S. HRG. 111–762 

THE RETIREMENT CHALLENGE: MAKING SAVINGS 

LAST A LIFETIME 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

WASHINGTON, DC 

JUNE 16, 2010 

Serial No. 111–19 

( 

Printed for the use of the Special Committee on Aging 

THE RETIREMENT CHALLENGE: MAKING SAVINGS LAST A LIFETIME 

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61–707 PDF 2010

S. HRG. 111–762 

THE RETIREMENT CHALLENGE: MAKING SAVINGS 

LAST A LIFETIME 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

WASHINGTON, DC 

JUNE 16, 2010 

Serial No. 111–19 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

BILL NELSON, Florida 

ROBERT P. CASEY, Jr., Pennsylvania 

CLAIRE McCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

MARK UDALL, Colorado 

KIRSTEN GILLIBRAND, New York 

MICHAEL BENNET, Colorado 

ARLEN SPECTER, Pennsylvania 

AL FRANKEN, Minnesota 

BOB CORKER, Tennessee 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

GEORGE LeMIEUX, FLORIDA 

ORRIN HATCH, Utah 

SAM BROWNBACK, Kansas 

LINDSEY GRAHAM, South Carolina 

SAXBY CHAMBLISS, Georgia 

DEBRA WHITMAN, Majority Staff Director 

MICHAEL BASSETT, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1 

Opening Statement of Senator Susan Collins ....................................................... 2 

PANEL I 

Statement of Honorable Phyllis C. Borzi, Assistant Secretary of Labor, Employee Benefits Security Administration, U.S. Department of Labor .............. 4 

Statement of J. Mark Iwry, Senior Advisor to the Secretary of the Treasury 

and Deputy Assistant Secretary (Tax Policy) for Retirement and Health 

Policy, U.S. Treasury Department ...................................................................... 17 

PANEL II 

Statement of Ted Beck, President and Chief Executive Officer, National Endowment for Financial Education ....................................................................... 31 

Statement of Kelli Hueler, Founder and Chief Executive Officer, Hueler Companies .................................................................................................................... 43 

Statement of William J. Mullaney, President, U.S. Business, Metlife, Representing the American Council of Life Insurers .............................................. 60 

Statement of Lisa Mensah, Executive Director, Aspen Institute Initiative 

on Financial Security ........................................................................................... 91 

APPENDIX 

Mr. Iwry’s Responses to Senator Kohl’s Questions ............................................... 105 

Statement from the American Academy of Actuaries .......................................... 107 

Statement from Certified Financial Planner Board of Standards, Inc. .............. 130 

Testimony of Amy Matsui, National Women’s Law Center ................................. 145 

Testimony of Leonard M. Glynn, Managing Director, Policy Putnam Investments ..................................................................................................................... 155 

Statement from World at Work .............................................................................. 163 

Testimony submitted by AARP .............................................................................. 165 

Statement by Thomas Bartell, Americans For Secure Retirement ..................... 181 

Testimony submitted by Brian K. Atchinson, President and CEO Insurance 

MarketPlace Standards Association ................................................................... 185 

Testimony of Catherine J. Weatherford, CEO and President, Insured Retirement Institute ...................................................................................................... 187 

Statement of the Investment Company Institute ................................................. 194 

Statement from Retirement Solutions, LLC .......................................................... 223 

Statement from the American Benefits Council ................................................... 229 

Testimony of Jessica R. Flores, Managing Partner Fiduciary Compliance Center, LLC ................................................................................................................. 239 

Written Testimony Provided by: American Agriculture Movement, Federation 

of Southern Cooperatives, National Latino Farmers and Ranchers Trade 

Association, National Association of Farmer Elected Committees and 

Women Involved in Farm Economics ................................................................. 242 

Statement from The American Council of Life Insurers, ..................................... 245 

Written Testimony from Retirement Income Industry Association ..................... 274 

(III) 

(1) 

THE RETIREMENT CHALLENGE: MAKING 

SAVINGS LAST A LIFETIME 

WEDNESDAY, JUNE 16, 2010 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:06 p.m., in room 

SD–562, Dirksen Senate Office Building, Hon. Herb Kohl (chairman of the committee) presiding. 

Present: Senators Kohl [presiding], Franken, and Collins. 

OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN 

The CHAIRMAN. Good afternoon to one and all, and we thank you 

very much for being here. Our hearing today is the start of a legislative debate about how we can help Americans make their retirement savings last a lifetime. So far the focus of most of our education efforts have been on encouraging people to save, but we’ve 

done very little to help the average retiree make the difficult 

choices about how to make their savings last. 

Our goal is to find ways to ensure retirees have access to lifetime 

income options that provide adequate consumer protections at a 

reasonable cost. It goes without saying that the most important 

source of retirement income is Social Security. This committee has 

long been an ardent supporter of the program and we recently released a report on the various ways it can be fortified for coming 

generations. With modest tweaks, we will be able to improve solvency and strengthen benefits for those who rely on Social Security 

the most. 

The pension landscape has changed considerably over the past 

several decades, with defined contribution savings plans replacing 

defined benefit plans, which provided individuals with a payment 

throughout their retirement. While individuals have more control 

of their finances under this new system, they do face complicated 

investment choices. Now when individuals retire they have a plot 

of savings—I’m sorry—a pot of savings and must choose how to use 

it over time. 

With Americans living longer, the stakes are high for not adequately managing one’s savings. Unfortunately, the vast majority 

of people have to make these difficult decisions on their own, as 

fewer employers provide their retirees with lifetime income options. 

According to Hewitt Associates, only 14 percent of defined contribution plans offer annuities and only 1 percent of the covered participants invest in them. 

2 

We need to provide employers with more guidance, more tools, 

and more protection to encourage them to offer a range of options 

to their employees. We also need to better educate workers to understand their choices. Senators Bingaman, Isakson, and myself recently introduced the Lifetime Income Disclosure Act, which would 

require 401(k) statements to show account holders how much their 

balance would pay out if they were annuitized. 

However, while annuities may be the right fit for some, they can 

also be highly complex and in the retail market they have often 

been associated with aggressive sales tactics. I’m pleased to have 

worked with the National Association of Insurance Commissions on 

improving the suitability standards and the use of professional titles in selling annuities. As with other retirement instruments, we 

are dedicated to ensuring that all fees associated with annuities 

are disclosed and that they are competitively priced and also that 

consumers are fully educated about the risks and the opportunities 

of these products. 

I’m also encouraged by the recent innovations in the financial 

services industry to develop new products that will help retirees 

manage their savings. This is a rapidly developing area and we 

want to encourage employers to consider offering such products to 

meet their workers’ needs. However, we must also ensure that 

these products have adequate regulation that provides consumer 

protections and fosters a competitive, low fee market. 

With all the talk today about encouraging options, I want to be 

clear that no one should be forced to purchase a lifetime income 

product. I will not support any kind of mandate for consumers because we recognize there is a wide range of circumstances and 

need. When it comes to retirement, there is no one size fits all. Instead, our aim with this hearing and through legislation is to create an environment where participants have the option of investing 

in a stable product that best fits their needs at a fair price. 

So we’re pleased that you’re all here today and I’d like now to 

turn to Senator Susan Collins, who would like to make a statement. 

OPENING STATEMENT OF SENATOR SUSAN COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. 

Let me begin by thanking you for scheduling this hearing today 

on the all-important subject of retirement savings. When we think 

about the coming demographic shock of millions of baby boomers 

reaching retirement age, usually we who are involved in public policy focus on the economic challenges facing Social Security, which, 

as the chairman pointed out, remains the most critical component 

of retirement income for many Americans. 

We do not spend nearly the amount of time that we should in 

considering how changes in the way that Americans build their retirement nest eggs and how they spend those assets after they stop 

working affect their ability to remain financially secure throughout 

their retirement years. For that reason, I commend the chairman 

for focusing on that issue today. 

All of us are familiar with the dramatic shift that has occurred 

in recent years away from defined benefit plans toward defined 

contribution plans. Three decades ago, nearly two-thirds of those 

3 

Americans who participated in a pension plan received defined benefit. Now, however, nearly two-thirds participate only in a defined 

contribution plan. It’s completely reversed. 

Those defined contribution plans have many positive features, 

but they can make retirement planning especially challenging in 

times of stock market volatility. The decline in the market in 2008, 

for example, reduced total assets held by defined contribution plans 

by $1.1 trillion, nearly 28 percent, and all of us know seniors who 

were planning to retire and could not because of the drop in the 

value of their defined contribution plan. 

While much of that loss fortunately has since been recovered, the 

recent economic crisis underscores how important it is that Americans approaching retirement or in retirement diversify their assets 

and engage in financial planning that is appropriate to their longterm needs. 

