EBSA Proposed Rules

Request for Information Regarding Lifetime Income Options for Participants and Beneficiaries in Retirement Plans   [2/2/2010]
[PDF]
FR Doc 2010-2028
[Federal Register: February 2, 2010 (Volume 75, Number 21)]
[Proposed Rules]               
[Page 5253-5258]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02fe10-16]                         

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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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[[Page 5253]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

RIN 1545-BJ04

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Parts 2509, 2520 and 2550

RIN 1210-AB33

 
Request for Information Regarding Lifetime Income Options for 
Participants and Beneficiaries in Retirement Plans

AGENCY: Employee Benefits Security Administration, Department of Labor; 
Internal Revenue Service, Department of the Treasury.

ACTION: Request for information.

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SUMMARY: The Department of Labor and the Department of the Treasury 
(the ``Agencies'') are currently reviewing the rules under the Employee 
Retirement Income Security Act (ERISA) and the plan qualification rules 
under the Internal Revenue Code (Code) to determine whether, and, if 
so, how, the Agencies could or should enhance, by regulation or 
otherwise, the retirement security of participants in employer-
sponsored retirement plans and in individual retirement arrangements 
(IRAs) by facilitating access to, and use of, lifetime income or other 
arrangements designed to provide a lifetime stream of income after 
retirement. The purpose of this request for information is to solicit 
views, suggestions and comments from plan participants, employers and 
other plan sponsors, plan service providers, and members of the 
financial community, as well as the general public, on this important 
issue.

DATES: Comments must be submitted on or before May 3, 2010.

ADDRESSES: You may submit written comments to any of the addresses 
specified below. Any comment that is submitted to either Agency will be 
shared with the other Agency. Please do not submit duplicates.
    Department of Labor. Comments to the Department of Labor, 
identified by RIN 1210-AB33, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: e-ORI@dol.gov. Include RIN 1210-AB33 in the 
subject line of the message.
     Mail: Office of Regulations and Interpretations, Employee 
Benefits Security Administration, Room N-5655, U.S. Department of 
Labor, 200 Constitution Avenue, NW., Washington, DC 20210, Attention: 
Lifetime Income RFI.
    All submissions received must include the agency name and 
Regulation Identifier Number (RIN) for this rulemaking. Comments 
received will be posted without change to http://www.regulations.gov 
and http://www.dol.gov/ebsa, and made available for public inspection 
at the Public Disclosure Room, N-1513, Employee Benefits Security 
Administration, 200 Constitution Avenue, NW., Washington, DC 20210, 
including any personal information provided. Persons submitting 
comments electronically are encouraged not to submit paper copies.
    Internal Revenue Service. Comments to the IRS, identified by REG-
148681-09, by one of the following methods:
     Mail: CC:PA:LPD:PR (REG-148681-09), Room 5205, Internal 
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 
20044.
     Hand or courier delivery: Monday through Friday between 
the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-148681-09), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC 20224.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments (IRS REG-148681-09).
    All submissions to the IRS will be open to public inspection and 
copying in Room 1621, 1111 Constitution Avenue, NW., Washington, DC 
from 9 a.m. to 4 p.m.

FOR FURTHER INFORMATION CONTACT: Stephanie L. Ward or Luisa Grillo-
Chope, Office of Regulations and Interpretations, Employee Benefits 
Security Administration (EBSA), (202) 693-8500 or Peter J. Marks, 
Office of Division Counsel/Associate Chief Counsel (Tax Exempt and 
Government Entities), Internal Revenue Service, Department of the 
Treasury, at (202) 622-6090. These are not toll-free numbers.

SUPPLEMENTARY INFORMATION: 

