United States: Lincoln Secured Retirement Income(SM) Solution: Fiduciary Process In Evaluating In-Plan Guarantees

Last Updated: March 19 2014
Article by Frederick Reish and Bruce L. Ashton

Lincoln Financial Group believes that plan sponsors considering a guaranteed withdrawal benefit solution should have a full understanding of the product and other alternatives, including the Lincoln Secured Retirement IncomeSM solution. In particular, Lincoln Financial Group believes it would be especially helpful for the plan sponsor to receive this information from an independent and experienced source. Accordingly, Lincoln Financial Group has commissioned Drinker, Biddle & Reath, LLP to prepare this white paper entitled, "Lincoln Secured Retirement IncomeSM Solution: Fiduciary Process in Evaluating In-Plan Guarantees."

INTRODUCTION

This White Paper discusses the fiduciary process for selecting in-plan lifetime income guarantees. In a companion White Paper, entitled "Lincoln Secured Retirement IncomeSM Solution: Addressing Participant Retirement Income Risks," we examine the risks confronting retirees in managing their retirement savings and review available solutions – some of which are guaranteed and some not – including, in particular, the Lincoln Secured Retirement IncomeSM solution. (For a copy of the companion White Paper, go to http://www.drinkerbiddle.com/resources/publications/2013/Lincoln-Secured-Retirement-Income-Solution-Addressing-Participant-Retirement-Income-Risks). In this paper, we discuss the steps for a prudent process for selecting a guaranteed lifetime income solution under the Employee Retirement Income Security Act of 1974 (ERISA) and similar state laws applicable to government plans, and offer a proposed fiduciary checklist to assist in that process.

At the outset, it is important to acknowledge that neither ERISA nor comparable state laws require defined contribution plans (including 401(k), 403(b) and 457 plans) to provide an in-plan lifetime income solution for participants. Nevertheless, the issue of how participants will manage their accounts and IRAs to provide sustainable lifelong income is gaining increasing attention. As a result, plan sponsors are concerned about the risks confronting their participants, and are considering services and products to help them obtain sustainable income in retirement. The selection of such products and their providers requires a prudent process, which is the subject of this White Paper. In addition to discussing the process for the selection and monitoring of these products generally, we provide a specific analysis of The Lincoln National Life Insurance Company (hereafter referred to as Lincoln Financial) and the Lincoln Secured Retirement IncomeSM solution.

Retiree Risks

Our companion White Paper points out that participants face a variety of risks, including the following:

  • The amount of replacement income a retiree needs to pay his bills, both monthly and unanticipated. Studies suggest that the amount is between 75% and 85% of final pre-retirement pay.
  • How long a retiree (and perhaps the retiree's spouse) will live following retirement. The statistical probability is that, for married participants, either the retiree or the spouse may live 30 or more years after retirement.
  • The sequence of returns risk, that is, the risk and impact of market downturns after a retiree begins to withdraw from his investments. Losses due to stock market volatility soon after retirement will likely never be recouped.
  • The "safe" rate at which a retiree can withdraw money out of his retirement savings each month and continue to do so for at least 30 years: Financial models suggest that withdrawal rates of between 3% and 5% of a 65-year old retiree's initial account balance are "safe" (depending on the assumptions used in the model).
  • The impact of inflation.
  • "Cognitive impairment," that is, the degradation of the ability to make sound financial decisions as a retiree gets older.

For a more complete discussion, including a discussion of how few participants understand or are prepared to face them and an assessment of how the Lincoln Secured Retirement IncomeSM solution addresses these risks, please refer to the companion White Paper.

This paper focuses on lifetime income solutions that are guaranteed by insurance companies. "Lifetime income" refers to a product or service designed to provide a retiree with a sustainable stream of income over his projected post-employment lifetime. A product is "guaranteed" if the amount of the income and the obligation to pay that amount is backed by an insurance company. As explained in the companion White Paper, these primarily consist of guaranteed withdrawal benefit (GWB) features, such as those available in the Lincoln Secured Retirement IncomeSM investment option, and traditional annuities.

Conclusions

Selection of a lifetime income guaranteed solution is a fiduciary decision. Even though the selection, in part, involves an assessment of the ability of the insurance company to meet its financial commitments in the future, this does not require fiduciaries to guarantee the future. They must engage in a prudent process to reach an informed and reasoned decision. In this sense, the selection is no different from any other decision that fiduciaries are required to make – except in the details of the information the fiduciaries must collect and analyze about the insurance company and the GWB.

