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April 27, 2010 

Department of Labor and Department of the Treasury 

Re: RIN 1210 – AB33 

Request for Information Regarding Lifetime Income Options for Participants and 

Beneficiaries in Retirement Plans. 

These comments are submitted by Anna M. Rappaport, FSA, MAAA. These comments 

represent my personal views and do not reflect the views of any group that I am currently 

or have been affiliated with. Information about me is included as Exhibit A. 

First, I wish to commend the Department of Labor and the Department of the Treasury for 

issuing this Request for Information. These issues are complex and particularly important 

to individuals who have only DC plans. 

In an article in Employee Benefits quarterly, and in testimony presented to the ERISA 

Advisory Council in September 2009, I made the recommendations attached as Exhibit B 

to this letter. I also testified to the ERISA Advisory Council on Spend Down of Defined 

Contribution Assets in Retirement in 2008 and have written two papers on this topic for the 

Society of Actuaries Retirement 20/20 project. I am happy to supply any of these 

documents to the Departments. 

 I believe that the Departments will receive many comments, and I want to focus this letter 

on several issues of particular importance that may get less attention: 

Defaults and the RMD—I believe that many individuals view the RMD as a 

recommended default and that it de-facto is the default for payout of many individuals’ 

IRA and 401(k) funds. This is more likely true for people with more money who are 

interested in keeping funds tax deferred as long as possible. 

However, in many cases, the RMD does not work to serve the financial security needs of 

middle Americans. If we assume that the amounts withdrawn are spent in the year of 

withdrawal, the RMD will not work well to preserve financial security in scenarios where 

investment returns are low and people live long. In such cases, it will result in funds being 

used too early. The RMD also is in conflict with plans to preserve IRA funds to help pay 

for long-term care, because long-term care costs often occur later and can be very large in 

years where a lot of help is needed. 

We have learned from auto-enrollment and investment defaults that defaults can also have 

a powerful influence of what people decide to do. We have also learned from the 

experience with DB defaults where lump sums are available that people do not simply 

accept defaults at the time of distribution of plan funds. I believe that we need to have safe 

harbors for distribution defaults including timed purchase of life income, and that the 

RMD needs to be restructured or eliminated. I hope that the permitted defaults might also 

include a broader range of risk protection options. 
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Creating expectations that plan benefits should generate life income—DC plans may 

be primary or supplemental. For primary plans, I believe that it is very important to build 

expectations that plan funds are designed to generate income replacement. At the same 

time, there are big trade-offs underlying the choices and they link to personal 

circumstances. I am in favor of strongly encouraging messages and using framing linked 

to the role of primary DC plan funds in producing life income, and in offering safe harbors 

for the illustration of life income. 

Use of 401(k) funds (and other defined contribution plan benefits) for risk 

protection—there are several types of risk protection that are potentially desirable for 

retirees: 

 Longevity protection—this can be provided through different approaches including 

traditional annuities and annuities that provide payouts starting at a high age (such 

as 85) that cover the long life risk, but allow freedom of investment of most funds 

earlier on. Payout arrangements for funds that spread the money out but do include 

lifetime guarantees are approaches to planning for life income but without a 

guarantee, and they can be combined with annuities that start at a very high age. 

 Longevity protection can extend to spouses with joint and survivor annuities 

 Death benefits to protect surviving spouses, children and others who are dependent 

on the individual 

 Long-term care financial planning and protection—long-term care insurance can 

provide partial protection as can savings generally. Use of longevity insurance, 

deferred life annuities starting at ages such 80 or 85, does not provide direct longterm care protection, but it helps individuals with more money at the ages where 

they are most likely to need such protection. There are various features and forms 

of long-term care insurance, and in some cases, long-term care benefits are 

combined with life annuities or early payout of death benefits. 

 Supplemental health coverage 

I believe that an additional discussion is needed to look at enabling the offering of a 

broader range of risk protections from 401(k) plans. I would then hope that the 

marketplace would provide to employers the chance to offer such options through group 

purchasing, and that would enable participants to get risk protection on a more 

advantageous basis than on their own. Such offerings could be provided directly by plans 

or through an IRA with institutional pricing. I would recommend enabling these offerings 

and not mandating them. 

I see this as particularly important, because this would also enable integrated ways to think 

about risk protection in the longer run. 

Timed purchase of annuities and risk protection—it is important that individuals who 

wish to have annuity and other risk protection options have a long period of time to make 
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the decision. Furthermore, it is very desirable to be able to make purchases in steps over 

time. If plans are allowed to offer a range of risk protection choices, they should also be 

able to accommodate timed purchases. 

Combination products—question 15 focuses on combination products. I believe that 

products that combine life income with some long-term care protection have great potential 

advantages: 

 Anti-selection and underwriting problems in the purchase of either product are 

greatly reduced, since people who expect to live long have incentives to buy 

annuities and those who expect health problems may be more focused on long-term 

care coverage. 

 They help people with limited resources balance risk protection. 

 They should be more economical than separately purchased products, and few 

people purchase both types of products. 

I have talked with individuals who have attempted such products on several occasions and 

understand that they have not done well. Some of the reasons are legal complexity and a 

distribution system that requires specialists in long-term care and in life income, but few 

people are very focused on both. Also, many members of the public are not very focused 

on longer-term risk protection products. 