A. Background

    The Agencies are issuing this request for information in 
furtherance of their efforts to promote retirement security for 
American workers. The Secretary of Labor's overarching vision for the 
work of the Department of Labor is to advance good jobs for everyone. 
Good jobs provide wages that support families, and rise with time and 
productivity. Good jobs also provide safe and healthy working 
conditions. Finally, good jobs, no matter the type or income level, 
provide retirement security. Consistent with these objectives, the 
Department of the Treasury strives to promote economic growth, 
stability, and economic security, including retirement security, for 
American workers, and oversees the federal tax expenditures for 
retirement savings and security.
    Retirement security is provided to many workers through defined 
benefit pension plans sponsored by their employers. Employers that 
sponsor defined benefit pension plans are responsible for making 
contributions that are sufficient for funding the promised benefit, 
investing and managing plan assets (as fiduciaries), and bearing 
investment risks because the employer, as plan sponsor, is required to 
make enough contributions to the plan to fund benefit payments during 
retirement. In addition, when the defined benefit pension plan pays (or 
offers to pay) a lifetime annuity, it provides (or offers to provide) 
protection against the risk of outliving one's assets in retirement 
(longevity risk).
    Department of Labor data, however, show a trend away from 
sponsorship of defined benefit plans, toward sponsorship of defined 
contribution plans. The number of active participants in defined 
benefit plans fell from about 27 million in 1975 to approximately 20 
million in 2006, whereas the number of active participants in defined

[[Page 5254]]

contribution plans increased from about 11 million in 1975 to 66 
million in 2006.\1\
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    \1\ The number of active participants in 1975 and 2006 are not 
directly comparable because of adjustments in the definition of a 
participant. Please see a detailed explanation of the adjustment in 
U.S. Department of Labor, Employee Benefits Security Administration, 
``Private Pension Plan Bulletin Historical Tables and Graphs,'' 
February 2009, p. 1-9. See www.dol.gov/ebsa/pdf/1975-
2006historicaltables.pdf.
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    While defined contribution plans have some strengths relative to 
defined benefit plans, participants in defined contribution plans bear 
the investment risk because there is no promise by the employer as to 
the adequacy of the account balance that will be available or the 
income stream that can be provided after retirement. Moreover, while 
defined benefit plans are generally required to make annuities 
available to participants at retirement, 401(k) and other defined 
contribution plans typically make only lump sums available. 
Furthermore, many traditional defined benefit plans have converted to 
lump sum-based hybrid plans, such as cash balance or pension equity 
plans, and many others have simply added lump sum options. Accordingly, 
with the continuing trend away from traditional defined benefit plans 
to 401(k) defined contribution plans and hybrid plans, including the 
associated trend away from annuities toward lump sum distributions, 
employees are not only increasingly responsible for the adequacy of 
their savings at the time of retirement, but also for ensuring that 
their savings last throughout their retirement years and, in many 
cases, the remaining lifetimes of their spouses and dependents.
    In recognition of the foregoing, the Agencies are considering 
whether it would be appropriate for them to take future steps to 
facilitate access to, and use of, lifetime income or other arrangements 
designed to provide a stream of income after retirement. This includes 
a review of existing regulations and other guidance and consideration 
of whether any such steps would enhance the retirement security of 
participants in retirement plans, taking into account potential effects 
on and tradeoffs involving other policy objectives. To that end, this 
request for information (RFI) sets forth a number of questions that are 
generally organized into categories under which the Agencies may be 
able to provide additional guidance if appropriate. This RFI also 
includes a number of questions pertaining to the economic impact of 
rulemaking, and to impediments beyond the statutory requirements, if 
any. Commenters are not limited to these questions and are invited to 
respond to all or any subset of the questions, but the Agencies request 
that commenters relate their responses to specific questions when 
possible.
    Similar considerations arise when participants decide how to take 
retirement distributions from an IRA (including an IRA that holds 
rollover distributions from qualified retirement plans). Further, 
participants often elect to take lump sum distributions where they are 
available from defined benefit plans, which may also be rolled over to 
an IRA. Commenters are encouraged to address these contexts as well, 
identifying the particular types of arrangements to which their 
comments relate.
    All comments will be considered, and comments supported by 
references to empirical data will be particularly appreciated. In 
considering the questions set forth in this RFI, commenters are 
encouraged to take into account the following studies and commentary:

2009 GAO Report

    In July 2009, the Government Accountability Office (GAO) published 
Report GAO-09-642 entitled, ``Private Pensions: Alternative Approaches 
Could Address Retirement Risks Faced by Workers but Pose Trade-offs.'' 
The GAO found that workers face a number of risks in both accumulating 
and preserving pension benefits. The GAO found, in relevant part, that:

    Workers that receive lump-sum distributions, in particular, face 
several risks related to how they withdraw, or ``draw down'' their 
benefits, including:
     Longevity risk--retirees may draw down benefits too 
quickly and outlive their assets. Conversely, retirees may draw down 
their benefits too slowly, unnecessarily reduce their consumption, 
and leave more wealth than intended when they die.
     Investment risk--assets in which pension savings are 
invested may decline in value.
     Inflation risk--inflation may diminish the purchasing 
power of a retiree's pension benefits.

