www.tiaa-cref.org 

Larry M. Chadwick 

Vice President, 

Government Relations Public Policy 

Tel: 434-964-2611 

Cell: 434-249-6635 

Fax: 434-964-2602 

lchadwick@tiaa-cref.org 

April 30, 2010 

Delivered via E-mail to e-ORI@DOL.GOV 

Department of Labor 

Room N-5655 

Employee Benefits Security Administration 

200 Constitution Avenue, NW 

Washington, D.C. 20210 

Re: Request for Information Regarding Lifetime Income Options for 

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

Dear Sir or Madam: 

TIAA-CREF appreciates the opportunity to respond to the Department of Labor and 

Department of the Treasury’s Request for Information Regarding Lifetime Income 

Options for Participants and Beneficiaries in Retirement Plans published in the Federal 

Register on February 2, 2010. 

TIAA-CREF is the leading provider of retirement services in the academic, research, 

medical and cultural fields. We manage over $400 billion of retirement assets, allocated 

nearly evenly between equities and fixed income investments, on behalf of 3.6 million 

participants. We serve more than 15,000 institutions nationwide. 

The Carnegie Foundation for the Advancement of Teaching formed the Teachers 

Insurance and Annuity Association of America (TIAA) in 1918 as a fully funded 

retirement system to help colleges attract talented teachers. Our mission is “to aid and 

strengthen” the institutions we serve and provide financial products that best meet their 

unique needs. Incorporated as a stock life insurance company in the State of New York, 

operated on a not-for-profit basis, TIAA offers a fixed-rate account that provides 

participants with lifetime income. To offset the loss of buying power associated with 

long-term fixed income annuity payments, TIAA created the College Retirement 

Equities Fund (CREF), a stock-based fund and the world’s first variable annuity, in 1952. 

In soliciting advice on the rules governing workplace retirement plans, you are 

stimulating an important discussion for Americans: will their current level of savings be 

sufficient to maintain a comfortable lifestyle after they stop working. In our response, 

we intend to provide the Agencies and the public with information that will be useful in 

TIAA-CREF Individual & Institutional Services, LLC, Member FINRA/SIPC 

630 Peter Jefferson Parkway, Suite 260, Charlottesville, VA 22911 
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increasing the understanding of how annuities can help address shortfalls in retirement 

and aid in easing the looming retirement crisis. 

Today most retirement savings accounts emphasize wealth accumulation with little 

thought to how that wealth will translate into retirement income. This thinking should 

be altered so that Americans start planning their retirement backwards by determining 

how much retirement income they will need, and then saving and investing to attain this 

goal. 

Retirement is a shared responsibility between employers and employees. Employers that 

choose to sponsor a retirement plan have an obligation to help employees build savings 

that provide income and security in retirement, but individuals also need to take control 

of their financial security. TIAA-CREF focuses our participants on making 

contributions that will build savings adequate to support a reasonable level of retirement 

income while investing their retirement savings with a long-term goal in mind as 

opposed to chasing short-term returns. We reinforce this by offering a variety of 

retirement planning solutions including a fixed annuity that guarantees a minimum rate 

of return on investment and provides guaranteed income for life. 

TIAA-CREF firmly believes a lifetime annuity that provides guaranteed income is 

appropriate for most retirees. Lifetime annuities help workers transition more easily into 

retirement by maximizing payments and providing a steady stream of monthly income. 

This is especially important for retirees with limited resources to meet their income 

needs. 

It is also important for participants to have access to a fixed annuity that offers a 

guaranteed return on investment during their working years. This allows them to take 

advantage of interest rates rising and falling across a number of economic cycles, which 

can provide a higher, more predictable income stream at retirement than if they were to 

transfer accumulations into a fixed annuity at retirement and annuitize during a lowinterest rate environment. 

Choice is another integral piece of any retirement plan. We recognize there is no “onesize-fits-all” option when it comes to retirement planning and each person will face a 

unique situation based on a number of factors (e.g., financial needs, family obligations, 

health, bequests, etc.). Accordingly, throughout their careers individuals need access to a 

number of diverse investment and income options, a variety of planning tools, financial 

literacy programs, and personalized objective guidance to ensure they establish and 

maintain a comprehensive retirement plan. 

To ensure each individual retiree’s situation is considered, TIAA-CREF believes 

participants should not be required to annuitize their entire retirement accumulation. All 

participants should have access to partial annuitization options. This not only recognizes 
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the unique nature of retirement planning, but also serves as an important avenue to 

encouraging the use of annuities and may allay fears many participants have that 

annuitizing will deplete their accumulated savings and remove all financial flexibility 

during retirement. In recent years, TIAA-CREF has found that approximately 30 

percent of those who begin an income stream will choose to annuitize some portion of 

their assets. Approximately 17 percent of those beginning an income stream choose to 

fully annuitize. Those partially annuitizing often use other income options offered by 

TIAA-CREF to complement their lifetime income choice. 

Finally, we firmly believe that keeping expenses low is a crucial element in the successful 

management of retirement accounts. As one of the lowest cost providers of investment 

products in the industry we have experienced first hand the positive effects this can have 

on participant accumulations. Steps to increase transparency and establish uniform 

disclosure of fees, expenses, surrender charges, and returns could help further reduce 

costs associated with annuity products. 

 

We applaud you for taking this first step in bringing annuities and other forms of 

lifetime income to the forefront of the retirement planning debate. We look forward to 

engaging further on this issue as discussions about this topic progress. 

Sincerely,

Larry M. Chadwick 

Vice President, Government Relations Public Policy 
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RESPONSES 

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? 

One of the most effective and efficient ways to help participants reduce or prevent 

shortfalls in retirement income is by providing a regular stream of guaranteed 

lifetime income that will last throughout their retirement years and, in many cases, 

the retirement years of their partners. A life annuity is the only financial vehicle that 

maximizes periodic income while guaranteeing an individual will never outlive his or 

her retirement benefit. This is especially important to retirees with limited financial 

resources. While some financial professionals eschew the value of annuities and 

suggest instead the use of systematic withdrawals from one’s investment accounts, 

such advice can be hazardous, as many people tend to underestimate their longevity. 

 

When offered as an investment option during the accumulation stage, guaranteed 

annuities offer participants a safe and secure way to save for retirement. We firmly 

believe annuities can play a vital role in helping individuals save for and live in 

retirement. 

The following sections describe some additional advantages of annuities and address 

some of the more common concerns that plan participants have when choosing an 

annuity. 

