tends to focus on an average life expectancy at birth --78.3 years -- people tend to under
plan for the length of their retirement. ® Even if a financial plan is structured around the
correct average life expectancy and not the average life expectancy at birth, by definition
50% of people will out-live the financial plan.

While participants in DB plans have guaranteed annuity benefits to address longevity
risk, DC plan participants need a similar solution.

Products such as in-plan annuities with guaranteed income protect against longevity risk.

B. Excess Withdrawal Rate Risk (How much can you safely and
consistently withdraw from your retirement savings?)

Proper retirement income planning is focused on maintaining a standard of living during
retirement. This is a significant departure from the accumulation focus of most working
Americans on building a large 401(k) or IRA balance, and the “wealthy” feeling that
comes along with it. This “wealthy” feeling is often misguided, however, because studies
show that pre-retirees overestimate the amount of retirement income that can be
generated from a specific account balance, and the length of time that income will last?

Academic research suggests an annual withdrawal rate between 4 to 5%" of the initial
retirement account balance as a reasonable level of withdrawals during retirement.
However, a simple systematic withdrawal strategy requires continual reassessment during
retirement, as actual account performance could impact the expected lifetime of cash
flow. If too much is withdrawn, the individual may run out of money. If too little is
withdrawn, the individual faces a lower standard of living. Moreover, retirees must avoid
years of temptation to raid the nest egg for non-critical expenditures. Not only do
lifetime retirement income products reduce this risk, certain of Genworth’s insured
products provide guaranteed income cash flows as much as 20 to 75% higher than 4 to
5% withdrawal rate recommendations, even in today’s low interest rate environment.

Products such as in-plan annuities with guaranteed income protect against withdrawal
rate risk.

Cc. Point-in-Time Risk (How significantly will your retirement savings
and lifestyle be impacted by a negative market in, at, or near
retirement?)

As many pre-retirees and retirees experienced the impact of a down market in 2001 and
2008, it has become widely understood that market conditions, both the performance of
equities and the level of interest rates, can significantly impact retirement income. This is

8 According to the U. S. Census Bureau 2010 Statistical Abstract, average life expectance is projected to be
78.3 years (or 75.7 years for men and 80.8 years for women, on average).

° MetLife Mature Market Study, June 2008.

' Bengen, W.P. (2004). Determining withdrawal rates using historical data. Journal of Financial Planning.
March 64-73.



Permit an in-service distribution of accrued lifetime guaranteed income benefits if the
plan sponsor or record keeper no longer supports the offered benefit.

If the plan sponsor or record keeper no longer supports the offered benefit, the limitations
on in-service distributions should be relaxed to permit an in-service rollout of the portion of
a plan account invested in a guaranteed income option. In order to avoid leakage from the
retirement system as a whole, it would be appropriate to put withdrawal restrictions on the
distributed annuity contract while the participant is an active participant in the plan.

Cc PARTICIPANT EDUCATION, TOOLS AND DISCIPLINE

1. The Obstacle

DC plan participants are responsible for accumulating sufficient retirement savings,
converting those savings into retirement income and then managing those savings during
retirement. However, for many years the emphasis of retirement planning has been solely
on the first of those responsibilities, i.e., asset accumulation. Plan participants generally
do not have the skills, tools, or knowledge to (i) determine the amount of potential
retirement income that can be derived from a given account balance, (ii) understand the
process and product choices available for converting a lump sum into a lifetime
retirement income stream, and (iii) assess impact of asset management results on future
income streams. Exacerbating the problem is that most plan sponsors are focused
primarily on participants’ ability to accumulate retirement savings, are not meaningfully
involved in participants’ decumulation decisions, and few, if any, provide retirement
income education or tools to plan participants on how to plan for and convert the plan
balance into a monthly income stream.

As a result, many plan participants are surprised by and do not plan for the significant
amount of long-term savings it takes to achieve an adequate stream of lifetime retirement
income. "' Plan participants can better understand whether they are on track to meeting
their retirement savings and retirement income needs if, during their working years, they
are provided with information about how their current account balance translates into an
annual retirement income amount.

