2010-2011 

BOARD OF DIRECTORS 

OFFICERS 

President 

Nathan M. Perlmutter, CLU, ChFC 

122 E. 42nd Street, #2200 

New York, NY 10168

Immediate Past President 

Robert R. Carter, CLU, ChFC 

5501 Ravine Ridge Cove 

Austin, TX 78746 

President-elect 

Forrest G. Surles, CLU, ChFC, CFP®

, AEP, 

MSFS 

2121 Sage Road, #355 

Houston, TX 77056 

Vice President & Treasurer 

David A. Culley, CLU, ChFC 

2100 RiverEdge Parkway, #200 

Atlanta, GA 30328 

Secretary 

Thomas J. Von Riesen, CLU, ChFC 

11516 Miracle Hills Drive 

Omaha, NE 68154 

Chief Executive Officer 

David J. Stertzer 

2901 Telestar Court, #400 

Falls Church, VA 22042 

DIRECTORS 

Daniel B. Barry 

13860 Ballantyne Corporate Place, Suite 400 

Charlotte, NC 28277 

David F. Byers Jr., J.D., LL.M. 

2 Metroplex Drive, #111 

Birmingham, AL 35209 

William H. Damora, CFP, ChFC, CLU 

501 Broadway 

Pt. Pleasant Beach, NJ 08742 

Anthony J. Domino, Jr., CLU, ChFC, MSFS 

800 Westchester Avenue, N 407 

Rye Brook, NY 10573 

Chris Foster, CLU, CFBS, AEP 

300 N. Greene Street, #1650 

Greensboro, NC 27401 

Michael G. Goldstein, Esq, J.D., LL.M. 

2011 Yacht Mischief 

Newport Beach, CA 92660 

Eleanor I. Johnson, CPA, CLU 

1601 Fifth Avenue, #1800 

Seattle, WA 98101 

Timothy P. Malarkey, ASA, ChFC, CLU, 

MAAA 

22 Cassatt Avenue, Suite 100 

Berwyn, PA 19312 

Mark B. Murphy, CLU, ChFC 

4 Becker Farm Road, 2nd Floor 

Roseland, NJ 07068 

COUNSEL

Buchanan Ingersoll & Rooney PC 

Gerald H. Sherman, J.D. 

Stuart M. Lewis, J.D. 

Ricchetti, Inc. 

Steven J. Ricchetti, J.D. 

Jeffrey Ricchetti, J.D. 

Federal Policy Group 

Kenneth J. Kies, J.D., LL.M. 

Matthew J. Dolan, J.D. 

PricewaterhouseCoopers, LLP 

Hon. Bill Archer, LL.B. 

Donald G. Carlson 

May 3, 2010 

Ms. Phyllis C. Borzi 

Assistant Secretary, Employee Benefits Security Administration 

Department of Labor 

200 Constitution Avenue NW 

Washington, DC 20210 

Re: Comment Letter - Request For Information Regarding Lifetime Income Options For 

Participants and Beneficiaries in Retirement Plans (RIN 1210-AB33) 

Dear Ms. Borzi, 

This comment letter by the Association for Advanced Life Underwriting (AALU) is in 

response to your Request for Information Regarding Lifetime Income Options for 

Participants and Beneficiaries in Retirement Plans (RFI) issued jointly with the 

Department of the Treasury (Department of Labor RIN 1210-AB33). 

AALU is a national trade association representing over 2,000 advanced life insurance 

producers. Our members facilitate responsible retirement saving through the use of life 

insurance products for thousands of Americans. Many AALU members specialize in 

supplementing a variety of qualified retirement plans, such as defined benefit and defined 

contribution plans, with life insurance benefits and other lifetime income producing 

products. AALU feels strongly about the ability of life insurance and annuity products to 

help provide a stable and sustainable retirement for millions of Americans. 

Overview

In the RFI, the Agencies initially explain that they are currently considering the rules 

under the Employee Retirement Income Security Act of 1974 (ERISA) and the 

qualification requirements under the Internal Revenue Code of 1986 (Code) to determine 

whether, and if so, how, the Agencies could or should enhance, by regulation or 

otherwise, the retirement security of participants in employer-sponsored retirement plans 

and individual retirement accounts (IRAs) by facilitating access to, and use of, lifetime 

income or other arrangements designed to provide a lifetime stream of income after 

retirement. 

We understand that the Agencies' concerns are, in large part, due to a shift away from 

traditional defined benefit pension plans to defined contribution plans, including a 

transition from traditional defined benefit pension plans and annuities to lump-sum based 

401(k) and hybrid plans, such as cash balance or pension equity plans. As a result, an 

ever increasing number of workers are looking to defined contribution plans for their 

retirement security and receiving their retirement benefits in lump sum distribution. The 

Agencies are concerned that these trends could increase the American workers' risk of 

2901 Telestar Ct, #400 

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not having adequate income during retirement, including the risk of outliving their 

retirement benefits. 