The Department of Labor (DOL) has adopted a safe harbor regulation describing the process for selecting the issuer of annuities for defined contribution plans. Using this as a framework, Martin Schmidt1 of HS2 Solutions2, an independent financial advisor (with input from representatives of Lincoln Financial) has developed a checklist of the type of information that fiduciaries should consider. While not intended to be an exclusive list, the checklist includes the following items:

There are four main areas that fiduciaries should consider when evaluating an insurance company:

  • Financial strength of the company
  • Evaluation by the rating agencies
  • Commitment and success in the insurance industry
  • Diversification of the business lines

For each of these major categories, the checklist indicates the information to be assessed, how to obtain the information, and, where relevant, how to compare the information gathered on different providers. These areas are more fully developed in the checklist.

The complete checklist and our commentary are included in Appendix A to this White Paper.

In Appendix B, we include an analysis, based on a report prepared by Martin Schmidt of HS2 Solutions, that assesses Lincoln Financial and its Secured Retirement IncomeSM solution using the criteria set forth in the checklist. Mr. Schmidt's conclusion is that a fiduciary would be considered to act prudently if it selects the Lincoln Secured Retirement IncomeSM solution for its plan.

In his analysis, Mr. Schmidt concludes:

At the date of this White Paper, based on the reported information and how it is measured against the standards established in the checklist, a fiduciary may reasonably conclude that The Lincoln National Life Insurance Company is financially able to make future payments on the Lincoln Secured Retirement IncomeSM solution and would be a prudent choice for a fiduciary when evaluating an insurance company. From an objective measure, the company has a strong financial structure and is rated highly by each of the rating agencies. The company also has sufficient size when compared to other insurance companies in the industry. From a subjective measure, the company has a long history in the annuity business and has experienced significant growth over the years. While the annuity business is a core product offering, the company also benefits from diversification across multiple lines of business which should help reduce volatility in down market cycles. Finally, the company has a strong reputation in the insurance market.

To understand the scope and limitations of this conclusion, it is essential to review the analysis set forth in Appendix B.

In Appendix C, we include an analysis of the Lincoln Secured Retirement IncomeSM solution as it compares with other GWB products available in the marketplace. The analysis is based on a report prepared by Mr. Schmidt.

The Lincoln Secured Retirement IncomeSM solution is the next generation in-plan guaranteed minimum withdrawal benefit offering available in the DC marketplace. As a product offering, it guarantees a stream of income payments to a participant, regardless of the contract account value. It also allows DC plan participants to protect their income prior to and during retirement while at the same time allowing for participation in a positive investment experience. The product offering also addresses several retiree risks, especially the sequence of returns and longevity issues, with added flexibility that is not available in other product offerings.

The Secured Retirement IncomeSM solution compares very favorably with the other product offerings. Several unique features were identified with the Secured Retirement IncomeSM solution when compared to the other product offerings.

To fully understand the basis for Mr. Schmidt's conclusions, it is essential to review the analysis set forth in Appendix C.

In the balance of this paper, we summarize the terms of the Lincoln Secured Retirement IncomeSM solution and then discuss the legal framework applicable to selecting a guaranteed lifetime income solution.

THE LINCOLN SECURED RETIREMENT INCOMESM INVESTMENT OPTION

The Lincoln Secured Retirement IncomeSM solution provides a guarantee of lifetime income to retirees. Initially, retirees withdraw from their retirement plan account or IRA at a specific rate. If those funds are depleted, Lincoln will continue to make annual payments to the retiree at the same rate. The following summarizes the key features of the product:

  • The Lincoln Secured Retirement IncomeSM guarantee is available through a group variable annuity contract. Assets are invested through a separate account in the Lincoln Financial LVIP Managed Risk Profile Moderate Fund (the "Moderate Fund"). The Moderate Fund:

    • Utilizes a multi-manager structure
    • Invests approximately 60% in equity securities and 40% in fixed-income securities.
    • Invests in funds that employ both passive and active management styles
    • Employs a risk management strategy that seeks to lower the volatility of returns and provide capital protection in down markets.
  • A primary use of the Lincoln Secured Retirement IncomeSM investment option will be in plans that use Lincoln LifeSpan® custom target-date portfolios that include the Moderate Fund with the Lincoln Secured Retirement IncomeSM investment option in the portfolios' glide path.