This issue is tremendously important. Without better planning, 

millions of American workers will be facing retirement years that 

are anything but golden. This is particularly true given the demographics of the next few decades, when the tidal wave of retiring 

baby boomers will be imposing unprecedented burdens and challenges for both the Social Security System and for private pensions. 

So again, Mr. Chairman, thank you for calling this important 

hearing. 

The CHAIRMAN. Thank you very much, Senator Collins. 

At this time we’ll turn to the first panel. Our first witness on the 

first panel today is Phyllis Borzi, the Assistant Secretary of the 

Employee Benefits Security Administration at the Department of 

Labor, where she oversees the administration, regulation, and enforcement of Title 1 of ERISA. Previously Ms. Borzi was a research 

professor at George Washington University Medical Center and 

served as pension and employee benefit counsel for the House Committee on Education and Labor. 

Then we’ll be hearing from Mark Iwry, a Senior Advisor to the 

Secretary of the Treasury and the Deputy Assistant Secretary for 

Retirement and Health Policy. Previously Mr. Iwry was a senior 

fellow at the Brookings, and he also served as the benefit tax counsel at the U.S. Treasury Department, where he was responsible for 

tax and regulations relating to tax-qualified pensions and 401 

plans. 

We welcome you both and we will take your testimony now, 

starting with you, Ms. Borzi. 

4 

STATEMENT OF HON. PHYLLIS C. BORZI, ASSISTANT SECRETARY OF LABOR, EMPLOYEE BENEFITS SECURITY ADMINISTRATION, U.S. DEPARTMENT OF LABOR 

Ms. BORZI. Thank you, Chairman Kohl. Good afternoon, Senator 

Collins, Senator Franken. Thank you so much for inviting me to 

discuss the Department of Labor’s activity regarding lifetime income options for participants and beneficiaries in retirement plans. 

I’m Phyllis Borzi, the Assistant Secretary of Labor for the Employee Benefits Security Administration. I’m proud to represent the 

Department, EBSA, and its employees. We work diligently to protect the security of retirement and other employee benefits for 

America’s workers, retirees, and their families. 

The administration shares the committee’s interest in examining 

policies to help America’s workers manage their retirement savings 

to last a lifetime. Workers both need and deserve an opportunity 

for a dignified and secure retirement. As you know, today the risks 

for retirement security have largely shifted onto the shoulders of 

American workers. Workers are living longer, baby boomers are beginning to retire in larger numbers. We need to explore what we 

can do to ensure that workers have the information and the tools 

they need to both accumulate adequate retirement savings and 

make those savings last a lifetime. 

To that end, the Departments of Labor and the Treasury published a request for information in order to start a dialog around 

the challenges and issues facing today’s workers at retirement. The 

RFI asks a number of questions that are generally organized into 

categories under which we may decide to provide additional guidance in the future. The responses to the RFI will inform our analyses of a wide variety of issues relating to the offering and selection of lifetime income products. 

We’re committed to exploring what can be done through interpretation, regulation, and legislation to address these issues. 

For the remainder of my testimony, I just would like to discuss 

a number of important considerations that have been raised in the 

comments and the next steps we’re considering. I’m extremely 

pleased that the RFI has generated so many thoughtful responses 

with so many different perspectives. We’ve received nearly 800 

public comment letters. As a general overview of the types of commenters, we received more than 600 letters from ordinary citizens 

and approximately 10 more comment letters from organizations 

such as labor organizations, consumer groups, representing workers, retirees, and plan participants. Approximately 40 of our comment letters are from representatives of the financial services industry, including insurance companies, investment companies, and 

banks. About 30 letters are from plan service providers, including 

third party administrators, recordkeepers, actuaries, consultants, 

lawyers. About ten more are from representatives of employers, 

plan sponsors, plan administrators. Of course, approximately ten 

comment letters are from government officials and members of academia. 

We’re still in the process of reviewing these letters and, even 

though we haven’t finished analyzing all of them, I can certainly 

make a few observations about their contents today. We have received a number of comment letters from individuals who are very 

5 

concerned that this RFI is the first step in a government plan to 

take over workers’ 401(k) plans or to mandate that they invest 

their retirement savings in government-sponsored retirement products or treasury bonds. 

Of course nothing could be farther from the truth. We do not 

support a government takeover of private retirement plans. I’ve repeatedly and publicly said that the RFI is merely intended to start 

a national dialog about the question of whether a lifetime income 

stream is a good thing and, if it is, whether and how the Department can facilitate access to and use of lifetime income streams. 

Now that we’ve begun analyzing the comment letters, I’m even 

more convinced that this is an important discussion worth having. 

Even though it’s still early in our review process, many of the commenters believe that the government can and should do more in 

this area. On the other hand, others disagree that there is a problem at all. 

Perhaps the biggest area of disagreement among the commenters 

centers on whether employers should be required to provide workers with an option of a lifetime income distribution. Far less disagreement occurs, of course, on whether or not there ought to be 

additional educational incentives. Many commenters believe that 

the interest of participants as a whole will be best served by educating employers and workers on the benefits and features of lifetime income, so they’ll better be able to make choices on their own. 

Many commenters discuss the type of information that would be 

useful to workers, and in particular of course I want to thank you, 

Chairman Kohl, for your response to the RFI. You put a spotlight 

on these disclosure issues by joining, as you mentioned, Senator 

Bingaman and Senator Isakson in introducing the Lifetime Income 

Disclosure Act. We believe that providing account-specific information on lifetime income may be very useful to workers as they make 

critical decisions concerning their retirement accounts. 

We’re reviewing the RFI comments to better inform us regarding 

the feasibility of providing participants with this type of information. 

So the number and scope of the comments reinforces our prior 

sense that providing lifetime income raises a lot of different issues 

and tradeoffs. I’m pleased to announce that we’ve decided to build 

on this dialog started with the RFI by holding a public hearing in 

the near future to focus on some of these critical financial technical 

issues that have been raised in the comments. 

We’re finalizing the details of the hearing and a formal announcement will appear soon in the Federal Register. 

So thank you again for the opportunity to testify before you 

today. The Department is committed to ensuring that workers have 

the information and tools they need to enjoy a dignified and secure 

retirement, and we’re happy to work with all of you on the committee and Chairman Kohl, and I look forward to taking your questions. 

Thank you. 

[The prepared statement of Ms. Borzi follows:] 

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The CHAIRMAN. Thank you very much, Ms. Borzi. 

Now we’ll hear from Mr. Iwry. 

STATEMENT OF J. MARK IWRY, SENIOR ADVISOR TO THE SECRETARY OF THE TREASURY AND DEPUTY ASSISTANT SECRETARY [TAX POLICY] FOR RETIREMENT AND HEALTH POLICY, U.S. TREASURY DEPARTMENT 

Mr. IWRY. Mr. Chairman, Senator Collins, Senator Franken. 

Thank you very much for holding this hearing and for the opportunity to appear before you today. 

We know that most Americans enjoy a fundamental level of protection against the risk of outliving their assets, longevity risk, in 

the form of Social Security. That continues to provide, thankfully, 

a basic foundation of guaranteed, predictable lifetime income. 

In addition, the private pension system plays a critical role in enhancing retirement security. But with the continuing shift from 

pensions, classically thought of as employer-funded programs, such 

as defined benefit plans, that provide predictable income for life at 

retirement, to account-based retirement savings arrangements that 

depend mostly on employee salary reduction contributions made at 

the initiative of the employee, and that typically make single-sum 

cash payments at each change in employment, we’ve seen a shift 

as financial prospects for retirement security in this country increasingly turn on how much people save and how they manage 

their savings. 

We know it’s not easy for people to manage their savings. For 

one thing, predicting how long we’re going to live is different, if not 

impossible. The result is that for many people there’s anxiety about 

how to manage the assets they’ve got so that they don’t run out of 

assets during their lifetime. Some people are anxious to the point 

where they fall into the opposite error of hoarding the assets to a 

much greater extent than they needed to and not enjoying the kind 

of lifestyle that they could have afforded if they had had some methodical way of ensuring themselves that their assets would last for 

life. 

This initiative that Assistant Secretary Borzi and I have been 

launching, and we very much applaud your leadership on these 

issues, not only submitting the comment, holding this hearing, and 

on an ongoing basis over the past several years on these retirement 

security issues—this project is not intended to require or mandate 

any particular type of payment, annuity or otherwise. It’s not intended to promote or favor any particular industry or any particular type of product. But it is intended to help Americans with 

the difficult challenge of managing their savings during retirement, 

and to do so in a context where people have increasingly expressed 

the concern that they do not have enough advice, do not have 

enough realistic options to provide the appropriate mix of income 

security and flexible assets. 

We don’t purport to know what’s best for people and we’re not 

suggesting that more lifetime income or annuitization on top of 

what Social Security provides is necessarily the answer for everyone. As you said, Mr. Chairman, it’s not a one size fits all situation. 