Commenters are encouraged to consider this GAO report in reviewing the 
issues identified in this RFI. This report may be accessed at http://
www.gao.gov/new.items/d09642.pdf.

2007 GAO Report

    In November 2007, the GAO published Report GAO-08-8 entitled, 
``Private Pensions: Low Defined Contribution Plan Savings May Pose 
Challenges to Retirement Security, Especially for Many Low-Income 
Workers.'' The GAO concluded that only 36 percent of workers 
participated in a current defined contribution plan in 2004, with the 
total median account balance (for workers with a current or former DC 
plan, including rolled-over retirement funds) of only $22,800. The 
median account balance was $50,000 for workers age 55 to 64 and $60,600 
for those age 60 to 64. The report is relevant to this RFI because the 
need for lifetime income may be most acute among workers who have small 
but significant retirement savings balances. Commenters are encouraged 
to consider this GAO report in reviewing the issues identified in this 
RFI. This report may be accessed at www.gao.gov/new.items/d088.pdf.

2003 GAO Report

    In July 2003, the General Accounting Office (GAO) published Report 
GAO-03-810 entitled, ``Private Pensions: Participants Need Information 
on Risks They Face in Managing Pension Assets at and During 
Retirement.'' The GAO concluded that:

    The decreasing number of employer-sponsored pension plans that 
offer only life annuities at retirement and the increasing 
percentage of retiring participants who choose benefit payouts other 
than annuities suggest that, in the future, fewer retirees may 
receive pension income guaranteed to last throughout retirement. The 
growth in the number of DC plans, along with the increasing 
availability of lump sums from DB plans, means that retirees will 
face greater responsibility and choices for managing their pension 
and other assets at and throughout retirement. Depending on their 
choices, retirees could be at greater risk of outliving their 
pension and retirement savings plan assets or ultimately having 
insufficient income to maintain their standard of living through 
their retirement years.
    Such risks underscore the need for providing enhanced 
information and education to participants about their available 
payout options, the issues they may face in managing retirement 
assets, and how different options may mitigate, or increase, these 
risks. As part of their responsibility, retirees will have to weigh 
certain pros and cons of different ways to manage and preserve 
pension assets. Currently, the notices that plan sponsors must 
furnish to retiring participants are not sufficient to help them 
choose payout options that suit their individual circumstances, 
while assuring adequate levels of such income to the extent 
possible. Our expert panel suggested that providing several types of 
information, such as on risks that could affect retirement income 
security, could help retiring participants make more informed 
decisions regarding how they balance income and expenditures during 
retirement.

    This report, which did not recommend executive branch action, 
nonetheless recommended that the Congress may wish to consider

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amending ERISA to require plan sponsors to provide participants with a 
notice on risks that individuals face in managing their income and 
expenditures at and during retirement. Commenters are encouraged to 
consider this GAO report in reviewing the issues identified in this 
RFI. This report may be accessed at http://www.gao.gov/new.items/
d03810.pdf.

ERISA Advisory Council Reports

    In 2007, the ERISA Advisory Council's Working Group on Financial 
Literacy of Plan Participants and the Role of the Employer undertook a 
study of numerous issues relating to increasing the financial decision-
making skills of plan participants. The Working Group issued a report 
containing, among others, the following recommendation: ``The Working 
Group recommends that the Department of Labor expand the reach of 
[Interpretive Bulletin 96-1] by changing and updating it. As innovation 
continues in the financial marketplace, educational initiatives will 
need to address items heretofore not necessarily addressed in 96-1. 96-
1 needs to address information, education, and advice in the de-
accumulation stage as well as the accumulation phase. Further, as 
innovation continues in this area, 96-1 needs to be continually 
updated.'' Commenters are encouraged to consider this report in 
reviewing the issues identified in this RFI. This report may be 
accessed at http://www.dol.gov/ebsa/publications/AC-1107a.html.
    In 2008, the ERISA Advisory Council's Working Group on the Spend 
Down of Defined Contribution Assets at Retirement undertook a study on 
the types of guidance that could help plan sponsors and plan 
participants make better informed decisions regarding plan investment 
and insurance vehicles that provide periodic or lifetime distributions. 
The Working Group issued a report containing, in relevant part, the 
following recommendations: (1) Expand the reach of Interpretive 
Bulletin 96-1 by adapting it to the spend down phase; (2) clarify that 
products which are eligible qualified default investment alternatives 
while participants are actively participating in the plan will continue 
to so qualify; (3) encourage, authorize, endorse and facilitate plan 
communications that use retirement income replacement formulas based on 
final pay and other reasonable assumptions in employee benefit 
statements on an individual participant basis; and (4) enhance plan 
sponsor and participant education by publishing and regularly updating 
information about the distribution options available to participants in 
defined contribution plans. Commenters are encouraged to consider this 
report in reviewing the issues identified in this RFI. This report may 
be accessed at www.dol.gov/ebsa/publications/2008ACreport3.html.

