TESTIMONY OF PAMELA PERUN, POLICY DIRECTOR 

ASPEN INSTITUTE INITIATIVE ON FINANCIAL SECURITY 

BEFORE THE DOL/TREASURY PUBLIC HEARING 

ON LIFETIME INCOME 

September 15, 2010 

My name is Pamela Perun, and I am the Policy Director of the Aspen Institute Initiative 

on Financial Security. At Aspen IFS, our focus is on the ordinary saver, those with modest to 

medium-size nest eggs, and our perspective on lifelong income products is intended to keep their 

interests in mind. I am here today to testify on the topic of a Fiduciary Safe Harbor for Selection 

of Lifetime Income Issuer or Product. In 2007, I published a paper on this topic titled “Putting 

Annuities Back in Savings Plans,” which elaborates on the comments I will make today. I will 

be submitting this paper for the public record along with my comments today.1 

I am an ERISA attorney, and my special interest is in keeping the private pension system 

a hospitable place for the small employer. It is important to remember that 90% of defined 

contribution plans have less than 100 participants. These plans cover about 15% of plan 

participants, and they represent an important constituency that we need to keep in the private 

pension system. 

I believe that we are not asking the right question here. The question is really not how 

can we get a better fiduciary liability safe harbor for employers. The relevant question is what 

happens when something goes wrong in a lifetime income product. There is no fiduciary 

liability until something goes wrong. So we should be asking: when something goes wrong 

what should be the extent of the protection available to participants, both inside and outside a 

plan, and who should provide such protection. 

Current ERISA regulations make the employer a potential final backstop for participant 

protection. The rationale for this stems from a change in the law in the Pension Annuitants 

Protection Act of 1993. In the early 1990s, a number of insurance companies failed, including 

 

1

 Perun, Pamela J., “Putting Annuities Back in Savings Plans,” Chapter 8 in T. Ghilarducci and C. Weller, eds., 

Employee Pensions: Policies, Problems, and Possibilities, Champaign, IL: Labor and Employment Relations 

Association, 2007. 
the Executive Life Insurance Company of California. This put into jeopardy the benefit 

payments to former plan participants in terminated defined benefit plans whose pension 

obligations had been transferred to insurance companies. Subsequent investigations revealed 

that a number of defined benefit plan sponsors had chosen very low bids from Executive Life 

and other companies to pay promised plan benefits rather than those of higher-rated companies. 

Choosing a low bidder enabled these sponsors to increase the amount of plan assets they would 

re-capture after annuities had been purchased to pay plan participants. Two court cases, Mertens 

v. Hewitt Associates and Kayes v. Pacific Lumber, seemed to block former plan participants from 

either suing their employer for putting their own interests ahead of plan participants or receiving 

monetary damages to make their pension promise whole. The legislative history of the Pension 

Annuitants Protection Act reveals that Congress merely intended to reaffirm the original intent of 

ERISA to provide such remedies, and its primary concern was with defined benefit plans. 

But since then, in reaction to the abuses observed in the Executive Life case and others, 

regulatory guidance has morphed the fiduciary duties of employers with respect to distribution 

annuities in ways that this legislation never contemplated or intended. And, I believe, that 

guidance fails to distinguish between the risks posed to participants in a defined benefit plan 

versus a defined contribution plan. In a defined contribution plan, there is no such thing as a 

reversion so there is no need to protect against this conflict of interest between employers and 

employees. In a defined contribution plan, there is no promise of a guaranteed accrued plan 

benefit that purchased annuities must provide. In a defined contribution plan, the accrued benefit 

of a participant is merely the dollar amount in the account at a particular point in time. And how 

a participant chooses to invest that account balance in an investment product is primarily that 

participant’s business. 

Merely providing a softer safe harbor will not encourage many more employers to offer 

lifetime income products. Frankly, ERISA lawyers like myself will continue to advise our 

clients not to include them in their defined contribution plans because of the expense and 

potential long tail of fiduciary risk involved. So I urge you as regulators to go back to basics and 

think through what makes sense from an ERISA perspective in a defined contribution, NOT a 

defined benefit, plan context. What are the risks, who should bear them, and should protection 

differ depending on the type of investment product available in a defined contribution plan. We 

don’t need a softer safe harbor, we need a reasonable process that enables employers to choose 
good lifetime income products without fear of long-term liability and enables participants to 

purchase the investment product that meets their needs. 

 When something does go wrong, the first step should be to look for protection, not to 

employers, but to the state guaranty associations standing behind these products. I understand 

that the Government Accountability Office is analyzing and evaluating the currentstrength of 

these funds, and I look forward to that report. I would like to point out, however, the private 

pension system had its first extensive experience with these funds in the early 1990s as part of 

the Executive Life crisis. I had just started to practice law at that time and the firm where I 

worked, as well as many other large firms, worked on behalf of employers – primarily large 

employers - with these funds to obtain redress, not just for annuitants but for participants in GICs 

and other investment products. 

I think it’s fair to say that this was an expensive, time-consuming and not whollysatisfactory experience. Seeking redress for participants required a lot of individual fact-finding 

as well as preparing complicated regulatory filings. Large employers have the resources and the 

will to pursue these avenues for relief when necessary but it is not likely that small employers 

will. We also learned that there were significant gaps and differences in coverage across states 

that led to uneven outcomes. 

This seems to me to be unacceptable for a private pension system that is governed by 

federal law and that provides the same protections to participants, no matter where they live or 

work. If we are going to continue to rely on a state-based backup for lifetime income products, 

we need to call for changes at the state level, whether it’s uniform contracts, higher guarantee 

amounts, or special status under state insurance codes for qualified plan investors. Many have 

called for federal regulation and guarantees instead, and that is something to be considered, 

although that would require the federal government to have a much larger role in regulating the 

insurance industry than it has ever had. 

My final point is that as we move forward we have to be mindful to balance the costs and 

benefits of new regulations under ERISA to secure the promise of lifelong income products. 

Every regulation that requires the plan sponsor to hire an expert, every new requirement for 

additional participant education and disclosure, every increase in state or federal protection will 

have its cost. A defined contribution plan has no unallocated pool of funds to pick up these 

expenses. In a defined contribution plan context, it is participants who will pay these costs, 
whether or not they themselves invest in such products, and these are dollars that will not be 

available to build retirement income.