Filling the Gap 

Guaranteed income is necessary to ensure coverage of a retiree’s basic needs (e.g., 

housing, utilities, groceries, transportation) throughout retirement. In the past, many 

workers were able to meet their retirement income needs through a combination of 

Social Security payments and employer defined benefit (DB) pension plan payments. 

However, in the past 25 years DB plans have been largely replaced by 401(k)-type 

defined contribution (DC) plans that emphasize asset accumulation as opposed to 

providing income at retirement, leaving Social Security as the primary source of 

guaranteed fixed income for many workers. Unfortunately, in many cases Social 

Security payments alone do not cover these basic needs, leaving individuals with the 

responsibility of making important decisions about how to fill this gap using their 

accumulated savings. When participants have the option to choose a guaranteed 

lifetime income option in their employer-sponsored retirement plans, they have an 

excellent opportunity to supplement existing sources of fixed retirement income by 

converting retirement assets into annuity income. 
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Providing for Beneficiaries 

One concern often expressed by participants considering an annuity is that payments 

will cease upon their death, leaving a spouse or partner in a difficult position. To 

address this, annuity providers often include options to ensure continuation of 

income to dependents upon death of the original annuitant. Such options allow the 

primary annuitant to name an individual as an annuity partner (usually a spouse) who 

would continue to receive lifetime payments if the original annuitant predeceases 

him or her. Another way to ensure payments continue after death is by choosing a 

period certain option (also referred to as a guaranteed period). Under this option, the 

annuitant chooses a set number of years during which payments are guaranteed 

regardless of how long either the first or the second annuitant lives, essentially 

offering a type of term insurance for an annuity. 

Inflation Protection 

Many fixed annuities include options that can provide some protection against 

inflation by allowing payments to increase over time. In addition, individuals with a 

higher risk tolerance may choose to address the inflation issue by receiving lifetime 

income through variable annuities that invest in stocks or bonds and provide income 

based on the performance of underlying investments. Those choosing variable 

income in retirement would still want to ensure that they are receiving an adequate 

amount of fixed income to address basic needs. 

Overcoming the “Psychological Threshold” 

Retirement savings are intended to provide a stream of income to replace the regular 

paycheck a participant was accustomed to receiving prior to retiring. While there are 

some annuities that allow for cash withdrawals after starting an income stream, it is 

generally true that purchasing an annuity is an irrevocable decision, meaning that 

funds used for this purpose are no longer liquid, and therefore are no longer 

available to the annuitant. This “psychological threshold”1

 can make it difficult for 

participants to commit to purchasing an annuity.

Not an “All or Nothing” Option 

Another common concern of participants is that when they purchase an annuity 

directly from their employer-sponsored retirement plan, they must convert all of 

their funds into the annuity. While this may be the case with some plans, many allow 

participants to annuitize only a portion of their accumulated savings. In fact, within 

almost all plans TIAA-CREF administers, participants have this flexibility. We 

believe that a robust retirement income plan will, when possible, utilize a variety of 

income options, and participants should only annuitize enough of their savings to 

purchase an annuity that covers the level of income replacement necessary for their 

particular situation. 

 

1 Babbel, David F. and Merrill, Craig B. (2007). “Rational Decumulation,” p. 6. 
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2. Currently the vast majority of individuals who have the option of receiving a 

lump sum distribution or ad hoc periodic payments from their retirement plan 

or IRA choose to do so and do not select a lifetime income option. What 

explains the low usage rate of lifetime income arrangements? Is it the result 

of a market failure or other factors (e.g., cost, complexity of products, adverse 

selection, poor decision-making by consumers, desire for flexibility to 

respond to unexpected financial needs, counterparty risk of seller insolvency, 

etc.)? 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? 

There are three primary reasons that contribute to the relatively low usage rate of 

lifetime income options. First, while most individuals appreciate the security that a 

guaranteed lifetime income offers, they lack an understanding of the various income 

options. Secondly, individuals are uninformed about annuity pricing. Finally, how 

annuities are framed – the language used to present their benefits to consumers – has 

a large impact on the decision to annuitize. 

The following highlights some of the more common concerns about annuities as 

well as some potential solutions to these issues. 

Understanding Income Options 

Ensuring participants are fully informed about their options is a way to increase the 

use of annuities in retirement planning. While most individuals understand, 

appreciate, and seek the security a guaranteed lifetime income offers, they also worry 

they may not live long enough to reap the full benefits of an annuity. This 

underscores the importance of ensuring participants are aware of the full range of 

annuity income options available that, among other things, allow payments to 

continue to heirs beyond a participant’s death. Education and noncommissioned 

objective guidance is critical to ensuring participants make the right decisions not 

just when choosing income options at retirement, but as they are saving for 

retirement throughout their careers. 

Costs 

Studies have shown that when compared to many mutual funds, annuities are a very 

reasonably priced option.2 In fact, over time charges for lifetime income annuities 

have actually decreased. Ten years ago, the average sales charge, or load, on an 

annuity was 6% to 10%. Today, annuity loads average from 3% to 5%. Considering 

that many mutual funds have loads ranging from 5% to 8%, and include annual 

expenses of more than 1% in addition to these loads, it is clear that annuities are 

actually quite competitive.3 It is important to note here that TIAA-CREF annuities 

are sold without any sales loads or commissions. 

 

2

 Babbel, David F. and Merrill, Craig B. (2007). “Rational Decumulation,” p. 18. 

3 Babbel, David F. (2008). “Lifetime Income for Women: A Financial Economists Perspective.” Wharton Financial Institutions Center Policy 

Brief: Personal Finance, p. 10. 
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Increased transparency and uniform disclosure of fees, expenses, surrender charges, 

and returns could help further lower the cost of annuities. Simplifying and 

streamlining this information could make the process of choosing an annuity easier 

and less confusing while allowing both plan sponsors and plan participants to make 

more informed decisions. 

Annuity Framing

Multiple studies have addressed the way financial advisors and institutions present 

annuities to consumers. These studies found that a financial advisor’s explanation of 

an annuity has a significant impact on the client’s ultimate decision.4 Advisors need 

to provide a fair and balanced explanation when presenting retirement income 

choices to their clients and financial companies need to ensure that their advisors 

adhere to this standard. Most importantly, consumers need to be aware of potential 

biases and/or motivations (e.g., commissions) of an advisor and ensure that they are 

aware of the advantages and disadvantages of any product they are considering. 

Ultimately, this underscores the need for the availability of objective guidance in 

retirement planning. 

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? 