The glide path of the portfolios allocates 10% of a participant's account balance in the portfolio to the Secured Retirement IncomeSM investment option beginning 10 years from the target retirement date. Each year under the glide path, an additional 10% of the account balance is allocated to the Secured Retirement IncomeSM investment option, so that when the participant reaches his target retirement date, up to 100% of his account balance will have the Lincoln Secured Retirement IncomeSM guarantee. As a result of this feature, the guarantee gradually accrues, and the participant pays for the guarantee only as it accrues. The glide path can be designed and managed by Ibbotson Associates, or the plan may engage an RIA or other intermediary acting as an investment manager under ERISA Section 3(38) who creates an asset allocation model and custom glide path.3 Plan sponsors and their advisors can also choose to have the final glide path allocation to the Secured Retirement IncomeSM investment option be less than 100% if desired.

  • There are two elements of cost paid out of a participant's account, neither of which reduce the participant's Income Base (described below):

    1. 90 basis points on the Income Base for the guarantee provided by Lincoln; and
    2. 85 basis points, which includes the investment management fee (80 basis points) and a mortality and expense charge (5 basis points)4

The 90 basis-point charge only applies to the portion of a participant's balance allocated to the Secured Retirement IncomeSM investment option when used in conjunction with the Lincoln LifeSpan® target-date portfolio. Thus, if 10% of a participant's balance is allocated to the Secured Retirement IncomeSM investment option, the fee on the Income Base would only apply to the amount allocated to that option. Additionally, the 85 basis points contain 30 basis points in available revenue sharing back to the plan for a net "all in" cost of 1.45%.

  • For the 90 basis-point fee, Lincoln guarantees payment to the participant of a specified percentage (referred to as the Guaranteed Annual Income or GAI) of his Income Base if his account balance runs out during retirement. Payment of the GAI is conditioned on the retiree not withdrawing more in a benefit year than a specified amount.
  • Withdrawals may start at age 55, with a single-life Guaranteed Annual Income of 4% of the Income Base and 3.5% on a joint and survivor basis. Between ages 65 and 70, the amounts will be 5% and 4.5%; from age 71 and older, 6% and 5.5%.5
  • The initial amount of the Income Base is the market value of the assets in the Secured Retirement IncomeSM investment option on the beginning date, which is the date assets in a participant's account are first invested in the Secured Retirement IncomeSM investment option.

    Each year, on the anniversary of the beginning date, the Income Base is re-calculated and reset to equal the greater of:

    • The prior Income Base plus all deposits into the Secured Retirement IncomeSM investment option and less any excess withdrawals; or
    • The market value of the assets in the Secured Retirement IncomeSM investment option on the anniversary date.

Assuming the participant does not transfer money out of the Secured Retirement IncomeSM investment option, the Income Base can only go up; it cannot go down. It may grow post-retirement (up to age 86) with increases in market value year-over-year after taking into account purchases and withdrawals

If withdrawals exceed the Guaranteed Annual Income amount, the Income Base will decline proportionately to the reduction in market value of the participant's account.

For a more complete description, see our companion White Paper: "Lincoln Secured Retirement IncomeSM Solution: Addressing Participant Retirement Income Risks."

THE LEGAL FRAMEWORK

Summary

The first step for plan sponsors in selecting in-plan lifetime income guarantees is to have a basic understanding of the legal foundation of the fiduciary process.

Under ERISA and many state laws, the fiduciaries of defined contribution plans must act in the best interest of the participants and for the exclusive purpose of providing them with retirement benefits and defraying the reasonable expenses of operating the plan.6 These are referred to as the "duty of loyalty" and the "exclusive purpose requirement." A fiduciary's conduct in carrying out these duties is judged under the prudent man, or prudent person, rule, which requires fiduciaries to act with care, skill, diligence and prudence in carrying out their duties, taking into account current circumstances.7

The prudent man rule has been interpreted to require that fiduciaries engage in a prudent process for making decisions. In a leading case, Judge Antonin Scalia (now Justice Scalia of the U.S. Supreme Court) described the rule as requiring procedural prudence and substantive prudence.8 Procedural prudence refers to the steps that a fiduciary should take in reaching a decision. It requires gathering information a fiduciary knows or should know is relevant to the decision to be made and then assessing that information. Substantive prudence refers to the obligation of a fiduciary to make a decision based on the information and assessment, though in more recent cases, courts have used the term to mean a decision that a prudent fiduciary could have properly made even though it did not engage in a prudent process.9 The prudent process effectively requires a fiduciary to make an informed and reasoned decision.