2. Genworth’s Recommendation

Promote participant education and awareness of how account balances convert to
retirement income, the options in this regard, and the importance of managing the

“ina hypothetical case where a 65 year-old individual making $50,000 is facing retirement, it is likely
that Social Security could replace close to 40% of his or her earnings. To replace 100% of pre-retirement
earnings including Social Security, at a 4-5% withdrawal rate, an account balance $600,000 to $750,000 in
a 401(k) plan is likely required. Even to achieve 80% of pre-retirement income would require a plan
balance of $400,000 to $500,000. Unfortunately, current statistics would indicate that a more likely
scenario with these withdrawal rates is that the median near-retiree would only be able to replace a
combined total of less than 50% of pre-retirement earnings, having saved approximately $80,000 in a
401(k) plan/IRA (2007 Federal Reserve Board: Survey of Consumer Finances).

10



seriously the fact that the insurance company providing income guarantees is making
commitments for many years into the future. However, without objective criteria to
assist in their assessment and evaluation of the insurer’s ability to make payments in the
future, they grow concerned about whether they have the expertise to make this
assessment, and even if they believe that they do, they are concerned that the assessment
will either be too costly, or perhaps, in the future, be deemed insufficient. For many
otherwise interested plan sponsors this often results in a decision to avoid this uncertainly
by simply not including the product in their plan.

By way of example, Genworth recently met with the independent investment consultant
for a large plan sponsor with over $2 billion in DC plan assets. The plan sponsor retained
the consultant to help in the evaluation and potential selection of an in-plan guaranteed
income option. The consultant, a large national investment consulting firm, advised
Genworth that even it was in the process of retaining an outside insurance expert to
partner with it on the evaluation process, The consultant did not believe there was
anyone in its entire firm that could assess the claims paying ability of insurers now and in
the future.

Most plan sponsors, particularly smaller plans, do not have the resources to undertake
such a sophisticated analysis. Genworth is concerned that without a straightforward and
objective standard to satisfy the fiduciary duty safe harbor, many interested plan sponsors
will avoid guaranteed income solutions as either too expensive in terms of assessment
costs, too risky from a fiduciary perspective, or both. Many plan sponsors may simply
choose not to act even though they want to help employees meet their lifetime income
needs. Safe harbors are intended to provide certainty to decision makers who comply
with specific requirements and this one is clearly not achieving that goal.

2. Genworth’s Recommendation

Modify the Section 2550.404a-4 safe harbor to provide objectively applied criteria that a
plan fiduciary may rely upon to assess an insurer’s ability to make future guaranteed
income payments.

ERISA regulation section 2550.404a-4 provides a safe harbor for a plan sponsor’s
fiduciary duty in connection with the selection of a distribution annuity. In part, the
regulation in subsection (b)(2) requires a fiduciary to “appropriately consider information
sufficient to assess the ability of the annuity provider to make all future payments under
the annuity contract.”'! While Genworth fully understands, appreciates and agrees with
the intent of this provision to ensure that the provider is able to satisfy its obligations
under the annuity contract, many plan sponsors do not know how to satisfy such a
broadly worded requirement. In order to avoid potential fiduciary liability by
inadequately performing such an assessment, or the costs associated with retaining the

" Safe harbor provision (b)(4) largely deals with the reasonableness of costs and benefits, but also has a
reference to the “annuity provider [being] financially able to make all future payments under the annuity
contract.” This portion of (b)(4) seems duplicative to the provisions of (b)(2) and should either be
eliminated, or otherwise modified in a similar way to (b)(2), as recommended above.



especially so at the point of retirement prior to purchasing a lifetime income stream. To
recover from such a downturn, participants are often faced with the unappealing choices
of delaying retirement, supplementing reduced retirement income with another job, or
possibly living on less.