AALU and our members, as part of the life insurance industry, strongly share the 

interests of the Agencies in arriving at plausible and sustainable solutions for providing 

lifetime income after retirement for working Americans. To this end, AALU strongly 

encourages the Agencies to consider all options for facilitating access to, and use of, 

arrangements that provide a lifetime stream of income after retirement, including, but not 

limited to, requiring all tax-favored retirement plans to offer participants the option of 

receiving their retirement benefits under a lifetime income option and requiring all taxfavored retirement plans to provide education about the advantages of lifetime income 

options. 

Selected Questions

AALU addresses selected questions from the RFI separately below: 

Question 2: Question 2 states that the vast majority of individuals who currently have a 

lifetime income option do not select the option and asks what factors explain the low 

usage rate. One of the potential factors specifically identified in Question 2 is a desire by 

retirees for flexibility to respond to unexpected financial needs, suggesting that the 

election of a lifetime income option may not provide such flexibility. In this regard, 

please note that many insurance companies and financial institutions are now developing 

products which provide participants with guaranteed withdrawal rights, within certain 

limits, as well as lifetime income benefits. These products should provide participants 

with flexibility and should further encourage participants to consider lifetime income 

options. 

Question 7: Question 7 asks about what product features have a significant impact on the 

cost of providing lifetime income. One of the most important features to consider when 

considering lifetime income products is guarantees. AALU understands that the 

Agencies would prefer a low cost product for providing lifetime income, but low cost 

products may not always provide the guarantees necessary to maintain lifetime income 

from retirement savings. Another feature that can have a significant impact on cost is a 

feature that provides a retiree with guaranteed withdrawal benefits for a certain period 

followed by lifetime annuity payments. As discussed above, this type of feature provides 

participants with flexibility and should encourage participants to consider lifetime 

income options. 

Question 13: Question 13 asks whether some form of lifetime income option should be 

required for defined contribution plans (other than money purchase pension plans). 

AALU believes that all tax-favored retirement plans should be required to provide some 

form of lifetime income option. The option should not necessarily have to be provided 

directly by the plan. Rather, the plan should be able to satisfy this requirement by 

offering lifetime income options outside of the plan (e.g., annuity contracts acquired 

outside of the plan at the time of distribution). The new requirement should not specify a 

specific type of lifetime income option that must be provided. Plan sponsors should 

2901 Telestar Ct, #400 

Falls Church, VA 22042 

T: 703.641.9400 

T: 888.275.0092 

F: 703.641.9885 

www.aalu.org

101 Constitution Ave NW 

Suite 703 East 

Washington, DC 20001 

T: 202.772.2495 

F: 202.742.4479
retain discretion to determine the lifetime income option(s) that would be offered to 

participants to satisfy this requirement. In addition, the lifetime income option should not 

be required to be the default distribution option under the plan. Rather, plan sponsors 

should retain the discretion to determine the default distribution option under the plan. 

Moreover, the law should be changed to provide that a defined contribution plan is not be 

subject to the qualified joint and survivor annuity rules (QJSA) solely because it offers a 

lifetime distribution option. 

Question 20: Question 20 asks whether plans should be encouraged or required to 

provide education about the advantages and disadvantages of lifetime income options. 

AALU believes that all tax-favored retirement plans should be required to provide such 

education to further encourage participants to consider lifetime income options. The 

Agencies should provide a model notice for this purpose that, if used by a plan, would 

not be considered to be investment advice under ERISA. 

Questions 21 - 24: Question 21 asks whether the individual benefit statements provided 

to participants should present their accrued benefits as both an account balance and a 

lifetime income stream of payments. AALU believes that, to further educate participants 

about lifetime income options, the benefit statements provided to participants should 

include an equivalent lifetime income stream of payments. The amount of the lifetime 

income stream should be based on uniform assumptions prescribed by the Agencies and 

should be projected to age 65 to reflect reasonable earnings, but no additional 

contributions. 

Question 25: Question 25 asks whether any changes should be made to the qualification 

rules to encourage lifetime income options. As discussed above, a defined contribution 

plan should not be subject to the QJSA rules simply because it offers a lifetime income 

option. In addition, particularly with respect to some of the new lifetime income 

products that are being developed, it is not clear how a number of the qualification 

requirements apply to the products. The Agencies should specifically address how the 

qualification requirements apply to these products so that plan sponsors would be more 

willing to include such products in their plans. 

For example, in PLR 200951039, the Internal Revenue Service (IRS) addressed a number 

of the qualification requirements that apply to a relatively new product. The variable 

annuity contract addressed in the PLR would be owned by the qualified plan and would 

provide lifetime income streams paid out to participants in two phases. During the initial 

phase, participants would have flexibility with respect to starting or stopping periodic 

payments, paying additional premiums to the contract, requesting partial lump sum 

payments, surrendering the contract, or changing the joint annuitant or the annuity 

distribution option. During the second phase, periodic payments would reflect net 

investment returns and the payments could not exhaust the value of the variable annuity 

contract and would be designed to continue throughout the life of the participant. In the 

PLR, the IRS addressed a number of qualification requirements (e.g., the required 

minimum distribution rules (i.e., age 70-1/2 rules)), but did not address other 

qualification issues (e.g., when the annuity starting date occurs for purposes of the QJSA 

rules). The Agencies should consider addressing these and any future qualification issues 

2901 Telestar Ct, #400 

Falls Church, VA 22042 

T: 703.641.9400 

T: 888.275.0092 

F: 703.641.9885 

www.aalu.org

101 Constitution Ave NW 

Suite 703 East 

Washington, DC 20001 

T: 202.772.2495 

F: 202.742.4479
that may arise in connection with the development of lifetime income products to 

encourage their development and consideration by plan sponsors. 