But we do think that we need to do more to help the system provide options to people, provide choices that are more realistic, more 

18 

attractive, and that people better understand, choices that are reasonably priced, that are transparent in their features, that are not 

confusingly complex, that are, in other words, user-friendly and responsive to the needs of retirees. 

We applaud the creativity of the private sector in coming up with 

new products and innovations that look like they would be responsive to a lot of these needs and that take advantage of the plan 

sponsor’s ability to help individuals through their fiduciary exercise 

of expertise, by negotiating with providers of lifetime income or 

other financial products on a group basis that can reduce costs and 

that can give more bargaining power to the individual. 

It’s premature for us to say exactly what we’re going to do. We 

are reading the comments with great care and interest. They’re 

very thoughtful. We appreciate all the work that people have put 

into them and we’re very much looking forward to the dialog with 

you today and an ongoing dialog with the stakeholders. 

[The prepared statement of Mr. Iwry follows:] 

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The CHAIRMAN. Thank you very much, Mr. Iwry. 

First question for you both. We found with our investigation of 

target date funds the importance of making sure that retirement 

products are clearly defined. How can we make sure that consumers understand how lifetime income options work and what 

their costs and benefits are? Ms. Borzi, you want to comment? 

Ms. BORZI. Well, I couldn’t agree with you more that that’s really 

the crux of the issue. The comments we’ve gotten from the industry 

say to us basically if people understood the benefits of these kinds 

of approaches, more people would choose them, because the difficulty is even when they’re offered participants don’t choose them. 

These are extremely complicated products. We absolutely need 

more transparency. We need more explanation. We need more understanding. We need to understand what the risks are, what the 

rewards are. I think this whole question of disclosure is critically 

important. 

We’ve gotten lots of interesting suggestions on how to deal with 

it, and this is certainly one of the themes that we’re going to be 

focusing on going forward. Your bill, of course, is certainly something that we’ve been looking forward—we’ve been looking forward 

to working with you on that because it’s one of the issues that 

we’ve been thinking about in the context of our own benefit statement regulations. 

The CHAIRMAN. Thank you. 

Mr. Iwry? 

Mr. IWRY. Mr. Chairman, I agree with what Ms. Borzi said, Mr. 

Chairman. I think that there are real education needs and challenges here. I think Ted Beck from NEFE’s going to be testifying 

on the next panel. They’ve done a great job of trying to promote 

better understanding and education in this area. 

I think we all need to do more in that regard. There are basic 

facts that folks don’t really understand, to the point where, picking 

up on what Ms. Borzi just said, the economic literature is full of 

expressions of bafflement at what they call the annuity puzzle. 

Why is it that folks don’t pool some of their assets in order to protect themselves against longevity risk by purchasing annuity type 

products that will let people put in enough money to last for the 

average life expectancy, so that people who live longer than the average will not have to be uncertain about whether there will be 

enough left, folks who die earlier, their funds will in effect subsidize people who die later than the average. 

People don’t understand, for example, the fundamental asymmetry in up and down investment returns between the accumulation phase and the spenddown phase. In other words, we’re used 

to thinking that if you stay invested for the long term, you buy and 

hold, many people say, up markets and down markets will eventually work out, the down markets will be succeeded by better times, 

and it will all be fine. 

Well, in retirement that can also be true, but what people don’t 

take into account is that when you’re spending down on a regular 

basis, when you’re withdrawing, a few bear market years early on 

cannot be recovered from as readily by some bull market years 

later as they can when you’re in the accumulation phase. 

27 

It’s not quite a symmetrical process. That’s why the financial 

planners and the literature tell people, don’t withdraw more than 

X percent from your retirement savings on a regular basis. In other 

words, if you were not to adjust and you were just to ask how much 

can I safely withdraw without much of a risk of running out, the 

literature suggests some people say 4 percent, 4.5, 5 percent, depending on how high a probability you want of not running out of 

assets. 

Many people aren’t even aware of that. They may think, well, 

gee, I’ve got a couple hundred thousand dollars in my 401(k), I’m 

retiring, I’m set for life. That should last me 35 years. They don’t 

think about how to convert that large-sounding account balance 

into a pension paycheck, a stream of regular income that will last 

them for life. 

If they’re confronted with the proposition, do you want to use 

some of that account balance to buy an annuity or to buy a lifetime 

income of some kind, they’ll often say: You mean you’re only going 

to offer me this piddling number of dollars per month for this huge 

treasure I’ve got in my account balance? It’s a wealth illusion. 

We’re not used to thinking in income terms when we’re starting 

with a large lump sum. 

So we’ve got a lot of education to do, and the disclosure the framing of the benefits, as your bill would promote, in an income format, in the form of a pension paycheck or a retirement paycheck 

on a monthly basis is one step in getting people to start thinking 

in those terms. 

The CHAIRMAN. Thank you. 

Senator Al Franken. 

Senator FRANKEN. Thank you, Mr. Chairman, for this very, very 

important hearing. We’ve all had parents who faced this very challenge. My mom got an annuity and I think it was a good thing. But 

very few people do get annuities, isn’t that right? 

Mr. IWRY. Comparatively few. 

Senator FRANKEN. What are the percentages of people who get 

annuities in their retirement? 

Mr. IWRY. Well, to give you an example from the 401(k) world, 

which of course is still the part of the retirement universe that’s 

growing fastest, the percentage of people who take annuities I believe is down around 1 to 2 percent of all the payouts. 

Now, defined benefit plans, a much higher percentage. But unfortunately those are dwindling. 

Senator FRANKEN. So what are the barriers? I imagine it’s complexity, that people are looking at these things and they’re complex. 

Ms. BORZI. Cost. 

Senator FRANKEN. I think that people—do people by and large 

underestimate how long they’re going to live? 

Ms. BORZI. They do. As Mark said, the fact is that they have no 

concept of how much they will need, even in a normal retirement, 

even if they don’t outlive the actuarial predictions. They don’t really understand how much they’ll need to live. 

Senator FRANKEN. That’s an answer to a slightly different question. I just want to know whether people actually on average underestimate how long they’re going to live. 

28 

Mr. IWRY. Senator, I think that there is—yes. I think there’s evidence in the behavioral economics literature and in the related literature about aging, that people do tend to underestimate how long 

they’re going to live. Plus people tend to look at life expectancy statistics, if they’re informed enough to know what the life expectancy 

is at any given age, and not think so much about the 50 percent 

chance that they’ll exceed that life expectancy. 

Senator FRANKEN. Also sometimes they’re looking at life expectancy of the general population and not someone who’s already 

reached their age, and not—— 

Ms. BORZI. Exactly. 

Mr. IWRY. Exactly. But if they’re looking at a table where they’re 

65 and they’re saying, what’s the life expectancy of a 65 year old, 

a lot of people seem to be eager to not look at how much they need 

to have to deal with the contingency that they’ll live way past their 

life expectancy. 

Senator FRANKEN. I’m sorry, Ms. Borzi. What you were saying is 

that exacerbating that is the fact that people have kind of no idea 

how much money they’re going to need per year? 

Ms. BORZI. That’s absolutely right, Senator. What they particularly don’t usually take into consideration is how much in medical 

costs they will have to spend, because we know for most people 

from 55 and older it’s the medical costs that are the most unexpected. Hopefully, with health care reform some of that will be alleviated. 

Senator FRANKEN. Well, the doughnut hole will be. But we’re 

talking about Social Security and Medicare as really the safety nets 

that have—when you’re talking about income security and when 

you’re talking about paying for health care you’re talking about the 

two basic foundations, which thank goodness we have those, right? 

Ms. BORZI. Thank goodness we do. But of course, as you know, 

the largest bit of medical expense occurs in those pre-Medicare eligibility years. 

Senator FRANKEN. Sure, the 55 to 65. 

Ms. BORZI. The 55 to 65. 

Senator FRANKEN. Well, speaking of which, when you talk about 

people learning about how they’re going to get through their retirement years, have income security during their retirement years, 

are you mainly talking about getting this message out to 25 year 

olds, to 35 year olds, to 45 year olds, to 55 year olds, or to 15 year 

olds? 

Mr. IWRY. Senator, yes. 

Ms. BORZI. All of the above. 

Senator FRANKEN. Well, it wasn’t meant to be answered that 

way. 

Mr. IWRY. Seriously, I think that there’s a different type of strategy for each of those age groups, but that we actually need the education to start in the schools and then to be directed in an age-appropriate form to each of those age groups. 

The time when people really start to care about it the most, of 

course, is when they reach their typically 50’s or so. 

Senator FRANKEN. I think that—— 

Ms. BORZI. The point that—I’m sorry. What I was going to say 

is at the point at which they’re ready to make these decisions, in 

29 

many respects that’s the most critical, because they have no way 

to make up the time that they’ve lost. So to me the most important 

priority—I agree that all of these age groups need to be educated, 

but right now our immediate problem is to focus on the people close 

to retirement age, so that they begin to understand what their 

choices and options are, because they’re much more limited than in 

the 30’s and 40’s. 