DB plan participants are not in the same situation, as point-in-time risk is shifted to the
plan sponsor. This risk can also be avoided in DC plans that include a DB-type offering,
such as an in-plan annuity investment option, because participants throughout their
careers can continuously purchase incremental amounts of guaranteed retirement income
providing a stream of payments that cannot be negatively impacted (and, with a product
like ClearCourse, may actually be enhanced in certain circumstances) as a result of
market performance.

Products such as in-plan annuities with guaranteed income protect against point-in-time
risk

IV. OVERCOMING THE OBSTACLES TO INCREASED AVAILABILITY
AND USE OF GUARANTEED LIFETIME INCOME SOLUTIONS

As detailed above, in-plan annuities with guaranteed income protect against the three
most significant and key retirement income security risks. However, the majority of
retirement plans do not offer these products to plan participants, or, if offered, they are
used by a limited number of plan participants. Based on Genworth’s experience, this is
due to three significant obstacles that act to limit sponsor adoption and participant
utilization. Removal of these obstacles will make guaranteed income solutions more
readily available and used, thereby significantly enhancing the retirement security of
working Americans.

A. Fiduciary Process And Standards For Lifetime Income Arrangements

1. The Obstacle

In our experience, most plan sponsors do not include guaranteed income products in their
plans largely because they do not know how to satisfy the distribution annuity safe harbor
requirement (Section 2550.404a-4(b)(2)) to “assess the ability of the annuity provider to
make all future payments...” As discussed below, Genworth’s experience in this regard
is significant.

As part of Genworth’s ClearCourse design, introduction, and subsequent sales, Genworth
representatives met with hundreds of plan sponsors to discuss guaranteed income as part
of an overall defined contribution plan investment design. Plan sponsors for employee
groups as small as 100 to some of the largest plans in the country expressed strong
interest in guaranteed income solutions, articulating concern about the risks employees
take on as they transition to retirement and their belief that guaranteed income products
could help mitigate those risks, Once the plan sponsor transitions fo the process of
evaluating and selecting an in-plan income option, they fully appreciate and take



company was deemed a significant financial risk, state insurance departments have a
number of powers to intervene and protect contractholders, such as placing companies
into receivership with a goal to protect contractholders through a rehabilitation process.
If that process proves unsuccessful, a sale of the received company to a more financially
stable company could occur, thereby preserving guarantees. If these measures are
unsuccessful and a liquidation of the entity occurs, contractholders can look to state
guaranty associations, funded by insurance company members, for coverage due to loss.
Typical state guarantee association coverage is up to $100,000 per participant in an in-
plan annuity if the contract is an individual or allocated group contract.

With a modification of the safe harbor permitting fiduciaries to apply appropriate,
objective criteria to assess claims-paying ability, Genworth believes that two very
important goals will be achieved: (i) increased availability and use of guaranteed income
products in defined contribution plans, and (ii) appropriate safeguards to ensure the use of
qualified annuity providers that will live up to future payment obligations. Achieving
these two goals will result in a more financially secure retirement for American workers.

A separate but related issue is the point at which Qualified Joint and Survivor Annuity
(QJSA) rules apply. Genworth supports CAI’s position that QJSA rules apply at the
point when the selection of an irrevocable lifetime annuity is made.

B. PORTABILITY,
1. The Obstacle

Plan sponsors are reluctant to add in-plan annuities as an investment option because they
are concerned that if they decide in the future to make a platform change, they may be
faced with a new record keeper whose platform does not support the in-plan annuity.
Alternatively, a plan sponsor may be considering an investment change such that the in-
plan annuity is no longer included in the plan. Plan sponsors are faced with the dilemma
of seeking a potentially prudent change, but having no way to preserve the guaranteed
lifetime income already purchased by plan participants. Providing plan participants with
rights of portability to an IRA would address this concern. However as of today, an in-
service distribution of an accrued benefit to an IRA is often not permitted. To avoid this
dilemma, plan sponsors avoid offering these solutions in their plans. 8

2. Genworth’s Recommendation

3 another hurdie is that participants are concerned that any accrued benefits from guaranteed lifetime
retirement income streams are transferrable to an IRA upon termination of employment. Genworth has
designed its in-plan annuities to allow portability of guaranteed lifetime retirement income streams already
purchased to an IRA, as well as continued purchases of guaranteed income within the IRA upon
termination of employment.