B. Request for Information

    The purpose of this notice is to solicit views, suggestions and 
comments from plan participants, plan sponsors, plan service providers 
and members of the financial community, as well as the general public, 
to assist the Agencies in evaluating what steps, if any, they could or 
should take, by regulation or otherwise, to enhance the retirement 
security of participants in employer-sponsored retirement plans and 
IRAs by facilitating access to, and use of, lifetime income or other 
arrangements designed to provide a stream of lifetime income after 
retirement. To facilitate consideration of the issues, the Agencies 
have set forth below a number of matters and specific questions with 
respect to which views, suggestions, comments and information are 
requested. In addition to addressing any or all of the matters and 
questions referred to below, interested persons are encouraged to 
address any other matters they believe to be germane to the Agencies' 
consideration of lifetime annuities and similar lifetime income issues, 
particularly as they relate to defined contribution plans and defined 
benefit plans that distribute benefits as lump sums.

General

    1. From the standpoint of plan participants, what are the 
advantages and disadvantages for participants of receiving some or all 
of their benefits in the form of lifetime payments?
    2. Currently the vast majority of individuals who have the option 
of receiving a lump sum distribution or ad hoc periodic payments from 
their retirement plan or IRA choose to do so and do not select a 
lifetime income option. What explains the low usage rate of lifetime 
income arrangements? Is it the result of a market failure or other 
factors (e.g., cost, complexity of products, adverse selection, poor 
decision-making by consumers, desire for flexibility to respond to 
unexpected financial needs, counterparty risk of seller insolvency, 
etc.)? Are there steps that the Agencies could or should take to 
overcome at least some of the concerns that keep plan participants from 
requesting or electing lifetime income?
    3. What types of lifetime income are currently available to 
participants directly from plans (in-plan options), such as payments 
from trust assets held under a defined benefit plan and annuity 
payments from insurance contracts held under a defined contribution or 
defined benefit plan?
    4. To what extent are the lifetime income options referenced in 
question 3 provided at retirement or other termination of employment as 
opposed to being offered incrementally during the accumulation phase, 
as contributions are made? How are such incremental or accumulating 
annuity arrangements structured?
    5. To what extent are 401(k) and other defined contribution plan 
sponsors using employer matching contributions or employer nonelective 
contributions to fund lifetime income? To what extent are participants 
offered a choice regarding such use of employer contributions, 
including by default or otherwise?
    6. What types of lifetime income or other arrangements designed to 
provide a stream of income after retirement are available to 
individuals who have already received distributions from their plans 
(out-of-plan options), such as IRA products, and how are such 
arrangements being structured (fixed, inflation adjusted, or other 
variable, immediate or deferred, etc.)? Are there annuity products 
under which plan accumulations can be rolled over to an individual 
retirement annuity of the same issuer to retain the annuity purchase 
rights that were available under the plan?
    7. What product features have a significant impact on the cost of 
providing lifetime income or other arrangements designed to provide a 
stream of income after retirement, such as features that provide 
participants with the option of lifetime payments, while retaining the 
flexibility to accelerate distributions if needed?
    8. What are the advantages and disadvantages for participants of 
selecting lifetime income payments through a plan (in-plan option) as 
opposed to outside a plan (e.g., after a distribution or rollover)?
    9. What are the advantages and disadvantages from the standpoint of 
the plan sponsor of providing an in-plan option for lifetime income as 
opposed to leaving to participants the task of securing a lifetime 
income vehicle after receiving a plan distribution?
    10. How commonly do plan sponsors offer participants the explicit 
choice of using a portion of their account balances to purchase a 
lifetime annuity, while leaving the rest in the plan or taking it as a 
lump sum distribution or a series of ad hoc distributions? Why do some