TIAA-CREF recognizes there is no “one-size-fits-all” option when it comes to 

retirement planning. Each participant faces a unique situation based on a number of 

factors (e.g., financial needs, family obligations, health, bequests, etc.). Accordingly, 

participants in TIAA-CREF-funded retirement plans have access to a number of 

income options, a variety of planning tools, and the objective guidance necessary to 

ensure their particular needs are met and a comprehensive retirement income plan is 

established. 

Participants in TIAA-CREF-funded plans choose their income options, including 

annuities, at or after retirement, allowing them flexibility in determining how to 

structure their retirement income. Some find lifetime income sufficient for most of 

their income needs. For others, lifetime income may be appropriate for only a 

portion of their retirement income. In some situations, lifetime income may not be 

the right choice at all. 

The following describes of the options available through our lifetime income 

annuities in addition to a brief description of the other income options we offer. 

 

4 Brown, Jeffrey R., et al. (2009). “Framing and Annuities” (2009). TIAA-CREF Institute, p. 5. 
8 of 29 

Lifetime Income Options 

When choosing a lifetime income annuity, TIAA-CREF participants have the option 

to choose among a straight guaranteed fixed annuity, a guaranteed fixed annuity with 

the opportunity for additional income after it commences to help combat inflation, 

and a variable annuity that provides payments that can fluctuate based on market 

returns of the underlying investments. 

Among the most important of the income options TIAA-CREF provides is a 

lifetime income annuity, which promises continued payments as long as the 

participant lives. TIAA-CREF annuities provide lifetime income either for a single 

annuitant or, in the case of a joint annuity, two individuals. Depending on the option 

a participant chooses, joint annuities can provide a spouse or partner with a full or 

reduced benefit upon the death of the primary annuitant. TIAA-CREF provides 

joint life options that include a 100%, 75% or 50% benefit to the second annuitant 

upon the death of the primary annuitant. TIAA-CREF also offers a “Joint and Twothirds” option, under which the income benefit is reduced to two-thirds of the 

original income upon the death of either annuitant. 

Each of the above life annuity options also allows participants to add a “guaranteed” 

or “certain” period feature. This refers to a period during which payments would 

continue even if the first and second annuitant die before the end of the period. 

Guaranteed periods are generally 10, 15, or 20 years. For example, under the “Full 

Benefit to Survivor with 20 Years Guaranteed” option, benefits would continue as 

long as either annuitant is living, but if both annuitants die within the first 20 years of 

the annuity issue date, the income would continue to a named beneficiary or 

beneficiaries until the 20-year period expires. 

 

Additional Income Options 

To customize withdrawal plans or complement lifetime income, TIAA-CREF also 

offers an array of other retirement income choices. While the menu of options can 

vary depending on the type of contract and plan provisions, the options can 

generally be used in any combination. 

Lump-Sum Withdrawals. With some exceptions, notably fixed annuities which can 

have liquidity restrictions (term certain versus lump sum) or surrender charges 

associated with them, participants have the option of taking lump-sum withdrawals 

from their retirement accounts once they have terminated employment or reached a 

certain age (generally 59 1⁄2). 

Systematic Withdrawal. Under this option, participants can choose to receive a regular 

payment that they designate based on a specific dollar amount or percentage of their 

beginning-of-year account balance. While this allows participants to maintain the 

liquidity of their retirement savings and still receive a regular income, when used as 

the sole method of generating income, it places them at a much higher risk of 
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depleting their retirement savings prematurely and resulting in an income shortfall in 

their later years. In fact, a study conducted by the TIAA-CREF Institute found that 

participants who attempt to utilize this method to simulate the level of income that 

would be generated under a life annuity, have a more than 50% chance of running 

out of funds during their retirement.5

Interest Only. Participants invested in our TIAA Traditional Annuity can utilize an 

“interest-only” option, under which the principal remains intact while the account’s 

interest earnings are paid out in cash on a monthly basis. 

Fixed Period. This option allows participants to take a sum of money and convert it to 

a contract that will pay out over a certain number of years. 

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 are such incremental or accumulating annuity arrangements 

structured?

TIAA-CREF provides both fixed and variable annuities (in addition to mutual 

funds) as accumulation vehicles for participants. Participants are under no obligation 

to take an annuity at retirement just because they invested in annuities during the 

accumulation phase. Likewise, a participant who chooses to invest in mutual funds 

while saving would not be excluded from choosing an annuity in retirement. A 2009 

study by the TIAA-CREF Institute found that participants who do accumulate in 

annuities within their retirement plans were more likely to take lifetime income 

directly from the plan.6

 

Fixed Annuity 

The TIAA Traditional Annuity is our fixed annuity offering, allowing participants to 

build a secure base during the accumulation phase and then convert to a secure 

payment in retirement. Because TIAA Traditional annuity contracts guarantee 

lifetime benefits that will not be paid out until many years in the future, the rates on 

these contracts are based on conservative interest and mortality assumptions that are 

intended to make the annuities fully self-supporting. While participants can purchase 

the TIAA Traditional Annuity at retirement, even if they have not invested in it 

before, they benefit most from its design if they contribute to the TIAA Traditional 

Annuity throughout their career. Each contribution allocated to the TIAA 

Traditional Annuity buys a specific amount of lifetime income based on the rate 

schedule in effect at the time the payment is made. 

 

5 Goodman, Benjamin and Heller, Michael (2006). “Annuities: Now, Never, Later.” TIAA-CREF Institute, p. 3. 

6 Yakaboski, Paul J. (2009). “Converting Assets to Income in Retirement: What Near-Retirees are Thinking.” TIAA-CREF Institute, p. 2. 
10 of 29 

In addition, the TIAA Traditional Annuity provides a guarantee of principal, a 

guaranteed minimum interest rate (currently 3% for most of our contracts), and the 

potential for additional amounts when declared by TIAA’s Board of Trustees. When 

declared, these additional amounts remain in effect for the “declaration year” that 

begins each March 1 for accumulating annuities and January 1 for lifetime payout 

annuities. While additional amounts of interest are not guaranteed, TIAA has 

credited additional amounts every year since 1948. 

Because the yields available on bonds and other fixed income investments tend to 

change over time, TIAA combines the contribution amounts invested in TIAA 

Traditional over defined periods into vintages, typically composed of one or more 

contiguous calendar months, for the purpose of determining the crediting rate for 

the applicable declaration year during the accumulation phase. The crediting rate for 

each vintage is determined, in part, by the net investment earnings rate of the TIAA 

assets supporting that vintage, minus a charge for administrative expenses and an 

amount set aside for contingency reserves. The net investment earnings rate 

associated with each vintage reflects both the yields at which premiums are invested 

and the rates at which subsequent cash flows are reinvested. This approach enables 

TIAA to distribute excess earnings to participants on a more equitable basis, so that 

each generation will ultimately receive benefit payments that reflect, in part, the 

prevailing interest-rate environment at the time the crediting rates were applied. 