Both sets of products have many choices of features and they are not easy to understand 

unless you specialize in the area. Allowing such risk protection in qualified plans, and 

developing education and a regulatory structure that would make it easier for plan 

beneficiaries to understand the options, would greatly enhance the chances of success. 

Aligning 401(k) and IRA requirements—While 401(k) plans are the major employer 

sponsored DC vehicle, many people have multiple jobs, and their 401(k) money is rolled 

over into IRAs before being used to help support their retirements. The actions taken 

should support better use of retirement funds whether they are used directly from the 

401(k) or rolled over before use. 

Tax Incentives—Tax incentives should encourage the use of qualified plan funds and 

IRAs for lifetime income and discourage the use of lump sum payments which can be 

spent in a single year. 

Thank you again for asking for public comments on these topics. I would be happy to 

answer questions on the comments. 

Sincerely, 

Anna M. Rappaport 
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Exhibit A 

Anna Rappaport, FSA, MAAA 

Anna Rappaport is an actuary, consultant, author, and speaker, and is a nationally and 

internationally recognized expert on the impact of change on retirement systems and 

workforce issues. She is passionate about creating a better future for older Americans and 

improving the retirement system in America, and she is particularly concerned about the 

many women who do not fare well at older ages. She testified on some of the matters 

raised by the RFI at the ERISA Advisory Council in 2008 and 2009. She also submitted 

papers to the Society of Actuaries Retirement 20/20 Project on the Distribution Period. 

Anna Rappaport chairs the Society of Actuaries Committee on Post Retirement Needs and 

Risks and has been a leader in the development of an extensive set of research on the postretirement period. She was appointed to the ERISA Advisory Council in 2010 and will 

serve from 2010 to 2012. Anna formed Anna Rappaport Consulting in 2005 after retiring 

from Mercer Human Resource consulting at the end of 2004 having served 28 years with 

the firm. She was appointed Senior Fellow on Pensions and Retirement by the Conference 

Board in 2007. Anna completed 45 years as a Fellow of the Society of Actuaries in 2008 and 

has a Master’s of Business Administration from the University of Chicago. Anna previously 

served as President of the Society of Actuaries and serves on the Boards of the Women’s 

Institute for a Secure Retirement (WISER), and the Pension Research Council. She currently 

serves on the GAO Retirement Security advisory panel, the Retirement 20/20 advisory group, 

and the EESI advisory group. She is a member of the Chicago Network, an organization of 

the top women in Chicago from all walks of life. 

For more information about Anna Rappaport, see www.annarappaport.com. 
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Exhibit B 

Looking at the future: The author’s recommendations for the payout periodi

 Rethink default distribution options in DB and DC plans—While DB plans pay 

income, today lump sums are the common default in DC plans, and life income 

options are often not available. While there has been a great deal of innovation in 

plan design over past decades, there has not been much innovation in payout 

management. Open up new possibilities for options and defaults. Public 

discussion is needed to reach consensus on what should be allowed, what should be 

required, and what should be protected in a safe harbor. 

 Enable use of DC funds for risk protection—Change DC regulatory structure so 

that 401(k) funds could be a retirement risk protection account, and after 

retirement, balances could be used to purchase a variety of risk protection options, 

either through the plan or through employer offerings on an advantageous basis. 

Some of the choices should include lifetime income with survivor protection, with 

or without inflation protection, supplemental health insurance, and long-term care 

benefits. 

 Restructure or eliminate RMD requirements—as they exist today, RMD 

requirements often become the DC distribution default, and they can be a barrier to 

guaranteed life income and other desirable distribution options. 

 Explaining trade-offs—It is clear that many individuals do not make well-informed 

choices about their retirements and the management of money post-retirement. The 

trade-offs involved in the choice of a strategy are extremely important, and not easy 

to understand. Better information is needed for all concerned about the range of 

options available and the trade-offs implied by choices. It should also be 

remembered that some choices are irrevocable when made, while others can be 

changed later. 

 Encourage communication focused on life or at least long-term income. It is 

important to focus on pension resources as the path to income in retirement. The 

plan, the information communicated to the participants, and supporting resources 

all provide signals that can focus the participant toward or away from regular 

income. 

 Unify and rationalize the regulatory environment—while this paper is not about 

regulation, it is clear that good ideas will not work without a reasonable regulatory 

environment. With pensions regulated in the U.S. by the IRS, DOL, PBGC, FASB 

and sometimes the SEC, and annuities regulated by state insurance departments and 

sometime the SEC, there is a huge mass of complicated regulations that govern 

annuities and pensions. In addition to regulating the employer and the financial 

services company, income tax rules impact when it is attractive to use a risk 

protection product and when not. They complicate what would otherwise be 

rational strategies. Unified and balanced regulation would be important to opening 

the way for simple and logical solutions. 
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 Facilitate group purchasing of financial products for voluntary purchase to enable 

employees to get a better deal and be assured that the design and provider of the 

product has been subject to due diligence. If an employer does not want to offer 

group purchase of annuities directly, it can work with a third party and use of an 

Individual Retirement Account to hold funds until the annuity is purchased. 

 

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 These recommendations were included in testimony to the ERISA Advisory Council in September, 2009