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plan sponsors make this partial annuity option available while others 
do not? Would expanded offering of such partial annuity options--or 
particular ways of presenting or framing such choices to participants--
be desirable and would this likely make a difference in whether 
participants select a lifetime annuity option?
    11. Various ``behavioral'' strategies for encouraging greater use 
of lifetime income have been implemented or suggested based on evidence 
or assumptions concerning common participant behavior patterns and 
motivations. These strategies have included the use of default or 
automatic arrangements (similar to automatic enrollment in 401(k) 
plans) and a focus on other ways in which choices are structured or 
presented to participants, including efforts to mitigate ``all or 
nothing'' choices by offering lifetime income on a partial, gradual, or 
trial basis and exploring different ways to explain its advantages and 
disadvantages. To what extent are these or other behavioral strategies 
being used or viewed as promising means of encouraging more lifetime 
income? Can or should the 401(k) rules, other plan qualification rules, 
or ERISA rules be modified, or their application clarified, to 
facilitate the use of behavioral strategies in this context?
    12. How should participants determine what portion (if any) of 
their account balance to annuitize? Should that portion be based on 
basic or necessary expenses in retirement?
    13. Should some form of lifetime income distribution option be 
required for defined contribution plans (in addition to money purchase 
pension plans)? If so, should that option be the default distribution 
option, and should it apply to the entire account balance? To what 
extent would such a requirement encourage or discourage plan 
sponsorship?
    14. What are the impediments to plan sponsors' including lifetime 
income options in their plans, e.g., 401(k) or other qualification 
rules, other federal or state laws, cost, potential liability, concern 
about counterparty risk, complexity of products, lack of participant 
demand?
    15. What are the advantages and disadvantages of approaches that 
combine annuities with other products (reverse mortgages, long term 
care insurance), and how prevalent are these combined products in the 
marketplace?
    16. Are there differences across demographic groups (for example 
men vs. women) that should be considered and reflected in any 
retirement security program? Can adjustments for any differences be 
made within existing statutory authority?

Participant Education

    The Department of Labor issued Interpretive Bulletin 96-1 (29 CFR 
2509.96-1) to clarify that the provision of investment education, as 
described in the Bulletin, will not be considered the provision of 
``investment advice,'' which would give rise to fiduciary status and 
potential liability under ERISA for plan participants' and 
beneficiaries' investment decisions.
    17. What information (e.g., fees, risks, etc.) do plan participants 
need to make informed decisions regarding whether to select lifetime 
income or other arrangements designed to provide a stream of income 
after retirement? When and how (i.e., in what form) should it be 
provided? What information currently is provided to participants, who 
typically provides it, and when and how is it provided to them?
    18. Is there a need for guidance, regulatory or otherwise, 
regarding the extent to which plan assets can be used to pay for 
providing information to help participants make informed decisions 
regarding whether to select lifetime income or other arrangements 
designed to provide a stream of income after retirement, either via an 
in-plan or out-of plan option?
    19. What specific legal concerns do plan sponsors have about 
educating participants as to the advantages and disadvantages of 
lifetime income or other arrangements designed to provide a stream of 
income after retirement? What actions, regulatory or otherwise, could 
the Agencies take to address such concerns?
    20. To what extent should plans be encouraged to provide or promote 
education about the advantages and disadvantages of lifetime annuities 
or similar lifetime income products, and what guidance would be helpful 
to accomplish this?