Crediting rates are determined by factors including expenses, investment 

performance, and the need to maintain adequate contingency reserves. While the 

investment returns of TIAA’s general account do not flow directly to participants via 

the declared crediting rates, such additional amounts reflect, in part, the prevailing 

interest rates and returns expected from existing investments. As an insurance 

company, TIAA is required to maintain contingency reserves to ensure it can fulfill 

its contractual obligations to policyholders, even in the face of unexpected adverse 

circumstances. 

However, to the extent that these reserves prove to be unneeded, they are gradually 

distributed to participants in the form of additional annuity income during the 

payout phase. If TIAA were a typical stock insurance company, reserves beyond 

those needed to secure the guarantee could be used for the benefit of stockholders 

rather than participants. 

Periodic payments can never be less than the guaranteed amount, which 

represents the contractual payment. All guarantees are based on TIAA’s financial 

strength – its ability to pay its claims and deliver on the guarantees it makes to 

participants. The TIAA Traditional Annuity provides plan sponsors with a vehicle 

by which employees can replicate a paycheck in retirement, which brings security 

and peace of mind to many individuals. 
11 of 29 

Variable Annuities 

Unlike the TIAA Traditional Annuity, our variable annuity accounts do not 

guarantee a minimum income. Rather, income is tied directly to each account’s 

investment returns. As a result, income from a variable annuity will fluctuate 

based on market performance. TIAA-CREF manages variable annuity account 

portfolios unavailable elsewhere in a mutual fund structure, which helps 

participants diversify their portfolios and can help hedge against inflation. 

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

employer matching contributions or employer nonelective contributions to 

fund lifetime income? To what extent are participants offered a choice 

regarding such use of employer contributions, including by default or 

otherwise? 

Until recently all TIAA-CREF plan sponsors offered annuities exclusively, resulting 

in all employer contributions being directed into an annuity investment. However, 

the last decade has seen a movement to incorporate mutual funds alongside annuities 

into 403(b) plan menus to meet the demands of institutional clients who want their 

plans to more accurately reflect the 401(k) marketplace. 

In order to increase the use of employer contributions to fund lifetime income 

options, plan sponsors should examine all costs associated with any investment 

option, annuity or mutual fund, before a decision to offer these investment 

alternatives is made. Cost considerations include sales loads, mortality fees, surrender 

charges, and any other fees that a given investment may charge. 

In addition, plan sponsors should review historical returns, while understanding that 

an account’s past performance is no guarantee of future results. It is important that 

plan sponsors take the time to understand the different features available within 

annuity products and for the costs associated with these features. 

Nearly all plan sponsors offer employees a choice regarding the allocation of 

employer contributions. TIAA-CREF assists pan sponsors by offering age-based 

lifecycle funds as a default investment option that is compliant with the final QDIA 

regulations. TIAA-CREF has recently expanded its lifecycle funds offering to include 

Lifecycle Funds 2045, 2050, and Retirement Income Funds, which cover all possible 

retirement dates for today’s working population. 

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 (out-of-plan options), such as 

IRA products, and how are such arrangements being structured (fixed, 
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inflation adjusted, or other variable, immediate or deferred, etc.)? 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? 

One option available to TIAA-CREF participants looking for retirement income 

options beyond their employer-sponsored plan is an Individual Retirement Account 

(IRA). We offer our participants IRAs that include the same investment and income 

options generally available through TIAA-CREF in the retirement plan, including 

our annuity accounts, lifetime income options, and any of the other withdrawal 

options described in our response to question 3. 

In addition, certain TIAA-CREF contracts allow participants to maintain the existing 

interest rate vintages within TIAA Traditional accumulations when rolling these 

amounts over to an IRA. 

Participants with retirement accounts outside of TIAA-CREF often choose to roll 

these funds over into an IRA with TIAA-CREF in order to take advantage of the 

wide selection of annuity income options that we offer. 

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? 

TIAA-CREF does not generally allow participants to accelerate annuity payments. 

We do provide a number of income options that participants can choose from when 

initiating lifetime income. The ultimate cost of an annuity depends on the amount of 

coverage the annuity provides. For example, assume a participant has $100,000 to 

purchase an annuity. If this participant chooses a single life annuity that would 

provide payments only for his or her life, under a certain contract the monthly 

payment would be approximately $630. If that same participant decided to use the 

same funds to purchase an annuity that would provide payments to both himself or 

herself and a spouse or partner for the remainder of both their lives, the monthly 

payment under that same contract would be approximately $560. While the payment 

that provides more coverage reduces the monthly income by $70, when presented 

with this choice most participants see the value, benefits, and security of this option 

and choose the joint annuity.7

 

7 “Lifetime Retirement Income: The Foundation to a Secure Future.” TIAA-CREF Publication. June 2009. p. 11. 
13 of 29 

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)? 

All of our institutions offer annuities within their retirement plans. Some advantages 

for participants that have the option of selecting lifetime income payments through 

TIAA-CREF include: 

 access to a variety of lifetime income options; 

 a limited ability to change options as needed throughout retirement; 

 a seamless transition from the accumulation to the income stage; 

 more favorable pricing/mortality charges due to group rates and low 

costs; 

 avoidance of commissions that might be incurred if funds were rolled 

over to an outside plan; and 

 an additional sense of security knowing the company that helped them 

fund their retirement also will assist them with transitioning into their 

retirement years. 

TIAA-CREF clients especially value the long-term relationship they have built with 

the company over an entire career. 

One of the disadvantages of in-plan options is that Qualified Joint Survivor and 

Annuity (QJSA) rules can often be cumbersome, confusing, and difficult to 

administer resulting, in some cases, in a delayed start to receiving annuity payments. 

This is one area where the Internal Revenue Service (IRS) could offer some relief by 

taking steps to ease this burden through regulatory action. We address this issue in 

more detail in our response to question 27. 

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 

receiving a plan distribution? 