Senator FRANKEN. If they started—if we started earlier with financial literacy—and I’m talking about in high school, before kids 

get credit cards and get student loans and all those things—— 

Ms. BORZI. We’re working on elementary school, actually, financial literacy in elementary school. 

Senator FRANKEN. You’re better than me, in high school. [Laughter.] 

But OK. I mean, it seems to me that one of the biggest problems 

here is financial illiteracy, and if we started early with kids in elementary school, say—here’s an idea I have—— [Laughter.] 

Ms. BORZI. It’s brilliant, a brilliant idea. 

Senator FRANKEN. Thank you, thank you. That’s why I’m a Senator. 

Then it seems to me that they’d be able to adjust during their 

lives and start thinking about it sooner. Anyway, probably my time 

has lapsed. 

The CHAIRMAN. Go ahead. 

Senator FRANKEN. Well, I probably don’t think this is necessarily 

the place, but we need to make sure that Social Security is sound, 

and I have some theories on how we could do that. But maybe 

that’s not what this hearing is so much about. 

Yes? 

Mr. IWRY. Senator, if I may just add to our response, one of the 

things that people in their 50’s or 60’s could use some more information about is the value of, in addition to the saving—as Phyllis 

was pointing out, it may be too late to do as much as we’d like 

about saving more at that point—the value of deferring retirement 

incrementally. 

If you postpone retirement for one more year, if you can do it, 

if you’ve got the health, if you’ve got the job, etcetera, how much 

will you gain in terms of financial security? 

You get an additional year of earnings. You get an additional 

year subtracted from the number of years you won’t be earning 

that you have to support with the savings from your earnings. If 

you postpone Social Security, the time when you start Social Security, of course, that can be helpful. People haven’t gotten enough 

information about that. 

In our discussions earlier about what people don’t know and the 

misperceptions that folks have, I’m sure I speak for Phyllis, too— 

we don’t need to convey an attitude that people are not intelligent, 

that Americans aren’t smart, not at all. First of all, I include myself in all of those statements, that we don’t understand as much 

as we should, that we’re not as disciplined perhaps as we should 

be, that we don’t have as much information, we need more education. 

It’s true of most of us. Partly it’s denial. Sure, people understand 

about life expectancies. They know that there’s a 50 percent chance 

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they’ll live more than the average. These are sometimes painful 

and anxiety-inducing realities that we’re grappling with. So I think 

we need to help people, and that’s why we’re embarked on this. 

We’ve heard and we’ve gotten a sense from you and others here 

that there might be a constructive role for public policy to play in 

this. 

Senator FRANKEN. For example, what you’re talking about in 

terms of deferring retirement, that would be an entirely voluntary 

thing. 

Mr. IWRY. Absolutely. 

Senator FRANKEN. That’s what we’re talking about. It’s interesting on age and life expectancy, and you were talking about denial. I would think that denial would be on the other side, that I 

would think it would be human nature to think: I’m going to outlive the actuarial table. But it isn’t, is it? 

Ms. BORZI. Actually one of the other interesting things that you 

discover in the literature is most people think they’re going to— 

along the lines you’re suggesting, most people assume that they’re 

going to work a lot longer than they do. If you ask people when 

they think they’ll retire, the overwhelming majority of people think 

that they’re going to work until at least age 65. 

But when you look at the statistics, people actually retire much 

earlier than that, because of health problems, because of financial 

problems, because of caregiving responsibilities, where they’ll 

have—particularly women who will have to leave the work force 

early to care for ill spouses or children or siblings or parents. 

Mr. IWRY. Because it can be harder for an older person to get a 

job if they lose their current job. 

Ms. BORZI. So there are a lot of issues around this question about 

when you’re going to retire, how much money you’ll need, how long 

you’re going to live, that people haven’t really focused on. You’re 

right, the misperceptions, the misunderstandings, go in both directions really. 

Senator FRANKEN. Thank you. Thank you both very much. Very 

helpful. 

Mr. Chairman thank you. 

The CHAIRMAN. Thanks a lot, Senator Franken. 

Thank you both for being here. You’ve made great contributions. 

Ms. BORZI. Thank you so much. 

The CHAIRMAN. We appreciate your taking the time. 

Mr. IWRY. Thank you, Mr. Chairman. 

The CHAIRMAN. We’ll turn now to the members of our second 

panel. Our first witness on this panel will be Ted Beck. Mr. Beck 

has been the President and CEO of the National Endowment for 

Financial Education since 2005. Previously he was an Associate 

Dean at the University of Wisconsin School of Business and spent 

more than 20 years in senior management positions for Citibank, 

Citigroup. 

Welcome. 

Next we’ll be hearing from Kelli Hueler, CEO and Founder of 

Hueler Companies, which is an independent data and research firm 

on the annuity and stable value marketplace. Ms. Hueler headed 

the development of income solutions and is nationally recognized as 

an industry expert. Welcome. 

31 

Then we’ll be hearing from Bill Mullaney, President of U.S. Business for MetLife. MetLife is a leading provider of life insurance, annuities, and other retirement and savings products. Mr. Mullaney 

is responsible for the oversight of all of MetLife’s insurance, retirement, and corporate benefit funding businesses in the United 

States. He will offer testimony on behalf of the American Council 

of Life Insurers. 

Then we’ll be hearing from Lisa Mensah. Ms. Mensah is the Executive Director for the Aspen Institute’s Initiative on Financial Security, where she has an advisory board which investigates financial products that build wealth for working families. Previously Ms. 

Mensah served as the Deputy Director of economic development for 

the Ford Foundation. Welcome. 

Mr. Beck, we’ll start with you. 

STATEMENT OF TED BECK, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL ENDOWMENT FOR FINANCIAL 

EDUCATION 

Mr. BECK. Thank you, Mr. Chairman. My name’s Ted Beck. I am 

President and Chief Executive Officer of the National Endowment 

for Financial Education, located in Denver, CO. We at NEFE would 

like to thank Chairman Kohl, Ranking Member Corker, Senator 

Franken, and the members of the Special Committee on Aging for 

this opportunity to share our views on retirement income. 

For those of you that don’t know the National Endowment, we’re 

a private nonprofit foundation solely focused on improving the 

financial knowledge, capability, and wellbeing of all Americans. We 

have been deeply involved in the financial education arena for several years, ranging from high school on through to retirement. 

I’d like to tell you about a recent development that we’ve been 

involved with. In 2006 we took a step back and looked very hard 

at the questions around retirement. We were very concerned about 

how few people were actually calculating what their financial needs 

were. The current estimate on that is 46 percent, actually do the 

calculation. 

Also, only about 40 percent—excuse me. Only 60 percent of the 

population is currently saving for retirement. Those are 2010 numbers. 

Also, research tells us that workers age 55 and older have very 

weak financial knowledge and skills. 

So these caused great concern. As we looked at this, we also discovered that there is a limited knowledge base on decisions made 

in retirement on assets you’ve accumulated. We’re especially concerned in this area in families who are making between $30,000 

and $100,000 pre-retirement. 

So as we looked at this situation, we thought the best thing we 

could do would be to assemble a task force of people. We pulled together 40 experts from consumer education, financial service industry, academic, regulation, including two of our witnesses today, 

Kelli Hueler and Mark Iwry from the earlier panel. We wrestled 

with the question of what should be done about this. 

The project that came out of that is an effort that we’re deeply 

involved with called ‘‘My Retirement Paycheck.’’ The goal of this 

project is to help people generate the equivalent of a paycheck in 

32 

retirement using the assets they’ve accumulated effectively. The 

program looks at eight different categories: work, home and mortgage, pensions, debts, Social Security, insurance, retirement plans, 

and fraud. We try to look at these categories in a holistic way and 

look at the interaction of what happens if you make a decision in 

one area and how it affects other areas. 

For example, we talked a second ago about working 2 to 4 years 

longer. What does that do for you if you have that option? A typical 

retirement age right now is 62 to 63. If you are able to continue 

to work, how much extra security does that give you? 

Likewise on Social Security, if you start taking benefits at 62 

versus age 70 by delaying, it you’re actually giving up 75 percent 

difference. So if you get $1,000 in your retirement paycheck at age 

62, the equivalent of that if you wait until age 70 is $1750, a significant difference that everybody should be informed of and able 

to make as part of their retirement decision. 

We’ve developed a very rich resource that is now available to the 

public, that was made available in 2009, and we feel that this sort 

of education tool will be of great importance going forward. 

However, there are several next steps we need to talk about. 

Merely developing a new web site with the best intentions is irrelevant if people don’t use it. Therefore we’re spending a lot of our 

time on trying to figure out how to get this information to people 

in a manner that is acceptable to them and that they will actually 

respond to. That is a big function of what we do every day. 