Disclosing the Income Stream That Can Be Provided From an Account 
Balance

    ERISA section 105 requires defined contribution plans to furnish to 
each participant an individual benefit statement, at least annually, 
that includes the participant's ``accrued benefits,'' i.e., the 
individual's account balance.
    21. Should an individual benefit statement present the 
participant's accrued benefits as a lifetime income stream of payments 
in addition to presenting the benefits as an account balance?
    22. If the answer to question 21 is yes, how should a lifetime 
stream of income payments be expressed on the benefit statement? For 
example, should payments be expressed as if they are to begin 
immediately or at specified retirement ages? Should benefit amounts be 
projected to a future retirement age based on the assumption of 
continued contributions? Should lifetime income payments be expressed 
in the form of monthly or annual payments? Should lifetime income 
payments of a married participant be expressed as a single-life annuity 
payable to the participant or a joint and survivor-type annuity, or 
both?
    23. If the answer to question 21 is yes, what actuarial or other 
assumptions (e.g., mortality, interest, etc.) would be needed in order 
to state accrued benefits as a lifetime stream of payments? If benefit 
payments are to commence at some date in the future, what interest 
rates (e.g., deferred insurance annuity rates) and other assumptions 
should be applied? Should an expense load be reflected? Are there any 
authoritative tools or sources (online or otherwise) that plans should 
or could use for conversion purposes, or would the plan need to hire an 
actuary? Should caveats be required so that participants understand 
that lifetime income payments are merely estimates for illustrative 
purposes? Should the assumptions underlying the presentation of accrued 
benefits as a lifetime income stream of payments be disclosed to 
participants? Should the assumptions used to convert accounts into a 
lifetime stream of income payments be dictated by regulation, or should 
the Department issue assumptions that plan sponsors could rely upon as 
safe harbors?
    24. Should an individual benefit statement include an income 
replacement ratio (e.g., the percentage of working income an individual 
would need to maintain his or her pre-retirement standard of living)? 
If so, what methodology should be used to establish such a ratio, such 
as pre-retirement and post-retirement inflation assumptions, and what 
are the impediments for plans to present the ratio in a meaningful way 
to participants on an individualized basis?

401(k) and Other Plan Qualification Rules

    Income Tax Regulations that apply specifically to lifetime 
annuities include: 26 CFR 1.401(a)-11, 26 CFR 1.401(a)-20, 26 CFR 
1.401(a)(9)-1 through 26 CFR 1.401(a)(9)-9, 26 CFR 1.417(a)(3)-1, and 
26 CFR 1.417(e)-1.

[[Page 5257]]

    25. How do the 401(k) or other plan qualification rules affect 
defined contribution plan sponsors' and participants' interest in the 
offering and use of lifetime income? Are there changes to those rules 
that could or should be made to encourage lifetime income without 
prejudice to other important policy objectives?
    26. Could or should any changes be made to the rules relating to 
qualified joint and survivor annuities and spousal consents to 
encourage the use of lifetime income without compromising spousal 
protections?
    27. Should further guidance clarify the application of the 
qualified joint and survivor annuity rules or other plan qualification 
rules to arrangements in which deferred in-plan insurance annuities 
accumulate over time with increasing plan contributions and earnings?
    28. How do the required minimum distribution rules affect defined 
contribution plan sponsors' and participants' interest in the offering 
and use of lifetime income? Are there changes to those rules that could 
or should be made to encourage lifetime income without prejudice to 
other important policy objectives? In particular, how are deferred 
annuities that begin at an advanced age (sometimes referred to as 
longevity insurance) affected by these rules? Are there changes to the 
rules that could or should be considered to encourage such 
arrangements?
    29. Are employers that sponsor both defined benefit and defined 
contribution plans allowing participants to use their defined 
contribution plan lump sum payouts to ``purchase'' lifetime income from 
the defined benefit plan? Could or should any actions be taken to 
facilitate such arrangements? Should plans be encouraged to permit 
retirees who previously took lump sums to be given the option of 
rolling it back to their former employer's plan in order to receive 
annuity or other lifetime benefits?

Selection of Annuity Providers

    The Department of Labor's regulation 29 CFR 2550.404a-4 contains a 
fiduciary safe harbor for the selection of annuity providers for the 
purpose of benefit distributions from defined contribution plans.
    30. To what extent do fiduciaries currently use the safe harbor 
under 29 CFR 2550.404a-4 when selecting annuity providers for the 
purpose of making benefit distributions?
    31. To what extent could or should the Department of Labor make 
changes to the safe harbor under 29 CFR 2550.404a-4 to increase its 
usage without compromising important participant protections? What are 
those changes and why should they be made?
    32. To what extent could or should the safe harbor under 29 CFR 
2550.404a-4 be extended beyond distribution annuities to cover other 
lifetime annuities or similar lifetime income products? To which 
products should or could the safe harbor be extended?