Fiduciaries must make decisions on a variety of subjects. Most have to do with managing or administering the plan: interpreting the plan document; deciding who enters the plan and when; making decisions about benefits, distributions, vesting; and selecting service providers. The other major area relates to selecting the assets of the plan. In the case of participant-directed defined contribution plans, this means selecting and monitoring the plan's investment alternatives that are offered to the participants. The selection of an in-plan lifetime income solution is one of these fiduciary decisions. And all of these decisions require the fiduciary to use the same prudent process.

Selecting a Guaranteed Lifetime Income Solution

Information to Consider

The central ingredient of a GWB solution is that an insurance company guarantees that it will make payments of a specified amount to a retiree at some point in the future. In order to obtain this guarantee, the participant's account must be invested in a specified investment portfolio, such as a balanced fund or target-date fund. In the case of a guaranteed withdrawal benefit (GWB) feature, the guaranteed payments will start if and when a retiree exhausts his account in the plan or the assets in his rollover IRA. Where a GWB is offered in the plan, the obligation to pay will not arise until years in the future, after the participant has retired and has exhausted his account or rollover IRA through periodic distributions under the GWB provisions.

For example, consider a participant who begins investing in the GWB solution at age 55, retires at age 65, and begins taking withdrawals from his account or IRA. He will be withdrawing his own funds for a number of years, and only after his funds run out will the insurance company begin making payments. Thus, the guaranteed lifetime payments will begin many years after retirement.

Because of this, some fiduciaries view the selection of an insurance company as more challenging than other fiduciary decisions. What is often overlooked, however, is that this decision is no different from any other, especially when compared to the selection of plan investment options. That is, it requires the same process of procedural and substantive prudence. The only variables are in the information that needs to be gathered and analyzed.10

The U.S. Department of Labor (DOL) has adopted a fiduciary safe harbor regulation under ERISA that provides a framework for selecting annuity providers in defined contribution plans – though it states that the steps described in the regulation are not the only way a fiduciary may make a prudent selection.11 The regulation does not specifically refer to GWBs, but in our view the concepts in the safe harbor are relevant by analogy. This is true because in both cases (annuity and GWB), a fiduciary is required to come to the conclusion that, based on available information, the provider is able to meet its future payment obligation. The regulation requires that a fiduciary take the following steps:

  • A fiduciary must engage in an "objective, thorough and analytical search" to identify and select the insurance company (e.g., the issuer of the GWB). In other words, a fiduciary must engage in a prudent process.
  • A fiduciary must "appropriately consider information to assess the ability of the [provider] to make all future payments under the [contract]." That is, the fiduciary must gather relevant information and make a careful assessment of that information.
  • Finally, a fiduciary must conclude that "at the time of the selection, the [provider] is financially able to make all future payments under the [contract] and the cost of the [contract] is reasonable in relation to the benefits and services to be provided under the contract." In other words, the fiduciary must make an informed and reasoned decision.

The DOL notes that, if necessary, the fiduciary should seek assistance from a knowledgeable advisor in connection with the decision.

The final element from this list, that the fiduciary conclude that the provider is financially able to make all future payments, is made "at the time of selection." This means that a fiduciary is not required to predict the future, only that it should evaluate the provider's ability at the time the decision is made and then monitor the financial strength periodically thereafter.

Unfortunately, the regulation offers little guidance about the information that should be considered and addressed by a fiduciary. When it originally proposed the regulation, the DOL specified that fiduciaries should consider certain information, including the insurance company's experience in providing annuities, its level of capital, surplus and reserves, ratings from insurance rating agencies, the structure of the contract, the availability of state guarantees.12 However, these factors were omitted in the final regulation, the DOL explaining that it had concluded they were not necessary and potentially confusing.13

In the preamble to the final regulation, however, the DOL notes that "... although an annuity provider's ratings by insurance ratings services are not part of the final safe harbor, in many instances, fiduciaries may want to consider them, particularly if the ratings raise questions regarding the provider's ability to make future payments under the annuity contract [Emphasis added]."14 High ratings would appear to be a strong indicator of an insurance company's ability to make future payments under its contract, especially if they are consistently high across the various rating agencies and over a full economic cycle. At the same time, fiduciaries should take into account any negative information. (For further information about ratings and the four major ratings services for life insurance companies, see Appendix A.)

