March 9, 2010

Letters Editor
Plan Adviser
1055 Washington Boulevard
Stamford, CT 06901

To The Letters Editor,

“IMHO: Safety Knot” (February 16, 2010) recognizes the benefits of a guaranteed lifetime stream of income that can be provided by annuities. The opinion piece, however, contains some misconceptions about annuities and misunderstandings of the Treasury and Department of Labor request for information (RFI) about the use of lifetime income in retirement plans. The RFI specifically states that the agencies are looking at steps to facilitate access to and use of lifetime income in retirement plans.  This is no call for a mandate or government control of retirement savings.

The RFI is not a regulation but the beginning of what is expected to be a long process for which the outcome is yet to be determined. However, one thing is clear. Today, retirees face a serious risk of outliving their retirement savings. More than ever, Americans are personally responsible for not only building savings but for managing those savings to last throughout retirement.

Defined benefit plans that provided a steady pension in retirement are rapidly in decline. Increasingly, Americans are saving for retirement through 401(k) or similar plans. While these tools are effective ways to save, they do not provide retirees a steady income, raising the risk that many Americans will outlive their savings.

Making annuities more accessible within defined contribution plans is one way to address this threat to retirement security. As the only product that can convert savings into a guaranteed stream of retirement income, annuities fit well as an option within workplace retirement plans.

Annuities can provide a promise of a payment of guaranteed income on a monthly basis for life.  Individuals can obtain additional flexibility within an annuity that provides a death benefit or a provision to have annuity payments continue to a survivor. Additional flexibility may add some additional complexity, but life insurers seek to provide useful and appropriate information to the purchasers of annuities. In responding to the  request for information we expect to provide the agencies with our thoughts on how best to provide useful information about annuities to employers and participants.

Another misconception in the opinion piece concerns the question about the long-term viability of life insurance companies that provide annuities.  The record on this topic is clear.  Annuitants receive  the income they are entitled to. The five trillion dollar life insurance industry, which alone can provide annuity contracts, remains a pillar of the nation’s financial system. While the effect of the nation’s economic downturn has been widespread, not one annuity owner has missed receiving annuity payments. To suggest otherwise is misleading -- which is about the nicest thing to say about “Safety Knot.”

Sincerely,

Walter Welsh

Walter Welsh is Executive Vice President, Taxes and Retirement Security for the American Council of Life Insurers