BA
yx

Genworth
Financial

sine Group

May 3, 2010
FILED ELECTRONICALLY

Office of Regulations and Interpretations
Employee Benefits Security Administration
US. Department of Labor

200 Constitution Avenue, NW, Room N-5655
Washington, DC 20210

Attention: Lifetime Income RFI

Re: RIN 1210-AB33: Request for Information Regarding Lifetime
Income Options for Participants and Beneficiaries in Retirement Plans

Dear Sir or Madam:

Genworth Financial, Inc. (“Genworth”) is pleased to respond to the Request for
Information Regarding Lifetime Income Options for Participants and Beneficiaries in
Retirement Plans (“RFI”). We commend the Departments of Labor (“DOL”) and
Treasury (“Treasury”) for examining vital issues surrounding guaranteed lifetime
retirement income (“guaranteed income”) and the management of retirement assets, and
for providing an opportunity to explore options to make guaranteed income features a
more integral part of retirement plan design. Greater availability and use of guaranteed
income products will help address one of the most challenging domestic issues facing our
nation, the retirement income security of future retirees.

While Genworth has contributed to and supports the recommendations submitted in the
responses of the American Council of Life Insurers, the Committee of Annuity Insurers
(the “CAI’) and the Insured Retirement Institute, this separate response is based on
Genworth’s multi-year experience as one of the few providers of “in-plan” annuity
investment options that offer guaranteed! income options to plan participants.
Genworth’s in-plan annuity option, called ClearCourse@” as discussed in detail below,
provides 401(k) participants with protection against the three most significant retirement
security risks by allowing contributions through payroll deductions or balance transfers,
which buy a known amount of guaranteed lifetime income. While there are other annuity
products that are used in the context of retirement planning, such as deferred annuities as

} All guarantees are based on the claims paying ability of Genworth Life and Annuity Insurance Company.
? ClearCourse is a group variable annuity issued by Genworth Life and Annuity Insurance Company.
References to Genworth and its experience with ClearCourse and the 401(k) plan marketplace are based
upon the experience of Genworth’s wholly owned subsidiary, Genworth Life and Annuity Insurance
Company.



e Additional contributions to the ClearCourse investment option prior to retirement
increase the dollar amount of a participant’s guaranteed income.

e Participant account balances are invested in an underlying balanced (equity/fixed
income) portfolio.

e Account value growth during accumulation through market performance may
increase the dollar amount of a participant’s guaranteed income.

e Negative market performance cannot decrease the amount of guaranteed lifetime
income ~ only withdrawals or transfers out of the ClearCourse investment option
can decrease the guaranteed income amount.

As a participant approaches retirement, he or she has a clear line-of-sight to the level of
guaranteed income, which facilitates retirement planning. The participant has the ability
to exercise the guaranteed income option at a normal retirement age, defer the decision
(accruing additional benefits based on performance and/or formula), or accelerate the
retirement date (with an actuarially equivalent adjustment) provided the plan permits
such acceleration. The guaranteed income amount will be paid to the participant for life.
However, in the event of the participant’s death prior to the end of the period certain,
income will be paid to the participant’s beneficiary or beneficiaries for the remainder of
the period certain (typically 20 years, though less if income has been deferred past age
65), After income begins, certain payments can be commuted for emergency cash needs.
All of these features have been designed to be intuitive and to address lifetime income
risks while at the same time transferring from the participant to the insurance company
the complexity of managing retirement income guarantees.

koe O®

At Genworth, we believe passionately in the goal of achieving retirement security for all
Americans. We devote significant time and resources to addressing the challenges to
achieving those goals, including through our significant work to develop guaranteed
income solutions for defined contribution plan participants. We believe that pursuing the
fiduciary, portability and education recommendations we outline in this letter will mark a
significant step toward enhanced retirement security. Adopting these recommendations
will remove the key obstacles that, through first hand experience, we know impede plan
sponsors from offering the in-plan annuity choices that they recognize their participants
need. We thank the DOL and Treasury for taking this topic seriously and for the
opportunity to submit this response. We are available at your request to further address
any of the issues discussed above, or otherwise assist in the effort to facilitate guaranteed
income solutions for defined contribution plan participants and IRA investors.