ERISA Section 404(c)

    ERISA section 404(c) and 29 CFR 2550.404c-1 provide defined 
contribution plan fiduciaries with limited relief from the fiduciary 
responsibility provisions of ERISA where a participant or beneficiary 
exercises control over the assets in his or her account.
    33. To what extent are fixed deferred lifetime annuities (i.e., 
incremental or accumulating annuity arrangements) or similar lifetime 
income products currently used as investment alternatives under ERISA 
404(c) plans? Are they typically used as core investment alternatives 
(alternatives intended to satisfy the broad range of investments 
requirement in 29 CFR 2550.404c-1) or non-core investment alternatives? 
What are the advantages and disadvantages of such products to 
participants? What information typically is disclosed to the 
participant, in what form, and when? To what extent could or should the 
ERISA 404(c) regulation be amended to encourage use of these products?
    34. To what extent do ERISA 404(c) plans currently provide lifetime 
income through variable annuity contracts or similar lifetime income 
products? What are the advantages and disadvantages of such products to 
participants? What information about the annuity feature typically is 
disclosed to the participant, in what form, and when? To what extent 
could or should the ERISA 404(c) regulation be amended to encourage use 
of these products?

Qualified Default Investment Alternatives

    ERISA section 404(c)(5) provides that, for purposes of ERISA 
section 404(c)(1), a participant in a defined contribution plan will be 
treated as exercising control over the assets in his or her account 
with respect to the amount of contributions and earnings if, in the 
absence of an investment election by the participant, such assets are 
invested by the plan in accordance with regulations of the Department 
of Labor. The Department of Labor's regulation 29 CFR 2550.404c-5 
describes the types of investment products that are qualified default 
investment alternatives under ERISA section 404(c)(5).
    35. To what extent are plans using default investment alternatives 
that include guarantees or similar lifetime income features ancillary 
to the investment fund, product or model portfolio, such as a target 
maturity fund product that contains a guarantee of minimum lifetime 
income? What are the most common features currently in use? Are there 
actions, regulatory or otherwise, the Agencies could or should take to 
encourage use of these lifetime income features in connection with 
qualified default investment alternatives?

Comments Regarding Economic Analysis, Regulatory Flexibility Act, and 
Paperwork Reduction Act

    Executive Order 12866 (EO 12866) requires an assessment of the 
anticipated costs and benefits of a significant rulemaking action and 
the alternatives considered, using the guidance provided by the Office 
of Management and Budget. In addition, the Regulatory Flexibility Act 
(RFA) may require the preparation of an analysis of the economic impact 
on small entities of proposed rules and regulatory alternatives. For 
this purpose, the Agencies consider a small entity to be an employee 
benefit plan with fewer than 100 participants. The Paperwork Reduction 
Act (PRA) requires an estimate of how many ``respondents'' will be 
required to comply with any ``collection of information'' requirements 
contained in regulations and how much time and cost will be incurred as 
a result.
    The Agencies in this section of the RFI are requesting comments 
that may contribute to any analyses that may eventually need to be 
performed under EO 12866, RFA, and PRA, both generally and with respect 
to specific areas identified in questions 36 through 39.
    36. What are the costs and benefits to a plan sponsor of offering 
lifetime annuities or similar lifetime income products as an in-plan 
option? Please quantify if possible.
    37. Are there unique costs to small plans that impede their ability 
to offer lifetime annuities or similar lifetime income products as an 
in-plan option to their participants? What special consideration, if 
any, is needed for these small entities?
    38. Would making a lifetime annuity or other lifetime income 
product the default form of benefit payment have an impact on employee 
contribution rates? If so, in which direction and why?

[[Page 5258]]

    39. For plans that offer lifetime annuities or similar lifetime 
income products, what percentage of eligible workers elect to annuitize 
at least some of their retirement assets and what percentage elect to 
annuitize all of their assets?

    Signed at Washington, DC, this 27th day of January 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Signed at Washington, DC, this 27th day of January 2010.
Nancy J. Marks,
Division Counsel/Associate Chief Counsel, Tax Exempt and Government 
Entities, Internal Revenue Service, Department of the Treasury.
    Signed at Washington, DC, this 26th day of January 2010.
J. Mark Iwry,
Senior Advisor to the Secretary, Deputy Assistant Secretary for 
Retirement and Health Benefits, Department of the Treasury.
[FR Doc. 2010-2028 Filed 2-1-10; 8:45 am]
BILLING CODE P