So we’re very focused on retirement education. As an example, 

we’ve just finished a study at Darthmouth College that used different social marketing tools as a way to get more people involved 

in their 401(k) plans early in their career, and by approaching this 

sort of question differently we found a very significant increase in 

involvement. 

Likewise, we think workplace is a great opportunity to do more 

work here, especially early in the career, not one year before retirement, as many of the programs are now. We’re also very convinced 

that we have to spend more time on segmentation. Senator Kohl, 

you are absolutely right, one size does not fit all here. There are 

differences between social and economic groups, different levels of 

education, and especially with women, that we want to do more 

work with. 

Another area that we’re very concerned about is seniors who are 

suffering from diminished capabilities. How do we make sure that 

we get information to not only those individuals, but their caregivers, to make sure that they’re making intelligent decisions that 

are informed? 

Our real goal here is to help people build savings and financial 

planning that will allow them to make informed decisions, and we 

are convinced that the American people are perfectly capable of 

doing this. 

Thank you. 

[The prepared statement of Mr. Beck follows:] 

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The CHAIRMAN. Thank you so much. 

Ms. Hueler. 

STATEMENT OF KELLI HUELER, FOUNDER AND CHIEF 

EXECUTIVE OFFICER, HUELER COMPANIES 

Ms. HUELER. Good afternoon, Chairman Kohl, Senator Franken, 

a fellow Minnesotan. 

Senator FRANKEN. Yes, I was going to say. 

Evidently, Mr. Chairman, we have two votes or something? 

The CHAIRMAN. Yes. We probably will get through her testimony 

and then we’ll have to call a break. 

Senator FRANKEN. OK, is that what we’re going to do? Good. 

Ms. HUELER. Should I continue? 

Senator FRANKEN. Welcome from—— 

Ms. HUELER [continuing]. Members of the committee as well. My 

name is Kelli Hueler. I’m founder and CEO of Heuler Companies. 

I want to express my sincere thanks to both of you for holding this 

hearing today, and Chairman Kohl particularly in your efforts to 

champion this issue and concern. 

We’re very grateful for the opportunity to be here at the hearing 

today on what we believe to be one of the most important economic 

issues facing our Nation, ensuring greater retirement income security for millions of Americans. 

Our company’s been providing independent data and research to 

large institutions and employers since 1987. Hueler’s written submission provides background and extra information regarding our 

experience. 

I’m honored to come before you today to discuss how overall retirement income levels can be substantially improved and ultimately the use of annuity and lifetime income programs can be 

more broadly accepted. If plan participants are provided access to 

lifetime income and annuity alternatives by their employers and 

IRA providers through independent, institutionally priced, competitive offerings, they are in fact able to pensionize their hard-earned 

savings into a paycheck for life and increase their monthly income 

by an average of 6 percent or more over what they could likely 

achieve in the retail market. 

Not only can the income amount be dramatically improved, but 

this type of approach allows retirees to transfer some of the key 

risks associated with longevity, inflation, and unforeseen market 

losses to a preestablished group of qualified providers. 

As shown by the data in our written submission, the economic 

benefit of combining institutional or group pricing with competition 

among providers is substantial, and we can simply not afford to ignore this fact. 

Statistics show that participants have basically rejected traditional annuity distribution offerings. For that to change, we believe 

lifetime income and annuity products need to be presented in a 

simple, easy to understand format, requiring quote responses to be 

standardized, to promote straightforward apples to apples comparison and objective review. 

Participants need flexibility. As we’ve been talking about, there 

is no one size that fits all. They need educational tools to help them 

determine not only how much of their nest egg—what percentage 

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of their nest egg to convert into income, but what features best 

meet their personal financial goals. 

It’s worth noting that the calculators on our web site are the 

most frequently visited pages and that we typically see participants 

request on average of four quotes before they make a decision. 

Participants also need to be encouraged to diversify across multiple providers and to pensionize in increments over time to additionally limit provider and investment risk. Institutional offerings 

must eliminate the bells, whistles, and marketing hype that hide 

relative costs, create substantial confusion and suspicion, and ultimately lead to inaction or poor decision making. 

Some key observations we can make are that when professional, 

objective assistance is provided to participants during the decisionmaking process, there is far greater purchase activity than those 

programs that are delivered purely on line in a self-serve format; 

and there is a direct correlation between employer communication 

and participant activity. Both quote and purchase activity increase 

dramatically following directed, targeted communication by a plan 

sponsor to the key demographic participant group. 

This leads me to a critical point. Participants have a high degree 

of trust with their employers when it comes to financial decisions. 

If employers do not endorse lifetime income or annuity programs, 

participants will shy away from them, even if they’re being offered. 

Hueler’s research shows fiduciary liability relative to issuer selection and appearance of endorsement as two of the top roadblocks 

for employers to offer any form of lifetime income distribution. 

While our program can be offered either as a plan distribution or 

a voluntary IRA rollover, better than 98 percent of the sponsors 

choose the IRA rollover. 

Additionally, sponsors cite two main reasons for adopting that 

type of program: the competitive multi-issuer format and the independent issuer selection and ongoing due diligence. 

Providing a fiduciary safe harbor that reflects legitimate plan 

sponsor concerns is critical if we expect them to encourage and endorse lifetime income alternatives. Given the recent financial crisis 

and persistent market volatility, the need for mitigating risk is urgent and the time is now for promoting education around and access to alternatives for converting retirement savings into lifetime 

income. Without low-cost income alternatives being widely accessible to plan participants, the defined contribution system will have 

severe limits going forward in terms of serving the public interest 

and meeting the needs of an aging population. 

Increased life expectancy is a wonderful, albeit expensive, gift 

and I believe it’s incumbent upon all of us to work together to improve the likelihood that individuals will be able to financially sustain themselves with dignity during their retirement years. 

Thank you very much. 

[The prepared statement of Ms. Hueler follows:] 

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The CHAIRMAN. Thank you so much. 

We’ll now have a break for two votes of 15 minutes, maybe 20. 

Thank you. 

[Recess from 2:57 p.m. to 3:29 p.m.] 

The CHAIRMAN. Mr. Mullaney. 

STATEMENT OF WILLIAM J. MULLANEY, PRESIDENT, U.S. 

BUSINESS, METLIFE, REPRESENTING THE AMERICAN COUNCIL OF LIFE INSURERS 

Mr. MULLANEY. Good afternoon, Mr. Chairman and members of 

the committee. My name is Bill Mullaney. I’m the President of 

MetLife’s U.S. Business Division, testifying on behalf of the American Council of Life Insurers. 

ACLI member companies represent more than 90 percent of the 

assets and premiums of the U.S. life insurance and annuity industry and offer insurance contracts and investment products and 

services to qualified retirement plans and individuals. As both providers and employers, we believe that saving for retirement and 

managing assets throughout retirement are critical economic issues 

facing individuals and our Nation. 

Today’s hearing focuses on the crisis that retirees face in managing their assets in retirement and the need for public policy to 

help them avoid outliving their savings. I applaud the committee’s 

foresight and appreciate the opportunity given the industry to offer 

insights and potential solutions. 

My written testimony highlights issues and recommendations 

that the industry submitted in response to the Department of 

Labor and Treasury’s request for information regarding lifetime income annuities and similar lifetime income options available to defined contribution plans. 

Today I will discuss the role of annuities in providing retirement 

income security, product features and innovations, how public policy can enhance the use of guaranteed lifetime income, and consumer protections. 

Retirement begins with a fundamental transition, from living off 

one’s wages to living off one’s savings. With this transition comes 

multiple risks for individuals to manage, the most difficult of which 

is longevity risk, the risk of outliving one’s savings. 

Today most Americans won’t receive a guaranteed monthly paycheck for life from their employers when they retire. For many people, defined contribution plans such as 401(k)s have become their 

primary retirement savings vehicle. Guaranteed lifetime income 

products shift the risk of outliving one’s savings to a life insurer. 

In addition to guaranteed income for life, today’s annuity products address survivor benefits, liquidity for emergencies, and inflation. Annuities with optional guaranteed living benefits can provide 

protection against both longevity and investment risk. 

Employers play a key role in helping employees understand the 

benefits of and to gain access to the protection provided by guaranteed lifetime income products. 

ACLI has included a number of legislative and regulatory recommendations in its written statement which can help employers 

assist their employees in obtaining guaranteed lifetime income. 

Among those recommendations are simplifying the fiduciary standVerDate Nov 24 2008 12:40 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 H:\DOCS\61707.TXT SAG PsN: JOYCE
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ard by which the employer chooses an annuity provider and allowing insurers to administer the joint and survivor rules for married 

individuals. 