Respectfully submitted,

Grech C. —

Frederick C. Conley
President
Institutional Retirement Group

12



conversion in a way that increases the likelihood of true retirement security. The DOL
could address these issues by: 1) requiring that all plans include a distribution strategy
statement in the plans’ statement of investment policy, 2) providing guidance that
clarifies the extent to which employers may provide investment education on distribution
strategies and options without being considered an investment advice fiduciary, and 3)
requiring that in-plan annuity investment options be taken into account in computer-
model based investment advice, including under a SunAmerica-style program"? ora
program based on the computer-model prohibited transaction exemption in ERISA
section 408(g)(3).

Since 401(k) plans are retirement plans, distribution strategies should be an important
component of a plan offering. The DOL should require that plan sponsors, as part of
their statement of investment policy, include a distribution strategy statement.

The CAI, in its response to the RFI, suggests that the DOL provide guidance on the
extent to which employers may provide investment education on distribution options and
strategies'®, Genworth endorses that response.

The CAL also states in its response that in-plan annuity investment options should be
taken into account in computer-model based investment advice'’. It is Genworth’s view
that computer-model based investment advice should consider solutions to the three key
lifetime retirement risks — longevity risk, excess withdrawal rate risk, and point in time
risk — and therefore endorses the CAI’s recommendation to include distribution strategies
in such models.

Vv. GENWORTH’S CLEARCOURSE® PRODUCT

ClearCourse has been designed to provide many of the advantages of a DB plan with the
flexibility of a DC account. For example, with ClearCourse, a plan participant can port
his or her ClearCourse account balance and guaranteed income amount from his or her
401(k) plan to an IRA using an individual variable annuity issued by Genworth — this
annuity has been specifically designed to retain the participant’s accumulated guaranteed
lifetime income. Some of the unique and more important features of ClearCourse include
the following:

e Prior to retirement, participants know the conversion value of their in-plan
ClearCourse account balance to a dollar amount of guaranteed lifetime income at
retirement.

8 Advisory Opinion 2001-09A (December 14, 2001).

16 The ERISA Advisory Council’s Working Group on Financial Literacy of Plan Participants and the Role
of the Employer in 2007 identified the need for guidance clarifying the extent to which an employer may
provide information and education about distributions without providing fiduciary investment advice

1” Proposed regulations issued in February 2010 would provide that a PPA computer model may disregard

an in-plan annuity investment option, Presumably, a computer model relying on the SunAmerica Opinion
may do so as well.

1



necessary experts to conduct such an assessment, plan sponsors simply avoid including
these products in their plans.

Genworth believes that it is possible to modify subsection (b)(2) of the safe harbor by
adding objective criteria that (i) a plan sponsor feels equipped to apply, (ii) serve as a
solid proxy for assessing an insurer’s future claims paying ability, and (iii) if met, satisfy
the subsection (b)(2) assessment. The following are illustrative of such objective criteria:
the annuity provider:

© Maintains participants’ account balances in a separate account or, if not
maintained in a separate account, the annuity provider commits to and does
provide an annual certification from its responsible actuary that its reserves are
adequate to satisfy contractholder liabilities;

e Has had no company action level event or order of receivership, liquidation,
supervision or rehabilitation for at least the prior 5 years;

e Isamember of the insurance guaranty association of the state in which the
annuity contract is issued; and

e Issues the annuity as an individual contract or as an allocated group contract.