The primary advantage of offering an in-plan option for lifetime income is that it 

provides an opportunity to educate employees throughout their working years on the 

nuances of the income options that will be available to them at retirement, lessening 

the likelihood of surprises or uninformed decisions. While out-of-plan options 

sometimes provide more choice in investment and income options, this does not 

automatically equate to more security. While it is important to offer a diverse and 

robust menu of funds and income choices, we believe too many options can confuse 

participants and means little if they do not receive the proper guidance when 

considering which options are best for them. 
14 of 29 

Another advantage is some annuity options, such as our TIAA Traditional Annuity, 

use a “vintage” or “class” system that permits the insurer to tailor the interestcrediting rate for a particular period to the yields available on bonds and other fixed 

income investments made during that period. Thus, excess earnings in the general 

account are distributed to participants on an equitable basis, so that each generation 

will ultimately receive benefit payments that reflect, in part, the prevailing interest 

rate environment at the time the crediting rates were applied. 

An in-plan annuity may be either an accumulating annuity, to which the participant 

directs contributions over time while an active employee, or a distribution or payout 

annuity, which is purchased at one point upon or after retirement. Either form of inplan annuity is subject to ERISA’s fiduciary protections. As the DOL recognizes in 

Question 30, its existing fiduciary guidance is limited to distribution 

annuities. Expanding the guidance to include accumulating annuities would facilitate 

the use of in-plan accumulating annuities, which would provide participants the 

advantages outlined in the preceding paragraphs. 

On the other hand, some plan sponsors may perceive the application of the fiduciary 

rules to in-plan annuities as a disadvantage, and may view any effort by them to 

provide information about out-of-plan annuities to be an implicit endorsement that 

would carry potential fiduciary or other liability to participants. Expanding IB 96-1 to 

address education about annuities, and providing fiduciary relief for education 

offered by plan sponsors about out-of-plan annuities, could help make annuity 

options more popular. 

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? Why do some plan sponsors make this partial 

annuity option available while others do not? 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? 

The presence of the ability to annuitize a portion of a retirement account could 

increase the use of annuities and thus provide safety through lifetime income and 

flexibility through other payout options.

Current advice from financial experts is that at least some, but not all, of an 

individual’s retirement savings should be annuitized. This amount will vary based on 

each individual’s situation, but the constant is that the amount used should be 

sufficient to cover ongoing fixed expenses in retirement. The remaining funds can be 

used for emergencies, vacations, medical expenses, bequests, or simply to provide 
15 of 29 

peace of mind that participants still have “control” over a portion of their retirement 

savings. 

TIAA-CREF, under its contracts, offers the option of partially annuitizing retirement 

plan accumulations and the great majority of the plan sponsors we serve choose to 

make this option available to their participants. In fact, many TIAA-CREF 

participants who choose to convert their retirement savings into lifetime income use 

only a portion of their savings for this purpose and then avail themselves of other 

distribution options described previously in our response to question 3 for the 

remaining balance. We believe that a partial annuitization option may serve to allay 

the fears many participants have that annuitizing will deplete their entire accumulated 

savings and remove all financial flexibility during retirement. 

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. To what extent are these or other behavioral strategies 

being used or viewed as promising means of encouraging more lifetime 

income? Can or should the 401(k) rules, other plan qualification rules, or 

ERISA rules be modified, or their application clarified, to facilitate the use of 

behavioral strategies in this context? 

We encourage employers to adopt programs that automatically enroll individuals into 

retirement savings plans on their first day of work. Automatic enrollment programs 

nudge participants in the direction of the necessary habit of saving for retirement. 

Defaulting participants into retirement plans and requiring them to actively opt-out 

of the plan leverages inertia, increases participation and savings rates, and presents 

opportunities to provide financial education and objective investment advice that will 

set participants on the path to a secure retirement early on in their careers. 

Default annuitization, however, may not have the same effect. When initiating a 

lifetime annuity, participants need to take a number of issues into consideration 

before deciding how much to annuitize (e.g., individual health, longevity, family 

situation). Defaulting participants into an income stream has the potential to place 

participants in a vehicle that does fit their needs, they do not understand, or in some 

cases they may not need. In addition, unlike contributions to a retirement savings 

plan, which can be stopped relatively easily, the actuarial considerations that go into 

an annuitized contract make it difficult and costly to reverse. Automatically placing 

participants in a lifetime income option has the potential to confuse, anger, and 
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ultimately drive participants away from annuities, while having little positive impact 

on the overall take-up rate for annuities as an income option. 

As an alternative, we believe encouraging the use of annuities can be accomplished 

by ensuring participants receive objective guidance and education throughout their 

working years and at retirement. To ensure this guidance is universally available, we 

also believe all retirement plans should be required to offer guaranteed lifetime 

income options during the accumulation stage and as a distribution option at 

retirement. 

We also support recent proposals to require all retirement plans to provide 

participants with an annuity or “annuity equivalent” illustration at least yearly, so 

participants can become accustomed to viewing their retirement accounts as a way to 

provide income, not solely a means of accumulating wealth. (We discuss this further 

in our response to question 21.) 

Many individuals face substantial shortfalls at retirement, putting them at risk of 

running out of money in retirement. To address these shortfalls participants need to 

understand these risks and know what steps they can take to mitigate them. It is the 

responsibility of plan sponsors and plan providers to ensure participants have access 

to objective advice that will help them choose appropriate investment options while 

also considering retirement income, so that they are not forced into making difficult 

and uninformed decisions at retirement. 

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? 

Participants considering lifetime income annuities should understand it is not always 

necessary, nor required, to use all of one’s retirement savings when buying an 

annuity. Participants should only use enough of their savings to purchase an annuity 

that will provide the necessary level of income to cover basic expenses. 

A common rule used by many financial planners is that retirees will need 80% to 

90% of their pre-retirement income during retirement. Since retirement income may 

result from several sources, before making the decision to purchase an annuity, it is 

important to take inventory of potential income sources and evaluate how much 

each one will contribute toward a retiree’s total income. Typical sources of fixed 

income include Social Security, defined benefit pension plans, employer-sponsored 

defined contribution plans (e.g., 403(b) or 401(k) plans), IRAs, and personal savings. 

Retirees should then create a retirement budget based on current essential and 

discretionary expenses. Some basic expenses would include mortgage and other 

household expenses, transportation, insurance, taxes, and dues. It is also important 
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to take into consideration major lifestyle changes that may affect required income 

such as relocating to an area with a lower cost of living, downsizing a home (or 

buying a second one), or potentially working on a part-time or consulting basis. The 

budget should also consider healthcare costs, an expense that has increased 

significantly in recent years, and will most likely continue to increase in the future. 