In addition to employer efforts, participants need education 

about the value of guaranteed lifetime income. To that end, ACLI 

thanks Chairman Kohl and Senators Bingaman and Isakson for 

their bipartisan sponsorship of S. 2832, the Lifetime Income Disclosure Act, a bill that would provide a lifetime income illustration on 

workers’ 401(k) statements. With this information, workers can decide whether they need to increase their savings, adjust their 

401(k) investments, or reconsider their retirement date if necessary 

to assure the quality of life they expect in retirement. 

ACLI also asks the Treasury Department to modify some of their 

notices to workers to include information on guaranteed lifetime income and the availability of lifetime income distribution options. 

Furthermore, ACLI supports legislation to facilitate a worker’s 

election to use a portion of her account to obtain guaranteed income for life. Most notably, ACLI supports H.R. 2748, the Retirement Securities Needs Lifetime Pay Act, which contains three proposals which we hope this committee will endorse: 

First, to facilitate the use of longevity insurance in employer 

plans and IRAs, it excludes the longevity insurance premium 

amount when calculating an individual’s required minimum distribution. 

Second, to encourage employees to take a portion of their retirement savings as guaranteed lifetime income, it includes a limited 

tax incentive. 

Last, for those individuals with an individual deferred annuity, 

it would permit partial annuitization of that annuity. This last proposal was included as part of the administration’s 2011 budget proposal. 

As the committee considers these recommendations, it is important to note that all insurance products are regulated by the 

States. State insurance departments have a number of safeguards 

in place which not only protect the consumer, but ensure life insurers’ unsolvency and provide protection to the consumers in the rare 

instance of an insolvency. Each State has laws and regulations governing the activities such as licensing requirements, sales practices, market conduct regulations, and product approvals. 

I want to thank the committee again for holding this hearing and 

for inviting the ACLI to testify. The goal of helping Americans 

achieve personal retirement income security is one of the industry’s 

top public policy issues, and I’m happy to answer any questions 

that you have. 

[The prepared statement of Mr. Mullaney follows:] 

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The CHAIRMAN. Thank you, Mr. Mullaney. 

Ms. Mensah. 

STATEMENT OF LISA MENSAH, EXECUTIVE DIRECTOR, ASPEN 

INSTITUTE INITIATIVE ON FINANCIAL SECURITY 

Ms. MENSAH. Thank you, Chairman Kohl, and my thanks as well 

to Ranking Member Corker. 

My name is Lisa Mensah and I’m the Executive Director of the 

Aspen Institute Initiative on Financial Security. It’s an honor to be 

here today. I’m the granddaughter of an Iowa insurance agent and 

the daughter of an African engineer who comes before you today 

as a personal witness to America’s greatest promise, that we can 

all share in the prosperity of this land if we can grab hold of the 

basic tools we need to succeed. I believe savings is one of those 

basic tools. 

I spent 13 years at the Ford Foundation working in some of our 

poorest areas, including the Delta counties of Tennessee and the 

Iron Range of Wisconsin. Workers there and elsewhere in America 

are struggling to get off the hamster wheel of just making ends 

meet, and we’ve failed to give them an accessible and robust system of savings. 

I founded Aspen IFS with a simple dream: to help bring about 

the policies and the financial products that enable all Americans to 

join the savings and wealth-building system in America. 

We commend the administration for its fresh look at retirement 

savings and we were pleased to be hosted recently by you, Senator 

Kohl, to describe our hopes for an automatic IRA system that 

builds large nest eggs. At Aspen IFS we believe the journey to financial security is not just a people problem, but also it’s a product 

problem, and that we really need simple and secure financial products to help all Americans save, invest, and own. 

So today I come before you with a message of hope, but also a 

message of caution. I’m filled with hope because this hearing is 

really the first serious consideration of helping Americans manage 

their nest eggs in retirement. 

This summer we celebrate the 75th birthday of the Social Security System, perhaps our most popular government policy. Social 

Security provides the securest of lifelong income, but it was never 

intended to be the only income in retirement. 

So I believe our question is: How can we build a better private 

savings system for the next 75 years? 

Now my cautions. We can say confidently that everyone needs to 

save, but we can’t say that everyone needs to annuitize. There is 

an all too common refrain that if we don’t force people to do what’s 

best for them, those people can just head to Vegas or buy an RV 

with their nest eggs. 

I think this is a painful stereotype. I propose instead that we 

keep annuities voluntary, but make them easier, safer, and a better 

deal. 

We’ve heard from everyone that we’ll need more than one choice 

or one default, and we’ve heard that one size does not fit all. Some 

people are very healthy and look forward to a long retirement. 

Many others are not. Some have grown children and a spouse with 

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ily. Many are sandwiched, supporting parents and children or 

grandchildren. Some have children with special needs who must be 

cared for when they’ve gone. Some have large 401(k) balances and 

other savings and others have very modest assets, but have paid 

up their house. 

So there really is more to consider here than just an account balance. That’s where we bring us to the challenges. First, the workplace challenge. While we think the employer plan system can play 

an important role, let’s not experiment with the whole system until 

we have broad agreement on the suitable products for our extremely diverse workforce. We risk jeopardizing the entire noble effort of making savings last a lifetime if we start too big and create 

a backlash of opposition. 

In addition, annuity options will add another layer of complex 

laws and regulations to plans and entail greater fiduciary liabilities 

for employers. Will the small and medium employers accept this or 

will they head for the exits? Will workers accept being defaulted 

into products they don’t value or understand? 

So the second risk I’d like to talk about is the default risk. An 

annuity is a promise that can last for decades and it’s only as good 

as the insurance company standing behind it. We’ve been in such 

a tumultuous time with the solvency of our financial system. Who 

will secure the promise of the annuities in 401(k) plans? Will it be 

the insurance companies, State guarantee funds, the employers, or 

will it fall to the Federal Government? 

Last, I’d like to speak about the value challenge. What consumer 

love about Social Security is both longevity and inflation protection. 

It does little good to promise paychecks for life if they don’t keep 

up with inflation. Value must also be judged by cost. Until we can 

offer our consumers a product with inflation protection and at a 

reasonable cost, we must proceed with caution. 

These are all big issues, but it doesn’t mean we can’t get started. 

So I believe we could start by helping the over 3 million baby 

boomers who reach retirement each year convert their savings into 

modest monthly checks by piggybacking onto our Social Security 

System. Aspen IFS has proposed a new public-private partnership 

to market security-plus annuities through the Social Security Administration. Seniors who are deciding to claim Social Security 

could opt to buy an additional layer of Social Security-like income 

with their own money and have it added to their monthly checks. 

Private companies would underwrite these basic immediate annuities, which could be priced reasonably on a group basis. 

The key point here is that it’s better to start small with a voluntary system that’s simple and secure. 

In closing, I want to return to my hope. I have a hope that we 

can demand more innovation from our private insurance providers. 

It’s time for better products that match today’s consumers and we 

believe the industry is ready to deliver. I also have a hope that we 

can regulate annuity products so they’ll be suitable, safe, and good 

value. Finally, I hope that we’ll learn much more about what 

Americans actually want with a lifelong income product. Once we 

do, we’ll be able to deliver and improve on our system of savings 

so that it really can deliver lifelong income for a very diverse America. 

93 

Thank you very much. 

[The prepared statement of Ms. Mensah follows:] 


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The CHAIRMAN. Thank you very much. 

Mr. Beck, in your testimony you talk about how workers can improve their lifetime income by delaying taking Social Security benefits. In the last Congress I introduced an older workers bill to allow 

seniors to earn Social Security tax credits up to the age of 72. How 

do you feel about that proposal? 

Mr. BECK. I think anything that improves the flexibility available to the worker is a positive thing. The key thing, though, from 

our point of view is does the person understand what that flexibility means to them? If somebody has the ability to defer beyond 

age 70 as it currently sits and that doesn’t create a burden on 

them, that puts them in a much better position. So I think it’s a 

very positive factor available to workers, so long again as they understand what they’re doing and how they would go about making 

that fit into their monthly budgets. 

The CHAIRMAN. All right. Ms. Hueler, you said that many employers are reluctant to take on the responsibility for offering lifetime income products. How can we remove some of the barriers so 

as they would be more willing to offer these options, as well as educating their workers? 

Ms. HUELER. That’s one of the really—we call it kind of the conundrum, where the employee and the employer’s behavior is inextricably linked. If the employer doesn’t offer or encourage, the employees are not going to move. 

But the employers have this burden or concern that’s very legitimate over issuer selection and the language that’s utilized in the 

Department of Labor regulations relative to that issue. So I think 

what we see is that employers have a willingness of heart, but they 

face the concern over the specific liability. So if we offered safe harbor language that would give them a simple road map to something 

that they know they could comply with—and it’s important, too, to 

think about it this way. You have the HR-benefits side of the house 

and you have the finance side of the house. So there’s a lot of consideration that goes into the financial risks relative to offering 

annuitization. So if you gave them a simple road map where they 

could diversify and ensure low costs and know that they were providing a real value to those participants that mitigated certain 

risks like inflation and other things, then they are going to be far 

more receptive to adopt programs that fit within a safe harbor. 

