scheme is adopted, it can 

be implemented by the marketplace using the existing defined contribution infrastructure 

without imposing significant and costly administrative burdens. 

With these points in mind, we believe the follow sets of rules come into play. The list is 

illustrative and not exhaustive: 

Documents. Rules to determine to what extent, if any, that the underlying contract 

language is deemed to become part of the plan terms. Many of these guarantees will 

not work if they must be considered to be part of the terms of the defined contribution 

plan. This is because the contracts are already subject to state insurance law 

regulation and any changes made for federal law would need to be signed off on by 

state regulators, a time consuming and cumbersome process. 

Treatment as an investment. Develop rules which support that the guarantee is an 

investment and treat it in the same manner as any other investment. For example: 

o Valuing the investments for 5500 purpose. 

o Clarification of fiduciary rules related to the investments 

o Developing appropriate rules related to restrictions which may be applied 

under the contracts. 

Discrimination under Code §401(a)(4). There may be different types of guarantees 

which will be available under various products a plan may offer. The “benefits, rights 

and features” rules will need to be considered, and how they apply to contract 

features. In particular, the “effective availability” standard of Reg. Section 

1.401(a)(4)-4(c) is a facts and circumstances standard which is inherently vague and 

difficult to apply. 

Spousal consent rules. Regulatory clarification is needed on application of the 

spousal consent rules to annuitization other than on a joint and survivor basis.
ASPPA Response to RFI on Lifetime Income Options 17

Definition of annuitization. For a variety of tax and reporting purposes, it will be 

important to clarify when payments are made as systematic withdrawals from the plan 

and when they would be considered as annuitized. 

Fiduciary roles. The extent to which the issuer of the guarantee would be considered a 

fiduciary needs to be clarified. 

Application of Roth rules. Guidance on the impact of purchasing guarantees with 

Roth contributions is needed. 

Reporting issues. Guidance would be needed on the reporting of the guarantees on the 

Form 5500, including how to properly value these investments.

Portability. Formal guidance is required on the in-kind distribution of guarantees from 

the plan when, and under what circumstances would there be ERISA issues following 

the distribution (such as with the distribution of an annuity certificate under a group 

contract held by the plan); whether the current “force out” rules could apply and how; 

to what extent can mutual fund custodial accounts be used; whether or not such inkind distribution contracts accept rollovers; the roles of the issuer of the guarantee 

and the terms for continued “qualification”; and how the reporting scheme should 

work. We have also recommended elsewhere in this response that there be a new 

distributable event if benefits to a participant would be lost as a result of a change to a 

new provider. The participant would only be permitted to rollover the contract to an 

IRA. (See response to Question 2) 

Flexibility in distributions. The distribution rules need to be flexible, so that hybrid 

programs utilizing both systematic withdrawals and insurance guarantees can be 

accommodated without negative effect. In addition, they need to be flexible in order 

to accommodate the development of new lifetime income products. 

Required minimum distribution rules. See our response to Question 28, below. 

Securities laws. There needs to be clarification as to when the distributed products 

will be subject to the Securities Act of 1933, the Securities Exchange act of 1934, the 

Investment Company Act of 1940, and FINRA‟s regulatory rules. This would 

include clarification on when these products need to be registered, the extent to which 

and how the suitability rules on the sale of these products apply and the extent to 

which registration of brokers and agents who sell the products is required. 

Insurance law and pre-emption. Clarification would be needed on the interplay 

between ERISA and state insurance laws and the extent to which ERISA preemption 

applies. 

403(b). Care should be taken to avoid adversely affecting existing 403(b) annuities. 

Guidance would be needed on how annuitized 403(b) contracts, outside of the control 
ASPPA Response to RFI on Lifetime Income Options 18

of the employer, should be treated, and when an annuitized 403(b) contract for former 

employees will be considered as having payments made out of the plan or not. 

26. Could or should any changes be made to the rules relating to qualified joint 

and survivor annuities and spousal consents to encourage the use of 

lifetime income without compromising spousal protections? 

The rules should be clarified as to whether and when the qualified joint and survivor 

annuity (QJSA) rules apply to various types of hybrid products. Additionally, to the 

extent the QJSA rules are applied to these products, consideration should be given to 

making the spousal consent rules more internet friendly by using electronic disclosure 

and permitting electronic signatures. 

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. These products are currently in the marketplace. Guidance is particularly needed on 

describing the circumstances (i.e., the types of contract terms) that would trigger spousal 

consent and when, as well as dealing with the portability issue and related fiduciary 

concerns on putting these types of products into a plan. 