Once this information has been gathered, the decision of how much to annuitize can 

be made by looking at the total fixed expenses and the total fixed income and 

determining the gap (or surplus) between the two. The participant then can consider 

purchasing an annuity that will generate enough income to fill the gap. Those who 

have saved more than enough for retirement will have the option of maintaining 

liquidity on a portion of their funds, and should be encouraged to do so. Additional 

thought also should be given to a participant’s health and expected longevity and 

other potential threats to retirement income such as outliving assets, loss of 

purchasing power, and lower than anticipated returns. This process underscores the 

vital role of a financial planner in the retirement planning process and the need for 

individuals to seek out sound financial advice from a reputable firm when making 

important financial decisions. 

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? 

TIAA-CREF supports requiring all defined contribution plans to offer plan 

participants guaranteed lifetime income annuities both during the accumulation 

phase and as a distribution option at retirement. However, we do not believe 

mandating annuitization or defaulting participants into a lifetime income option is an 

effective means of encouraging the use of annuities in retirement. 

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? 

Many plan sponsors are reluctant to include lifetime income options in their plans 

because of the complexity of the products and the education required to enable 

participants to understand the benefits these products afford them from a risk 

standpoint. While some sponsors question participant demand for such products, 

that perception may be more the result of plan participants’ lack of awareness that 

such products may be available, in addition to confusion about the associated 

benefits. 
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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? 

The only product TIAA-CREF generally combines with annuity offerings are mutual 

funds. We do not offer annuities in combination with products such as reverse 

mortgages or long-term care insurance. 

16. Are there differences across demographic groups (for example men vs. 

women) that should be considered and reflected in any retirement security 

program? Can adjustments for any differences be made within existing 

statutory authority? 

There are important demographic and labor force differences between men and 

women. Women have a longer average life expectancy than men. In addition, women 

are more likely to have gaps in employment due to life events and tend to have lower 

accumulated retirement assets. Taken together, these factors suggest that women 

face a greater longevity risk than men and are more likely to outlive their retirement 

resources. 

Annuities can help reduce a woman’s exposure to this risk by distributing longevity 

risk across broad risk pools. However, court decisions have ruled that plans cannot 

differentiate based on gender. 

 

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? 

When making retirement decisions, participants need to be informed about all 

options available in order to make choices that will best accommodate their 

particular situation. We recommend that annuities be a source of retirement income 

for most participants. The size of the annuity depends on a variety of factors 

including family situation, age, health, expected longevity, individual risk tolerance, 

and other sources of income. 

Annuity providers must also ensure participants consider, and are fully aware of, 

fees, commissions, risks, historical returns, financial stability of the company, and 

any other provisions included in the annuity contract. All of this information should 

be provided in the form of printed literature, provider websites, and through direct 
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counseling sessions where employees can receive objective advice either over the 

phone or in person. 

While many participants usually start thinking seriously about these issues as they 

near retirement, ideally the planning process should begin shortly after contributions 

to a plan commence. This is not to say that workers need to be experts in retirement 

income options in their twenties, but they should have a basic understanding that the 

ultimate goal is not necessarily to accumulate wealth, but to ensure a comfortable 

income in retirement. 

One way to increase this awareness early on is to provide participants with a regular 

statement illustrating the income they could expect to receive in retirement based on 

current contributions. (See further comments in answer 21.) 

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? 

Current law allows use of plan assets to provide guidance and information to 

participants concerning plan investment and payout options, including guaranteed 

life annuities. A statement from the DOL should facilitate the use of such 

educational tools for annuities. 

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 stream of income after retirement? 

What actions, regulatory or otherwise, could the Agencies take to address 

such concerns? 

One reason plan sponsors hesitate to provide advice relates to the fiduciary 

responsibility for providing advice. Many plan sponsors lack the expertise necessary 

to educate plan participants on the advantages and disadvantages of annuities. 

General educational materials prepared by the DOL would help mitigate this 

concern, especially if the DOL would take the position that plan sponsors would not 

be liable for distributing materials prepared by the DOL on this subject. In addition, 

the DOL can offer guidelines and templates for insurance companies to provide 

educational materials relating to lifetime income options. 
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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? 

When planning for retirement, participants often focus on accumulating wealth in 

their retirement savings accounts rather than creating a stream of retirement income 

they cannot outlive. Increased education about annuities, including information 

about the advantages and disadvantages of annuitizing, could help reverse this 

thinking and may encourage more plan participants to utilize annuity investments in 

both the deferral and income stages. 

Educational efforts should begin early and continue throughout a participant’s career 

so when retirement age arrives, it is not the first time they are considering retirement 

income. It is important to ensure plan participants become familiar with the concept 

of receiving lifetime income as soon as they start contributing to a retirement plan. 

This should include providing annual illustrations of lifetime income streams based 

on the guaranteed annuity purchase rates and assumptions concerning the growth of 

the participant’s retirement accounts (see our response to question 21). 

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? 

We support current legislation in both the House and the Senate that would require 

providing illustrations of retirement income to all retirement plan participants at least 

annually. 

Today benefit statements are only required to provide participants with their 

accumulations. This has the adverse effect of encouraging individuals to view their 

retirement savings as an amount to be withdrawn at retirement, rather than a sum to 

be used to provide income in retirement. By providing retirement income 

projections on benefit statements, participants become familiar with the concept of a 

lifetime income stream early in the saving and planning process, as opposed to in 

their later years. This will prompt participants to make decisions based on a goal of 

receiving adequate income in retirement, not just building wealth, which result in 

more informed retirement planning decisions. 

TIAA-CREF has already taken the step of providing our participants with this 

valuable information. In addition to a total accumulation, each TIAA-CREF 

participant’s quarterly review statement includes an illustration of retirement income. 
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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? 

When illustrating lifetime retirement income, the assumed start date should be an 

individual’s full retirement age as defined by Social Security and income should be 

simply expressed in the form of monthly payments on a single life annuity basis. The 

statement should drive participants to a more robust illustrative tool where they can 

access more detailed information about the income options available to them upon 

retirement. TIAA-CREF participants have access to such a tool when they login to 

their accounts on our website, www.TIAA-CREF.org. 

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? 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? Should an expense load be 

reflected? 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? Should caveats be required so that participants 

understand that lifetime income payments are merely estimates for illustrative 

purposes? Should the assumptions underlying the presentation of accrued 

benefits as a lifetime income stream of payments be disclosed to participants? 

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? 

Care should be taken not to overwhelm participants while ensuring they have 

enough information to make rational, well-informed decisions. A minimum amount 

of information is necessary to protect participants from unscrupulous vendors and 

protect plan sponsors from fiduciary liability. 