In essence, the safe harbor can’t just be for the heck of providing 

a safe harbor. It has to really reflect the plan sponsors concerns 

about their participants. 

The CHAIRMAN. On the way over to the vote, Senator Franken 

said to me: Well, what happens if somebody buys an annuity from 

a company and the company goes out of business? 

Ms. HUELER. We’ve got an issuer at the table. 

The CHAIRMAN. Do you want to answer that question, Mr. 

Mullaney? 

Mr. MULLANEY. Sure. I think first of all, if you think about the 

insurance industry, the insurance industry has been paying annuity benefits to millions of people for a number of years. Over the 

last 10 years or so, insurance companies have continued to see the 

capital requirements that States require for them to operate continue to increase. I think as we’ve gone through this recent finanVerDate Nov 24 2008 12:40 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00104 Fmt 6633 Sfmt 6633 H:\DOCS\61707.TXT SAG PsN: JOYCE
99 

cial crisis, insurance companies have held up very well in terms of 

their financial strength and their ability to continue to provide benefits to their policyholders. 

You know, the State regulation of insurance really allows for 

State insurance regulators to look very closely at the financial performance of an insurance company, the capital requirements, the 

reserves associated with the liabilities that that insurance company 

has written. If there’s any sign that an insurance company might 

be in trouble, State regulators step in early and begin to take the 

necessary steps to resolve an insurance company’s issues. 

In the rare event that there is an insolvency, there are State 

guarantee funds that can step in and continue benefit payments. 

The CHAIRMAN. So you don’t consider that to be a major problem? 

Mr. MULLANEY. I do not consider it to be a major problem. 

Ms. HUELER. Chairman Kohl, if I could respond as well. 

The CHAIRMAN. Ms. Hueler. 

Ms. HUELER. I think one of the other issues is concentration of 

risk. By having multiple providers, you also do reduce the risk of 

exposure to any single incident or any single event that might 

occur at a given insurance entity, not only all the protections that 

Bill describes. But that’s a really important aspect of not concentrating risk into one single provider and assuming that a provider 

will stay the same for eternity. 

The CHAIRMAN. That’s a good point. 

Mr. MULLANEY. Just maybe to follow up on that if I could, Mr. 

Chairman. The competitive landscape in the annuity industry is 

very robust. There are dozens of companies that provide annuities 

to millions of Americans. So there’s plenty of competition in the annuity industry for consumers and employers if they choose to do so, 

to offer a wide range of product providers and solutions to their 

employees. 

The CHAIRMAN. Thank you. 

Ms. Mensah, we’ve heard the value of educating participants, of 

course, is extremely pertinent here. While your security-plus annuity proposal would be relatively simple for participants, what education efforts do you think would be needed to ensure that Americans were aware of and fully understood this option? 

Ms. MENSAH. Thank you, Chairman Kohl. What we love about 

this idea is that it’s catching people right at the moment when 

they’re retiring. It’s saying at the time that you sign up for Social 

Security, you could receive information at this point from the Social 

Security Administration. You could be directed to a call center, to 

say: Would you like to purchase some additional income? So that 

you would be making—this is the perfect time to have a comparative yardstick, something that you’re going to get from Social Security and what else you’d like to do with your nest egg. 

So we think it’s not only educating, because that’s the focus on 

just people only. It’s matching people and a product at the right 

time in their life. We’ve heard a lot about how education is more 

effective at the right moment. So we think that that’s the power 

of this, that you could do this talking about it, and it would be from 

a trusted source. Here it could be your Social Security Administration giving you the information or with a private call center that 

would help direct those questions. 

100 

So it seems to us a timing question, to time the education with 

the purchase decision. 

The CHAIRMAN. To the rest of you: The security-plus annuity proposal, would you critique it a little bit for the rest of us? Mr. Beck? 

Mr. BECK. Just from an education point of view, it’s an interesting idea. The challenge I would have from an educational point 

of view is is the consumer at that point aware of alternatives available to them? There’s a big difference between financial knowledge 

and financial sophistication. If you’re being offered a product at a 

specific time and you have no comparative program to look at and 

do not necessarily understand the pluses and minuses—I would be 

more comfortable with the concept if the education process had 

that comparative component into it, rather than saying, here’s an 

add-on to an existing trusted source product delivery. 

The CHAIRMAN. Ms. Hueler, would you agree with that? 

Ms. HUELER. I do. I agree with Ted’s comments. From our perspective in dealing directly with employers, I guess there’s a couple 

of issues. If you really look at the participant, they place a high degree of trust in their employer. We need—we believe we need employers to be involved, both public and private, to be involved in 

this process. 

I think it would be difficult to have them excited about a proposition like this. I do think that would be one of the big hurdles. It 

may look very easy on the surface, but the appetite for more emphasis on a government-sponsored program, even if it’s just the 

perception, I think that that’s a big challenge. 

I think government support is very different, government encouragement, providing the framework and allowing the private sector 

to really come through with programs that meet the needs of the 

participants. So I think you have to really consider what the participants face in this decisionmaking process and who their sources, 

who their trusted sources really are. 

The CHAIRMAN. Yes, Ms. Mensah? 

Ms. MENSAH. Yes, just to say, we also design this for so many 

people who are not in plans. That’s really 50 percent of our workforce. So while I would not disagree, when you have an employer 

who can play that role for you you’re in a privileged position, and 

I wish more Americans were there. But there are many employers 

who won’t. 

Just to make very clear, we’ve always seen this. We designed 

this in partnership with CEOs from the financial sector. So this is 

a private product. It’s a public-private partnership. It’s private 

companies who would underwrite. 

Also, we’ve always said that it should be a starter annuity. It 

isn’t everybody’s choice, Ted, you’re correct on that. This would be 

a way to get started for some people who want to annuitize some 

of their nest egg. You could do it in a trusted way, and maybe this 

is your starter and you would make your way to other products 

that might give you more flexibility and control. 

But for some people, just the chance to add an additional $100 

to that Social Security check, it would make sense at that moment. 

That’s our contention. 

The CHAIRMAN. Mr. Mullaney, you’re sitting between these two 

adversaries. Would you like to offer a little illumination to us? 

101 

Mr. MULLANEY. I would, yes. Thank you, Mr. Chairman. I think 

the proposal that Lisa has put out there is elegant in its simplicity, 

but one of the things that I would be concerned about is the fact 

that retirement planning for individuals is somewhat complicated, 

because it’s a function of each individual’s unique circumstances. In 

the earlier panel that we had before, we heard about how long people expect to live. In studies that we’ve done, over 60 percent of the 

people don’t expect to live as long as the mortality table suggests 

that they will. 

There are issues around how much money people need to save 

to cover things like medical expenses in retirement. So the industry’s view is that it’s important for people to be able to get the appropriate level of advice, to be able to customize a retirement program that includes some amount of guaranteed income where appropriate, so that a person will never run out of income in retirement. While your point is well taken that many people are not in 

plans today, there’s a very robust market where, in the retail 

space, people can go out and get some advice and counsel, and 

some of the products and solutions they might need to be able to 

provide guaranteed income in retirement. So that’s just not something that’s available to people who are at work. 

The CHAIRMAN. Ms. Hueler? 

Ms. HUELER. Sure, if I could clarify a couple things. We don’t 

view plans as the only source of retirement savings, for sure. 

There’s a lot of individuals that are not covered by plans, and 

that’s a very legitimate position. 

But even in the IRA sector, we believe this group institutional 

approach for all participants in qualified plans, whether that be individual IRA plans or retirement plans that are sponsored by employers, can be done efficiently and cost effectively. If there’s a 

starter program, I can understand the value, the true value of that. 

But I think we also have to look at the broadest base of where people have their savings, who they’re utilizing as their resources for 

this type of educational and financial planning information, and we 

have to provide them access through those channels if we really expect it to work in a meaningful way. 

The CHAIRMAN. All right. 

Mr. Mullaney, I think we’re all pleased to see the development 

of new and innovative products to provide consumers with lifetime 

income. Obviously that’s key. But I’m concerned that they have 

adequate consumer protections, such as spousal protections and 

reasonable fees. How is your industry guaranteeing that these 

products are designed in the interest of your consumers? 

Mr. MULLANEY. First of all, as we think about product designs 

and new innovations that we might want to bring to our products, 

the first place we start is with the consumer, to understand what 

the consumer needs are. If you look at guaranteed lifetime income 

products from where they started many years ago to where they 

are today, many features have been added to these products. Those 

features really reflect the needs that consumers have expressed to 

us in terms of the type of features that they would like to see in 

guaranteed lifetime income programs. 

