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Testimony on Lifetime Income Issues 

Joint Hearing before the U.S. Department of Labor (EBSA) and the U.S. Treasury Department (IRS) 

Edmund Murphy 

Director, Defined Contribution Services 

Putnam Investments 

September 14, 2010 

Good afternoon, my name is Edmund Murphy, and I lead the defined contribution workplace savings business for 

Putnam Investments in Boston Massachusetts. Thank you for inviting us to testify. 

I want to begin by applauding regulators and policy-makers in Congress for the continued emphasis we’re seeing 

on vitally important retirement security issues, notably the recently introduced legislation to provide automatic IRA 

coverage for millions more American workers – which we strongly support -- and this hearing itself, which reflects 

the very timely focus by DOL and Treasury on lifetime income policy issues. 

At Putnam, we believe that providing for future income is the prime rationale for all forms of tax-deferred 

retirement savings, notably defined contribution plans, which have become the primary source of most American 

workers’ future retirement income. 

Yet this central goal – lifetime income – which was a key focus of most defined benefit plans -- has too often been 

obscured by an emphasis in most defined contribution plans on total account balances, asset allocation and 

investment options. These are all important metrics – and should be readily available to workplace savers. But we 

believe that the primary focus – or framing -- of workplace savings should change to emphasize the true goal 

workers are aiming for: lifetime income. 

Workers should be enabled to see their job-based retirement savings plan through a “lens” that offers them a clear 

understanding of their account’s potential for generating reliable income for life. They should also be enabled to 

understand – intuitively – the actions they can take to increase their retirement income potential and the costbenefit trade-offs of taking such actions. 

With those ends in mind, Putnam this January introduced a new Lifetime IncomeSM Analysis Tool. that sponsors of 

the workplace savings plans we administer can use with their participants. 

This online tool provides workplace savers a new – and very different experience. It shows them – as the first 

information displayed – an estimate of their projected monthly retirement income needs – expressed in current 

dollars – compared with the potential monthly retirement income they are on track to create in their workplace 

savings plan based on current balances, their current deferral rates and asset allocation choices and their projected 

retirement date. 

The tool thus enables plan participants to get a sense of whether they are on track to maintain their current 

lifestyle once they stop working – or will likely fall short. To make the analysis richer, the tool also allows 

participants to include projected Social Security income in these estimates, factor in other non-plan financial assets 

such as bank CD’s or Individual Retirement Account balances and calculate how these flows and assets impact their 

potential income at retirement age. Participants can also see – clearly – how much of their future income will derive 

from any matching funds their employer may provide – a feature that makes this often invisible benefit highly 

visible. 

Most importantly, the tool has a bias for action. That is because it has three sliding tabs that enable participants to 

alter their deferral rates or their projected retirement age or their asset allocation mix – and immediately see the 

impact of that change – measured in terms of future income potential. The tool also suggests a projected “next 

step” – a prescriptive recommendation on an action most likely to close any income gap their interaction has 

disclosed. One further click of the mouse and participants can immediately change their current deferral rate, their 

asset allocation or their projected retirement age. 

Through this site’s basic design, then, the “lens” through which participants view their workplace savings has been 

changed – significantly. I would note that traditional balance and asset allocation data is readily available to 

participants. But that data it is not primary. Instead, a lifelong income planning perspective is the first “view” 

participants see – along with suggestions for action to close any income gap. They are thus “educated” – 

persistently and simply – to measure their progress in terms of future income replacement, rather than only by raw 

asset accumulation. 
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Putnam’s initial experience with this process strongly suggests that this new “view” does, in fact, influence 

participants’ savings behavior. We are actually seeing a phenomenon that few of us in the retirement services 

world thought we would ever see -- impulse savings. 

Preliminary data shows that of participants who visit the web and use the Lifetime Income Analysis Tool (that is, 

actually move the tabs to model scenarios using the sliders) roughly one third submit a change in deferral rates 

immediately. Four out of five participants – over 80% -- choose to lift their savings rates by an average of more 

than two full percentage points – from 6.1% before their site visit to 8.6% after. This result is a real breakthrough 

– a degree of change that is rare, almost unheard of, from traditional communications and education efforts. It 

suggests that if you give participants a clear, easy-to-act on understanding of the trade-off between higher 

deferrals today and higher income in retirement – many of them will act, immediately. 

This data comes from analysis of aggregate behavior by plan participants in July and August of this year – amid 

sluggish economic growth -- and at a time when some industry surveys showed substantial increases in hardship 

withdrawals from workplace plans. I would note that the data I’ve cited reflects behavioral changes we’ve observed 

only in connection with participants’ voluntary, individual use of the Lifetime Income Planning Tool. Supplemental 

educational efforts in the workplace – even just e-mail reminders for participants to check up on their progress – 

might well produce even more striking change. 

As a veteran of an industry that has struggled for many years to raise deferral rates, I find this initial data on the 

impact of offering participants a clear, easy-to-act-on “income view” to be very, very encouraging. 

To make an income “view” an effective motivator, however, it is vital that financial service providers be permitted 

to calculate estimated future income potential based not just on current account balances, but on contribution rates 

and potential asset appreciation to some future retirement age. 

Expressing a participant’s progress in terms of their account’s immediate lifetime income-generating potential could 

actually undermine confidence and de-motivate savers. Such an approach – immediately converting current 

balances into the lifelong annuity income they could purchase right now -- could be perversely discouraging for 

younger employees with small balances – and would, in fact, vastly understate the future income potential they are 

on track to achieve at retirement age. 

We believe that participants should have access to full disclosure of the methodologies used in calculating their 

future income needs, the income potential their savings plan are projected to have at retirement age – and all 

other elements that go into providing good faith estimates of how they are faring. We do present this information 

on our website. We also provide clear disclosure language to ensure that participants understand that there is 

uncertainty associated with these projections and that it is their responsibility to visit their plan at least annually in 

order to accommodate changes in the market as well as changes in their own financial situation. 

In terms of long-term policy impact, my sense is that participants who learn to interpret their workplace savings 

through the “lens” of their future income potential will be much more willing as they approach retirement age to 

consider products and services designed to convert their balances into lifetime income streams. This kind of 

experience-based “education” can – and should – be supplemented over time by traditional communications and 

information to participants about the benefits and trade-offs inherent in either annuity or non-annuity lifetime 

income products and strategies. 

Regulatory and policy action that encourages financial service providers and plan sponsors to emphasize an 

“income” view of workplace savings could help speed the adoption of such an approach – and begin changing 

workplace savers’ mindset about their goals. 

We would also support efforts to offer plan sponsors and advisors a strong legal safe harbor for advocating or 

adopting plan design elements that emphasize a lifetime income “view” or for offering participants education and 

guidance to appropriate lifetime income products and strategies. Experience with the uptake of key features of the 

Pension Protection Act of 2006 suggests that with clear legal guidance and safe-harbor protection, effective plan 

design “best practices” such as auto-enrollment, savings escalation and guidance to qualified default options can 

spread very swiftly. Absent such protections, progress can be glacial. 

Thank you for listening. 
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