At a minimum, participants need to know: 

 contribution assumptions; 

 interest rate assumptions for accumulating assets; 

 type of annuity being illustrated (e.g., one or two life annuity); and 

 annuity factor being used for distributions. 
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While there may be authoritative sources or tools, we recommend that the DOL 

provide guidelines similar to those used in valuing defined benefit plan liabilities. 

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 pre-retirement 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? 

Including income replacement ratios (IRR) can be helpful but is also problematic for 

products that are not part of an employer-sponsored plan. For example, if assets are 

held in an IRA or rollover account, the plan administrator may not have salary 

information on which to base the IRR. In addition, there are other informational 

requirements of providing an IRR that have the potential to confuse participants, 

such as assumptions on future wage increases. 

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? 

Please refer to our response to question 27. 

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? 

Please refer to our response to question 27.

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? 

The most critical plan qualification rule affecting a DC plan sponsor’s willingness to 

provide for a lifetime income option involves the qualified joint and survivor annuity 

(QJSA) rules under IRC §401(a)(11) and IRC §417, as well as ERISA §205 (with 

respect to §401(a) and §403(b) plans respectively). Certain plans are exempt from the 

QJSA rules provided they satisfy all three of the exemption criteria. IRC 
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§401(a)(11)(B)(iii)(II) (and parallel ERISA section 205) provides that a plan that 

provides a life annuity payment option cannot be exempt from the QJSA rules. 

The extensive notice and waiver requirements that are triggered once a plan is 

subject to the QJSA rules provide an additional layer of administrative complexity, 

costs, and risk for non-compliance and associated corrections. As a result, many DC 

plans are designed to be exempt from the QJSA rules. 

Consequently, many plans will avoid lifetime income options solely to avoid the 

QJSA rules, even if such options may ultimately be beneficial for the participants. To 

make such options viable, the QJSA rules should be amended to provide for a means 

to have annuity payment options available under the plan without triggering all the 

QJSA rules and specified means of payment, while still protecting spousal rights and 

the related policy objectives. One approach would be to maintain the spousal 

beneficiary rules with respect to all forms of payment, including multiple life annuity 

forms, absent a waiver, and to require a spousal consent for a single life annuity form 

of payment that does not include a 50% spousal benefit. 

Another potential remedy is to not apply QJSA rules until a participant elects an 

annuity and then only if the annuity is not a QJSA. This can be accomplished with 

little burden to plan sponsors since insurance companies would be willing to 

administer these rules as part of the annuity contract. 

In addition, liability for the fiduciary decision to offer a particular company’s annuity 

is a disincentive for plan sponsors to offer them. This can be mitigated if the DOL 

were to expand its existing guidelines for choosing an annuity distribution option, to 

address an ongoing annuity contract. 

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? 

Longevity insurance provides retired individuals with an affordable way to protect 

against running out of income if they outlive their life expectancy. In general, a 

longevity insurance contract is an annuity which provides no cash value, provides a 

very limited death benefit (if any), and pays a stream of periodic payments for the 

individual’s life (or the joint lives of the individual and his designated beneficiary) 

commencing late in life. 
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Section 401(a)(9) imposes minimum distribution requirements on employer 

retirement plans and IRAs that provide generally for the distribution of an 

individual’s interest in the arrangement over the life or life expectancy of the 

individual (or over the joint lives or joint and survivor expectancy of the individual 

and a designated beneficiary). Under section 401(a)(9), the individual must take 

required minimum distributions (RMDs) with respect to the plan or IRA that are 

computed based on the individual’s account balance in the arrangement. For this 

purpose, the regulations under section 401(a)(9) provide generally that the account 

balance of an annuity contract prior to the date annuity payments commence is the 

entire interest in the contract, and that the entire interest consists of the contract’s 

cash value and the actuarial present value of any additional benefits provided under 

the contract. 

Under these rules, in the case of a longevity insurance contract held in an employer 

retirement plan or IRA, the required minimum distributions with respect to the plan 

or IRA are calculated taking into account the value of the longevity insurance 

contract. However, since longevity insurance typically has no cash value from which 

distributions can be made, longevity insurance by itself cannot satisfy the RMD rules 

prior to the time the benefit begins. Rather, the longevity insurance contract must be 

held in an account with other liquid assets that can be used to make RMDs. 

However, it is difficult to ensure that there will be sufficient other, liquid assets in 

the plan or IRA to satisfy the minimum distribution requirements. This problem can 

become more serious as the need for longevity insurance increases, i.e., as the 

individual approaches the end of life expectancy. 

This problem can be avoided if the individual’s RMDs can be determined without 

regard to the value of longevity insurance prior to the date annuity payments 

commence. Such a legislative change would not be likely to be too expensive, given 

the long time frames before longevity insurance would begin to pay (typically age 80 

or 85). 

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? Could 

or should any actions be taken to facilitate such arrangements? 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? 

Since TIAA-CREF does not, for the most part, directly administer or fund defined 

benefit plans, we do not have a response to this question. 
25 of 29 

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? 

Fiduciaries are concerned with meeting their responsibilities to make prudent choices 

with respect to annuity distribution options if they offer annuities under their plans. 

For such sponsors, the safe harbor is useful and is followed. (See comment at the 

end of our response to question 27.) 

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? 

We do not have any suggested changes other than extending the safe harbor to 

include annuities in the accumulation phase as well as the distribution phase. 

32. To what extent 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 products should or could the safe 

harbor be extended? 

As discussed in question 27, the safe harbor should be extended to the choice of 

deferred annuities as well as distribution annuities. Such guidance would help 

fiduciaries meet their obligation to prudently choose such annuities. 

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 2550.404c-1) or noncore 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? 

Many of the institutions funding their plans with TIAA-CREF annuities are 

participant-directed ERISA section 404(c) plans. TIAA-CREF contracts generally 

have 10 annuity choices, most of which can function as “core funds” under the 

ERISA section 404(c) regulations. This includes the TIAA Traditional Annuity and 

our nine variable annuity accounts. Under many of our contracts, however, the 

TIAA Traditional Annuity cannot function as a “core” fund due to certain 

limitations on lump-sum cash withdrawals. 
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TIAA-CREF annuity accounts provide a number of advantages to plan participants 

including: 

 access to a broad range of internally diversified investment options with 

materially different risk and return characteristics that enable each participant 

to achieve a diversified retirement portfolio at any point within the range 

normally appropriate for each participant; 

 access to the TIAA Traditional Annuity, which offers safety of principal and 

interest backed by TIAA’s claims-paying ability; 

 each premium allocated to the TIAA Traditional Annuity buys a definite 

amount of lifetime income for participants based on the rate schedule in 

effect at the time the premium is paid and is designed to enable participants 

to provide for guaranteed lifetime annuity payouts throughout their working 

careers; and 

 access to the TIAA-CREF variable annuity accounts, which are priced to 

compete with mutual funds and have an excellent record for competitive 

returns in both the accumulation and pay-out phases. 