Other Comments

AALU, utilizing feedback from AALU members who operate in the qualified retirement 

plan marketplace, has additional comments regarding the structure and functionality of 

lifetime income products to be offered under retirement plans. 

AALU believes that the products should be allowed to have features that give participants 

flexibility, while providing incentives for sustainable investment decisions. For example, 

some form of a guaranteed monthly income benefit should be included as an option for 

all plan participants. Certain existing products include such an option, which provides a 

regular monthly income, even after the death of the participant in most cases. An 

additional feature could include portability. Plan participants should be given the option 

of transferring the product from the qualified retirement plan if that choice is best for the 

participant’s sustained retirement income. For example, a participant should be permitted 

to transfer a lifetime income product from a qualified retirement plan to an IRA, without 

incurring penalties or losing guarantees. 

Similarly, most current variable annuity contracts also lose their guarantees if a required 

minimum distribution (i.e., 70-1/2 distribution rules) is withdrawn from the contract. In 

addition, if the required minimum distribution amounts increase and cause an excessive 

withdrawal, the benefits base is detrimentally affected by a proportionate amount, which 

diminishes the value of the benefit and of the periodic payments under the contract. This 

should be evaluated by the Agencies to ensure that the benefits base is not being 

inappropriately reduced. 

In the RFI, the Agencies also included several questions about the current standards for 

selecting an annuity provider for distributions from defined contribution plans (see 

Questions 30 - 32). The Agencies noted that DOL Regulation section 2550.404a-4 

contains a fiduciary safe harbor for the selection of annuity providers for defined 

contribution plans. The Agencies did not specifically ask about the guidance that has 

been issued to date by the DOL regarding the selection of annuity providers in 

connection with defined benefit pension plans. 

DOL Interpretive Bulletin 95-1 (29 CFR 2509.95-1), provides, among other items of 

guidance, that a defined benefit plan fiduciary "...must take steps to obtain the safest 

annuity available..." This "safest available annuity" standard causes problems for plan 

fiduciaries because it is not clear how it should be applied in many situations. The 

interpretive bulletin does provide that a fiduciary may conclude that more than one 

annuity is the "safest," and that there may be situations where it may be in the best 

interest of participants and beneficiaries to purchase other than the safest available 

annuity. However, it is not clear when these "exceptions" apply. 

To further encourage plans to offer a variety of lifetime annuity products, including 

products that are being developed to address participants' desire for more flexible 

2901 Telestar Ct, #400 

Falls Church, VA 22042 

T: 703.641.9400 

T: 888.275.0092 

F: 703.641.9885 

www.aalu.org

101 Constitution Ave NW 

Suite 703 East 

Washington, DC 20001 

T: 202.772.2495 

F: 202.742.4479
2901 Telestar Ct, #400 

Falls Church, VA 22042 

T: 703.641.9400 

T: 888.275.0092 

F: 703.641.9885 

www.aalu.org

101 Constitution Ave NW 

Suite 703 East 

Washington, DC 20001 

T: 202.772.2495 

F: 202.742.4479

features, the Agencies should consider modifying the guidance for defined benefit plans 

to provide guidance similar to the safe harbor for defined contribution plans, which 

focuses more on the annuity selection process and less on the "safety" ranking of the 

annuity ultimately selected. While the "safety" of an annuity should be an important 

factor considered by a plan fiduciary during the selection process, it should not be the 

ultimate fiduciary standard for selecting annuities. 

In addition, the Agencies should consider modifying the safe harbor for defined 

contribution plans to revise the requirement that a plan fiduciary appropriately conclude 

that, "at the time of the selection, the annuity provider is financially able to make all 

future payments under the annuity contract and the cost of the annuity contract is 

reasonable in relation to the benefits and services to be provided under the contract." 

Like the "safest available annuity" standard discussed above, it is not clear how this 

determination is made and focuses on the plan fiduciaries specific assessment and not 

necessarily on the process or factors to be considered, which should be the focus of a safe 

harbor. 

AALU appreciates the opportunity to provide comments in response to the Agencies’ 

RFI and would welcome opportunities to provide additional comments in the future as 

the Agencies consider these important issues further and move forward with more 

specific proposals. 

If you have any questions regarding our comments, please contact Anthony Raglani at 

202-742-4589 

Sincerely, 

The Association for Advanced Life Underwriting (AALU)