28. How do the required minimum distribution rules affect defined contribution 

plan sponsors‟ and participants' interest in the offering and use of lifetime 

income? Are there changes to those rules that could or should be made to 

encourage lifetime income without prejudice to other important policy 

objectives? In particular, how are deferred annuities that begin at an 

advanced age (sometimes referred to as longevity insurance) affected by 

these rules? Are there changes to the rules that could or should be 

considered to encourage such arrangements? In 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? Are there changes to the rules that could or should be 

considered to encourage such arrangements? 

The current products in the marketplace all strive to comply with the existing required 

minimum distribution (“RMD”) rules, based on whether the issuer treats these products 

to be payments as an annuity or not, which constrains offering new, creative solutions 

within qualified retirement plans. This is of particular concern for hybrid products. 

We recommend a review of the rules to ensure that they accommodate the new 

generation of annuities and other lifetime income products being offered in the 

marketplace. The key issue is likely to be defining the point of annuitization. For 

example, if longevity insurance is purchased under the current rules (with payments to 

begin long after the required beginning date), the value of the contract must be included 
ASPPA Response to RFI on Lifetime Income Options 19

in the account balance used to determine the RMD for years before the annuity payments 

begin. This means the contract itself may have to be distributed to satisfy the RMD rules 

before the deferred payment date. Regulations could be modified to exclude the value of 

a deeply deferred annuity, provided the value at purchase did not exceed a certain portion 

of the account. 

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? b) 

Could or should any actions be taken to facilitate such arrangements? c) 

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?

a) In our experience, it is not a common practice in the private sector plan market to 

allow participants to use their defined contribution plan lump sum payouts to „purchase‟ 

lifetime income from a defined benefit plan. We have seen this in governmental plans, 

but it is difficult to discern how prevalent it is. 

b) Most small employers do not have both a defined benefit and defined contribution 

plan. In our experience, if they do have a defined benefit plan that offers a lump sum 

distribution option, a very high percentage (i.e., in excess of 90%) of participants elect to 

receive lump sums. Once a defined benefit plan participant elects the lump sum option, 

the participant could be given the same “lifetime options” as a defined contribution plan 

participant, but as part of an IRA rollover. 

c) No, a “rollback option” should not be mandated due to the administrative 

complications as well as the ability of the participant to access these investments outside 

the plan.

Selection of Annuity Providers 

30. To what extent do fiduciaries currently use the safe harbor under 29 CFR 

2550.404a-4 when selecting annuity providers for the purpose of making 

benefit distributions? 

In our experience, the safe harbor for the distribution of annuities from defined 

contribution plans is seldom used, because annuities are seldom distributed from plans. 

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 most significant difficulty with the safe harbor provision is the issue of insurer 

solvency. The current economic environment has highlighted the need to allow 
ASPPA Response to RFI on Lifetime Income Options 20

participants the opportunity to purchase properly priced lifetime guarantees from defined 

contribution plans, as well as further demonstrating that the pooling of risk and the 

undertaking of solvency risks are critical marketplace functions. The ability to provide 

the lifetime guarantees from defined contribution plans does pose significant fiduciary 

risks. 

In order to do this, we suggest that the safe harbor permit the fiduciaries to rely upon the 

existing state regulatory structures to protect them on the issue of insurer solvency. The 

state regulation of the insurance industry is substantial. For example: 

Reserves are required for the risks undertaken; 

The manner in which the reserves are invested is heavily regulated for investment risk 

and type under the risk-based capital rules; 

Insurance companies are regularly and comprehensively examined by state insurance 

authorities and must do substantial regular reporting on their liabilities and on the 

value and types of assets they hold; 

Insurance companies are required to participate in their state guarantee associations to 

protect the policyholders of all companies within the state; 

Review of marketing material of all insurance products is required, and insurance 

companies have the duty to supervise the activities of their agents. 

The safe harbor should provide that an adequate fiduciary review would have the 

fiduciaries acknowledge that: the task they undertake is different from the mere 

investment of account balances; the standard against which they will be judged has 

necessarily a stronger insolvency risk; and they have addressed that risk adequately by 

understanding and relying upon the state‟s regulatory role in managing the risk. As noted 

in the preamble to the safe harbor, an insurer‟s rating can be used as an element of this 

analysis, given the intensive reviews made by the rating agencies including interviews 

with management. The fiduciaries‟ reliance would not be on the rating alone, but would 

need to include a review of the underlying rating report and an understanding of the 

significance of the rating. Essentially, the fiduciaries should have a “pass” on this risk, as 

long as the insurance companies from which the guarantees are purchased are subject to 

participation in the various state guaranty associations. 

32. To what extend 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 productions should or could 

the safe harbor be extended? 