These objective criteria, and potentially others, are very good indicators of insurance
companies’ future claims paying abilities, in particular because they will be applied to
companies that already are subject to intense regulatory oversight specifically designed to
ensure their financial health. State insurance departments oversee life insurance
companies in a number of ways to ensure their ability to satisfy contractholder
obligations, including the imposition of National Association of Insurance
Commissioners uniform rules for the establishment of reserves, the valuation of assets
and liabilities, risk-based capital requirements and required capital. State insurance
departments conduct routine reviews of insurers’ financial strength and their ability to
meet contractholder commitments.'? However, in the unlikely event an insurance

2 In the many intervening years since the insurance company failures of the 1980s and 1990s, state
insurance department regulations and oversight have been significantly improved and strengthened, for
example:

e _asit relates to liability valuation, in 1992 the NAIC strengthened requirements for scenario cash
flow testing with the implementation of the AOMR (Actuarial Opinion and Model Regulation);

e as it relates to liability valuation, in 2009 the NAIC strengthened reserve requirements for equity
and interest rate tail risk with the implementation of VACARVM (Variable Annuity
Commissioners Annuity Reserve Valuation Method);

e as it relates to uniform statutory accounting principles, in 2001 the NAIC instituted
Statutory Codification;

© —asit relates to controls over improving financial reporting, in 2006 the NAIC adopted the Model
Audit Rule (Statutory incarnation of SOx), applicable with statements in 2010.

° asit relates to capital, in 1991 the NAIC strengthened requirements for asset valuations with the
implementation of more restrictive C1 factors;

e —asit relates to capital, in 2000 the NAIC strengthened requirements for interest rate risk with the
implementation of C3 Phase 1;

© ait relates to capital, in 2005 the NAIC strengthened requirements for equity risk with the
implementation of C3 Phase 2.



2) Allow portability of guaranteed retirement income options by permitting in-
service distribution of these benefits as part of a qualified plan distributed
annuity if the plan sponsor or record keeper no longer supports the guaranteed
income product; and

3) Take measures to broaden the focus of American workers from asset
accumulation to whether those assets will support a secure retirement through
adequate retirement income.

IL. GENWORTH’S EXPERIENCE

Genworth is a pioneer in developing and providing a 401(k) “in-plan” annuity investment
option that provides guaranteed income. Explained in detail later, Genworth launched
ClearCourse five years ago and is one of only a handful of companies with actual, hands-
on experience with in-plan annuities. While this market is still nascent in terms of
adoption, some relevant statistics on Genworth’s experience to date include:

1) ClearCourse is available in plans operating with seven major 401(k) plan
providers;

2) Currently, 35 plan sponsors have selected ClearCourse as an investment
option in their plans, and two plan sponsors have designated this option as the
QDIA for the plan;

3) The average participant selection rate is approximately 10%;

4) The current percentage breakdown of participants investing in ClearCourse by

age is:
a. 20-~30: 23%:
b. 31-40: 30%
c. 41-50: 27%
d. 51-60: 17%
e. 61-65: 3%
f. 65+: 1%

While Genworth is proud of its results to date, the above-referenced obstacles have been
an impediment to greater sponsor adoption and participant utilization of guaranteed
income solutions.

ll. THE KEY RETIREMENT INCOME SECURITY RISKS

Without guaranteed income, a plan participant or retiree is confronted with the following
three significant, and key, retirement risks:

A. Longevity Risk (Will you outlive your assets?)

For a healthy 65-year-old couple, there is a 67% chance that at least one of them will live
to age 90 and a 38% chance that one will live fo age 95.’ Since the general population

” Calculations use the Annuity 2000 Basic Table with Projection Scale AA.



e Fiduciary Process and Standard: Many plan sponsors are concerned with how
to assess an annuity provider’s ability to make all future payments in order to
satisfy the fiduciary duty safe harbor applicable to distribution annuities;>

© Portability: Plan sponsors are concerned about portability of guaranteed income
options if they subsequently change plan design or record keeper platforms; and

e Income vs. Accumulation/Education and Tools: In general, 401(k) plans were
developed as supplemental savings plans focused on accumulation and asset
allocation, with limited options for workers to plan for retirement income. As
such, there is minimal and often ineffective participant education and tools to
increase awareness of the relative costs and benefits of guaranteed income options
versus alternative distribution strategies.