TIAA-CREF has developed extensive disclosure materials that fully explain these 

annuity options and enable the plans sponsored by our participating institutions to 

meet the disclosure requirements under the ERISA section 404(c) regulations. These 

include product prospectuses and detailed marketing and disclosure materials in both 

print and through the TIAA-CREF website. 

 

The 404(c) regulations do not favor or disfavor lifetime annuities, do not encourage 

plans to offer them, and do not focus on the pay-out phase of a participant’s career. 

The regulations could be amended to mandate life annuity options in section 404(c) 

plans under which a participant cannot outlive his or her income. As mentioned 

earlier in our responses, the primary purpose of these plans should be to provide 

income throughout a participant’s retirement as opposed to encouraging 

accumulation of a lump sum that could be withdrawn in retirement. TIAA-CREF 

would certainly support such a change. 

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? 

Most TIAA-CREF-funded plans are individual account plans and many of them are 

ERISA 404(c) plans. All of these plans are funded, to some extent, by fixed and 

variable annuities. TIAA-CREF contracts fund some 15,000 plans covering more 

than 3.6 million plan participants. 
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35. To what extent are plans using default investment alternatives that include 

guarantees or similar lifetime income features ancillary to the investment 

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? 

 

TIAA-CREF offers mutual funds that are Qualified Deferred Investment 

Alternatives (QDIAs) as well as annuity contracts that offer variable funds meeting 

the QDIA requirements. The mutual funds are the more popular option because that 

is what most plan sponsors are accustomed to using. None of the TIAA-CREF 

variable annuities offer minimum guarantees. The DOL has concluded that 

guaranteed contracts cannot be QDIAs and only our guaranteed annuities offer 

guaranteed annuity purchase rates and minimum guarantees. 

36. What are the costs and benefits to a plan sponsor of offering lifetime annuities 

or similar lifetime income products as an in-plan option? Please quantify if 

possible. 

TIAA-CREF believes there are numerous benefits to a plan sponsor offering 

annuities in a retirement plan investment menu. The following list outlines some of 

those benefits. 

 Peace of Mind. For employees, annuities can smooth the transition from 

the working years into retirement and provide individuals with not only a 

regular paycheck, but also the peace of mind that comes with knowing they 

will not outlive their retirement income. 

 Distinction. Offering low-cost annuities within the plan distinguishes it as a 

retirement plan versus a simple investment program. 

 Plan Measurement. Annuities help ensure employees will not outlive their 

income and employers can set goals for income replacement that can be 

measured in terms of monthly income. 

 Awareness. Participants need to think about their retirement income needs, 

and the presence of annuities helps increase awareness of income, which 

leads to more effective retirement preparation. 

 Ease of Transition. The presence of annuities in a plan creates a more 

streamlined annuitization process for the participant, whose accumulation is 

readily converted to lifetime income, so he or she does not need to take a 

distribution from the plan and separately buy an annuity. 

 Workforce Management. Having an annuity as a plan option may assist in 

transitioning workers into retirement since it offers a guaranteed, lifetime 

income stream (or retirement paycheck) that cannot be outlived. 
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In terms of costs to a plan sponsor, annuities can be an excellent choice for the plan 

if offered by a low-cost, high-quality provider. The fees charged for TIAA-CREF 

variable annuity accounts and mutual funds are generally half the mutual fund 

industry average.8 For example, as of January 1, 2010, the total estimated expense 

charges associated with the CREF variable annuity accounts vary from 0.415% to 

0.510%, which includes administrative, investment and distribution charges and a 

small mortality and expense (M&E) charge. The total estimated expenses for the 

TIAA Real Estate Account are 1.01%.9

These considerations become especially powerful when the purpose of the plan is to 

provide adequate retirement income to participants, not just to help them 

accumulate wealth. In a true retirement income plan, annuities help a defined 

contribution plan sponsor meet its fiduciary obligation to consider the best interests 

of all participants, including those who have reached payout status. 

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? 

TIAA-CREF makes annuities available to all of our institutional clients, including 

small plans. While the pricing and service model differs from larger plans, it is 

common for these small plans to provide affordable annuity options so that plan 

participants have access to guaranteed, lifetime income. 

38. Would making a lifetime annuity or other lifetime income product the default 

form of benefit payment have an impact on employee contribution rates? If 

so, in which direction and why? 

Rather than defaulting participants into an annuity at retirement, TIAA-CREF 

supports requiring that guaranteed lifetime income annuities be offered in all defined 

contribution plans during the accumulation phase and as a distribution option at 

retirement. As discussed previously, we believe that this would allow plan sponsors 

and providers the opportunity to educate participants on the benefits of annuities 

early on, as opposed to at the time of retirement, which appears to be the ultimate 

goal of default annuitization proposals. Given that default annuitization proposals 

have not come to fruition and have not been tested, it is difficult to determine the 

impact this could have on employee contribution rates, but we feel it would likely 

 

8 Morningstar Direct (December 2009) based on Morningstar expense comparison by category. This applies to variable annuities and mutual 

fund expense ratios. 

9 For the CREF accounts and TIAA Real Estate Account, annual expenses are estimated based on projected expense and asset levels. 

Differences between the estimated and actual expenses are adjusted quarterly and reflected in the current investment results. Note that 

expense charges for the TIAA Real Estate Account and CREF are “at cost,” in accordance with TIAA-CREF’s nonprofit status.
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deter certain employees from saving for fear that they would lose control of their 

accumulation at retirement. 

39. For plans that offer lifetime annuities or similar lifetime income products, 

what percentage of eligible workers elect to annuitize at least some of their 

retirement assets and what percentage elect to annuitize all of their assets? 

In recent years TIAA-CREF has found that approximately 30% of those who begin 

an income stream will choose to annuitize some portion of their assets. 

Approximately 17% of those beginning an income stream choose to fully annuitize. 

Those partially annuitizing often use other income options offered by TIAA-CREF 

to complement their lifetime income choice.