Whenever you design these programs, you also have to consider 

the cost, and we believe very much in making sure that the prodVerDate Nov 24 2008 12:40 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00107 Fmt 6633 Sfmt 6633 H:\DOCS\61707.TXT SAG PsN: JOYCE
102 

ucts that are offered in the marketplace are suitable to the people 

who buy them and that there’s full disclosure around how those 

products work and the fees and the costs associated with those 

products. 

As I said before, there’s a very competitive market for the sale 

of lifetime income products. So the value that consumers look for 

and the competitive nature of the market certainly keeps the prices 

associated with these programs well in line with what consumers 

can afford. 

The CHAIRMAN. Mr. Beck, have you found any particular retirement challenges among specific demographic groups, and what suggestions do you have to help? 

Mr. BECK. We have been doing some studies on specific issues related to different groups. We have been doing research specifically 

on Hispanic households with the University of Notre Dame for several years. There are different challenges and there have to be sensitivities. 

But I think understanding those is the first key. We do not yet 

have something that we could say specifically do this for this 

group, be it different racial groups, be it different age groups, be 

it different income groups. So the message from us is this is something we need to study and do more research on. 

The greatest risk here is doing ready, fire, aim. So we’re still in 

the research and data gathering mode to see what sort of suggestions might be available to people to be more sensitive and more 

applicable to different groups. 

The CHAIRMAN. Ms. Hueler, can you explain the large variations 

in the price of annuities and share your recommendations with us 

on how to bring down the price of annuities for all Americans? 

Ms. HUELER. The comments we provided to you stem from better 

than two decades of observing insurance company price variability. 

It’s inherent in the nature of the way that products are designed 

and priced. Even in the case where issuers are providing you their 

very best price of the day, at very low cost or no cost, they may 

not in fact be competitive with their peer at a given point in time 

for a given type of annuity product. 

It doesn’t mean they’re not doing a great job and it doesn’t mean 

they’re not delivering at low cost. But their price models are fluid 

and there is no one insurance company’s model that can deliver the 

best the market has to offer on any given day. 

So when you include peers who are doing best case pricing, low 

cost delivery, low fees, you have the opportunity to provide to the 

individual at the point in time that they’re converting the best the 

market has to offer. It’s not to say that insurance company A, B, 

and C are not all doing their best job. But they will have a different price at any given point in time on a particular annuity benefit, and that’s just the nature of the business. 

We’ve done study after study, so we’re confident in that data, 

and we know the way to resolve that is to have apples to apples 

comparative quote capabilities, so that when a person asks for a 

particular type of benefit there’s no confusion, there’s no additional 

bells, whistles, etcetera, and it’s very easily compared one to another, and the issuers have had the opportunity to compete on that 

given day at that point in time for that piece of business. 

103 

The CHAIRMAN. Good. 

Well, I think you’ve all done very well and offered a lot of illumination into something that’s emerging and very important in our 

society as we continue to go forward. So we thank you for being 

here, thank you for your contributions. At this time I think we’ll 

terminate the hearing. 

[Whereupon, at 3:58 p.m., the hearing was adjourned.] 

(105) 

A P P E N D I X 

MR IWRY’S RESPONSES TO SENATOR KOHL’S QUESTIONS

Question. A March 29, 2010, Treasury Inspector General for Tax Administration 

(TIGTA) report identified a significant loss in Federal funds due to individual noncompliance with Individual Retirement Account (IRA) excess contribution and minimum distribution requirements. The report estimates that these two forms of IRA 

noncompliance amounted to nearly $300 million in tax revenue losses for tax year 

2006 and 2007. The report also states that IRA noncompliance has continued to 

grow since tax year 2005. The IRS agreed to address the problem when it was first 

identified over two years ago in an earlier 2008 TIGTA report, but the noncompliance has continued to grow unchecked. With the possibility of losing significantly 

more than $300 million in tax revenue over the next two years due to IRA noncompliance, what can be done now to protect these Federal funds? 

Answer. To respond to your questions about what more can be done to protect 

Federal revenues from noncompliance with the IRA excess contribution and minimum distribution requirements, we have consulted with the IRS. The information 

they have provided is reflected in our responses to your questions, below. 

The IRS completed an IRA study late last year that responded to GAO and 

TIGTA audit findings involving both the IRA Required Minimum Distributions 

(RMD) and IRA Excess Contributions. TIGTA originally proposed use of the IRS 

Automated Under Reporter (AUR) matching program for working these IRA issues. 

However, the IRS study concluded that neither issue is a good fit for AUR: RMD 

cases are not well suited for AUR inventory because of difficulties with accurate 

matching and the complications created by the need for two years of data to determine non-compliance. Additionally, IRA cases involving excess contributions are not 

well suited for AUR inventory because of difficulties with accurate matching, multiple year issues, and the low average penalty for an IRA excess contribution, resulting in average potential assessments in the $300 range. 

It became evident to IRS management that a broader strategy was needed for addressing IRA non-compliance, and that examinations would be only one component 

of a more comprehensive approach that would also consider amending regulations, 

modifying existing forms and publications, conducting additional research studies, 

and developing outreach and education. Subsequent to the Committee’s hearing, the 

IRS convened a cross-functional group using executives in its Candidate Development Program to review the TIGTA data and identify activities that might be effective in preventing the loss of revenue. The group consisted of key personnel in Wage 

and Investment (W&I), Small Business/Self Employed (SB/SE), Tax Exempt and 

Government Entities (TE/GE), Large Business and International (LB&I) and Modernization and Information Technology Services (MITS). This cross-functional team 

developed several high-level suggestions, including initiatives for working toward a 

broad-based strategy to effectively address the issues while focusing on aspects such 

as forms and regulations. 

Question. In response to the report, the IRS has proposed a Service-wide strategy 

to address IRA noncompliance in regards to excess contributions and non-disbursements of required minimum distributions, with a proposed implementation date of 

October 15, 2012. How do you feel about the IRS’s timeline, and do you believe this 

much time is necessary to successfully implement the strategy? 

Answer. We believe that the IRS has appropriately accelerated its original 

timeline for implementing its proposed Service-wide strategy to address IRA noncompliance relating to excess contributions and required minimum distributions. 

While some elements of the strategy can be implemented in 2011, successful implementation of other elements can be expected to take until the Fall of 2012. 

More specifically, it will take a significant level of effort to address the myriad 

and complex issues surrounding IRA noncompliance and develop a comprehensive 

strategy encompassing all of the interrelated issues. There would be a considerable 

106 

opportunity cost if the IRS redeployed extensive exam resources to work cases with 

relatively small average potential assessments compared to other workload categories. But if we do not pay sufficient attention to individual IRA cases because 

the average assessments are small, then we risk forgoing the substantial total assessments that are involved when the small dollar per case average is multiplied 

by the large universe of potential cases. We believe the answer is to find ways to 

prevent the IRA compliance issues from occurring in the first place, and relying less 

on remedying those issues with exams after they have already occurred. 

The suggestions developed by the cross-functional IRS team referred to earlier 

should have a positive impact on the level of non-compliance while limiting unnecessary contacts with the taxpayer. To follow up, the IRS will be are convening a strategy team in the first quarter of FY11 to develop an overarching compliance strategy 

for addressing IRA noncompliance. The team has been charged with identifying both 

‘‘quick hits’’ and longer term proposals. The quick hit recommendations will be options that can be implemented in calendar year 2011. The proposed timeline of 2012 

is needed to coordinate the substantial activity connected with properly working the 

longer term options, including systems changes and significant outreach and education. Researching and implementing actions such as these require a balancing of 

other IRS priorities related to IT and Counsel resources and cannot be accomplished 

in a relatively short timeframe. 

Question. The Inspector General recommended the development of processes to 

identify individuals who do not comply with retirement provisions as well as the development of compliance efforts to address the noncompliance. The IRS has stated 

that their Service-wide strategy will contain compliance, education/guidance, and 

outreach components. What are the most critical elements of a strategy of this nature and how would you envision this strategy being the most quickly and effectively implemented? 

Answer. A strategy of this nature relies on continued vigilance on the compliance 

side, but also, in particular, initiatives grounded in education/guidance and outreach. These types of initiatives may hold the promise of being particularly efficient 

by preventing noncompliance in the first place. 

The IRS has indicated that, in connection with education/guidance and outreach, 

the IRS strategy team will examine options such as enhancing IRS Web-based service and information offerings; presenting lists of common mistakes and how to avoid 

them; increasing the clarity of published guidance; modifying existing forms and 

publications, and examining the potential for a ‘‘soft notice’’ campaign. The IRS 

team plans to identify any quick-hit action items that can be put into place promptly, while the more time- and resource-intensive solutions are developed by the Service. 

If the Senate Aging Committee staff would find it helpful to have more detail or 

to discuss this strategy with the IRS and Treasury, we would be glad to meet with 

Committee staff for a discussion of these efforts. 

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Æ 


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