Since increased availability and utilization of guaranteed income options boost retirement
income security, these obstacles must be addressed. Genworth’s recommendations,
discussed in detail later in this letter, include:

1) With respect to fiduciary duties, modify the distribution annuity safe harbor as i
follows:

a. Provide objective criteria that can satisfy the requirement to assess a
provider’s ability to make future payments. For example, an annuity
provider that (i) maintains participants’ account balances in a separate
account or, if not maintained in a separate account, the annuity
provider commits to and does provide an annual certification from its
responsible actuary that its reserves are adequate to satisfy
contractholder liabilities, (ii) has had no National Association of
Insurance Commissioners (“NAIC”) Risk-Based Capital (“RBC”)
calculation outcome other than “No action”, and has no order of
receivership, liquidation, supervision or rehabilitation for at least the
prior five years, (iii) is a member of the guaranty association in the
state in which the annuity contract is issued, and (iv) issues the annuity
as an individual contract or as an allocated group contract.

5 29 CFR. §2550.404a-4(b).

© The NAIC RBC framework results in five different outcomes determined by comparing a company’s
Total Adjusted Capital to its Authorized Control Level Risk-Based Capital. The level of required risk-based
capital is calculated and reported annually. Remedial actions result when a company’s Total Adjusted
Capital falls below 200% of its Authorized Control Level RBC. Remedial actions include:

e — the insurer providing additional reports and corrective plans to the regulator (at less severely
impaired relative capital levels)

e — the insurer being placed under regulatory control (at more severely impaired relative capital
levels).

i


the 401(k) plan’s funding vehicle*, and annuities as distribution offerings’, unless
otherwise noted, this response will focus on in-plan annuities for building a financially
secure retirement because these annuities are best suited to address the retirement security
risks.

I. EXECUTIVE SUMMARY

Defined benefit plans (“DB plans”) are designed to provide participants with a
guaranteed stream of retirement income for life. The plan sponsor generally assumes
most of the significant retirement security risks and the complex task of planning for
them. However, the role of DB plans in retirement planning is diminishing as more and
more plans are frozen or terminated. Consequently, defined contribution plans (“DC
plans”) have become the primary retirement vehicle for many employees.

The migration from DB plans to DC plans has largely shifted the burden of retirement
planning from plan sponsors to participants, without a corresponding increase in the
education and tools necessary for participants to bear the burden of this sophisticated and
complex analysis. The vast majority of DC plans today lack guaranteed income features,
even though workers today are faced with the prospect of: having to save for a retirement
of unknown duration; learning how to manage their savings prior to and during
retirement; and dealing with the volatility of the financial markets.

Uncertainty and volatility create three significant and key retirement risks:

e Longevity risk (will you outlive your assets?);

e Excess withdrawal rate risk (how much can you safely and consistently withdraw
from your retirement savings?); and

© Point-in-time risk (how significantly will your retirement savings and lifestyle be
impacted by a down market in, at, or near the time of retirement?).

Life insurance companies like those in the Genworth family are uniquely positioned to
provide DC plan sponsors with retirement income solutions that squarely address these
risks. These companies can pool risks across a large number of participants — thereby
providing lifetime income guarantees at the individual participant level. Several
companies, including Genworth, have developed in-plan annuity products that allow plan
participants, throughout their careers, to determine with certainty how much guaranteed
income their current account balances can provide at a future retirement date.

However, sponsor adoption and participant use of these innovative solutions are hindered
by at least three significant obstacles, outlined here and described in detail later in this
response:

3 Many small 401(k) plans use an annuity in lieu of a trust, as permitted under the tax qualification rules.

4 atthe time of electing a distribution option, some plans offer an immediate annuity which provides
lifetime guaranteed income.