We recommend the establishment of a separate safe harbor for the purchase of hybrid 

products (non-annuitized lifetime income benefits) – or at least that the annuity safe 

harbor be modified to address the purchase of products with insurance guarantees other 

than lifetime income guarantees. It appears that guaranteed lifetime income products 

(referred to as GMWBs, GMIBs and various other names) and other hybrid products are 

not annuities and thus are not covered by the annuity safe harbor. Nevertheless, 
ASPPA Response to RFI on Lifetime Income Options 21

fiduciaries need similar guidance and protection for the selection of the provider for such 

a product. 

We believe that a new (or expanded) safe harbor would help facilitate the development 

and acceptance of new alternatives to traditional annuities, both now and in the future, by 

eliminating fiduciary uncertainty regarding the selection of such products. The failure to 

provide such an additional (or expanded) safe harbor could inappropriately favor one 

form of lifetime income product over others. 

As noted above in response to Question 31, we also believe that the more clarity and 

specific examples the guidance provides, the more helpful it will be to plan fiduciaries. 

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 2550.404(c)-

1) or non-core investment alternatives? What are the advantages and 

disadvantages of such products to participants? What information 

typically is disclosed to the participant, in what form, and when? To what 

extent could or should the ERISA 404(c) regulation be amended to 

encourage use of these products?

In response to the last sub-question only, we believe that it would be appropriate to 

expand the ERISA Section 404(c) regulation to provide guidance to fiduciaries on the 

information that must be provided to participants who wish to direct that a portion of 

their accounts be invested in an investment with a guaranteed lifetime income feature. 

Again, more specificity will assist fiduciaries that wish to offer these types of investments 

as options within a 404(c) plan and would, in our view, further encourage the expansion 

of guaranteed lifetime benefit protection for participants. 

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

through variable annuity contracts or similar lifetime income products? 

What are the advantages and disadvantages of such products to 

participants? What information about the annuity feature typically is 

disclosed to the participant, in what form, and when? To what extent could 

or should the ERISA 404(c) regulation be amended to encourage use of 

these products? 

As described in our response to Question 33, we believe that clarification of how plans 

can comply with the 404(c) requirements and thus obtain protection for their fiduciaries 

would facilitate the adoption of lifetime income products for the benefit of plan 

participants. 

35. To what extent are plans using default investment alternatives that include 

guarantees or similar lifetime income features ancillary to the investment 
ASPPA Response to RFI on Lifetime Income Options 22

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? 

We are not aware of plan sponsors using lifetime income features as default investment 

alternatives. Indeed, it is our understanding that lifetime income options are not 

generally offered as QDIA's today due to cost, regulatory and administrative concerns. 

We believe the Agencies should give careful consideration to this issue and, if it is 

deemed appropriate, issue detailed guidance on the information that fiduciaries should 

consider in evaluating such alternatives in a QDIA. 

36. OMITTED

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? 

If the legal and regulatory issues discussed in response to Question 25 are not addressed 

and if a fiduciary safe harbor that is relatively easy for fiduciaries to implement (as 

discussed in response to Question 31) is not provided, we believe that the cost of offering 

lifetime annuities or similar products would be prohibitive for small plans. Small plans 

generally do not use, because they cannot afford, the assistance of consultants to assist 

them with the fiduciary review necessary to select these products or to wend their way 

through other regulatory hurdles (or uncertainties) that might exist. Therefore, any steps 

that the Agencies can take that will simplify the regulatory landscape and provide clear, 

easy to use safe harbors would be most helpful for small plans. 

38. OMITTED

39. OMITTED
ASPPA Response to RFI on Lifetime Income Options 23

**** 

These comments were prepared by the ASPPA Task Force on Lifetime Income Options for 

Participants and Beneficiaries, Chair Bruce Ashton. The members of the Task Force are: Mark 

Dunbar; Scott Hayes; Joan McDonagh; Robert J. Toth; and Craig Hoffman. Please contact Craig 

Hoffman, General Counsel and Director of Regulatory Affairs at ASPPA, at (703) 516-9300 ext. 

128, if you have any comments or questions regarding the matters discussed herein. Thank you 

for your consideration. 

Respectfully submitted, 

/s/ 

Brian H. Graff, Esq., APM 

Executive Director/CEO 

/s/ 

Craig P. Hoffman, Esq., APM 

General Counsel 

/s/ 

Robert M. Richter, Esq., APM, 

Co-chair, Government Affairs Committee 

 

/s/ 

James C. Paul, Esq., APM, Co-chair 

Government Affairs Committee 

/s/ 

Judy A. Miller, MSPA 

Chief of Actuarial Issues 

/s/ 

David M. Lipkin, MSPA, Co-chair 

Government Affairs Committee 

/s/ 

Bruce Ashton, Chair Task Force on Lifetime 

Income Options for Participants and 

Beneficiaries