Notwithstanding the deletion of these items in the final regulation, we believe that the list from the proposed regulation is helpful in understanding the types of information the DOL considered relevant. As such, they offer a guide of sorts for assessing the ability of an insurance company to make payments in the future.

In addition to information about the insurance company, fiduciaries must assess the features and cost of the GWB. Presumably, as a result of the 408(b) (2) disclosures that service providers are required to make and the 404a-5 disclosures that must be made to participants, the information should be available, though the cost assessment requires comparison with other, similar products available in the market. Based on the GWB products current being offered, the cost of the guarantee ranges from 90 basis points to as much as 150 basis points on the invested amount to which the guarantee applies.15 The variation in cost generally relates to the features of the guarantee. For example, can the income base grow after retirement? When does the charge begin, when a participant first invests in the product or at a specified age? Is the charge phased in over time? What are the guaranteed annual income rates? These and other factors should be considered in assessing the reasonableness of the cost. Information regarding the features of GWBs offered by various providers can be obtained on the website of the Institutional Retirement Income Committee at www.iricouncil/ comparison.

Timing of the Decision

After assessing the information, committees must determine that the insurance company is financially able to make all future payments and that the cost of the contract is reasonable. This conclusion must be made "at the time of the selection" of the insurance company.16 This is consistent with the prudent man rule, which says that fiduciaries must base their actions and decisions on the "circumstances then prevailing." That is, prudence is determined at the time the decision is made and not measured using hindsight.

A plan committee that is considering the selection of a GWB provider must take into account information available to it at the time of the decision that would indicate the financial strength of the provider. The committee is not legally accountable for whether the provider will be around in 30 or 40 years and have the financial wherewithal to make the required payments at that time. It is not required to predict the future. It is only required to make a decision, based on today's information, about whether it is reasonable to believe that the provider has the financial ability to make the payments in the future.

The distinction between predicting the future and making a decision now about the financial ability of the provider may be a subtle one, but it is important. It hinges on the issue of whether the committee has acted prudently. If the committee can conclude, based on today's data, that the insurer can meet its obligations, the committee will have fulfilled its duty even if the insurance company later becomes insolvent. There is an ongoing duty to monitor the selection, to confirm whether the earlier determination of the financial strength of the insurance company remains prudent, but the monitoring decision will be also based on the circumstances then prevailing (i.e., the information then available) and, in effect, will constitute a new "informed and reasoned" decision.

No bright-line test exists as to the frequency for such a review. The DOL website, for example, recommends that "[a]n employer should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using the current service providers or look for replacements."17 At the very least, a review should occur whenever new information comes to light that suggests there might be a problem with the selection. In the absence of adverse information, a review every three to four years would seem to be adequate, in light of how the market for GWBs is evolving and the fact that new products may be introduced that are better suited for a given plan.

Portability

There are two aspects to the issue commonly referred to as "portability." The first relates to participants upon termination of employment. The second relates to a change in plan service providers.

The issue for a participant is whether he will be able to retain the GWB guarantee if he changes employment. In that situation, he will no longer be eligible to participate in the plan that offers the GWB. Does this mean that he will lose the guarantee and the amounts charged to his account to pay for it? The answer is "no" for several reasons. First, unless he has a small account (under $5,000), the employee will be able to leave his account balance in the plan of his former employer and retain the investment with which the GWB is associated. The employee will not be able to add to the investment and thus "buy" additional guaranteed amounts, but at least he will not lose what he has already accumulated.

In addition, GWB providers will generally permit the participant to roll the GWB fund to an IRA with that provider. Again, this will preserve the guarantee and may permit the participant to increase the amount that is guaranteed through additional investment in the GWB fund. As the market evolves, it may also be possible for participants to rollover the GWB fund to an IRA trusteed by a different provider, and possibly to the plan of a new employer, but these alternatives are not currently readily available.

The issue at the employer level is more complex. For a variety of reasons, the employer may decide that it is important to change providers. As currently structured, GWB products are currently only available where the provider also serves as the recordkeeper for a plan. Thus, if the employer changes providers, the GWB product may no longer be available, and the participants who elected to purchase the GWB product may lose the guarantee of future income, the income base guarantee and effectively the amounts paid for the guarantee. This possibility raises the issue of whether the employer is precluded from changing providers because it will damage at least a portion of the participant population.

As to the latter issue, DOL guidance and case law indicates that fiduciaries must act in the best interest of the participants as a whole and not in the interest of each participant.18 Thus, if the decision to change providers is a prudent one and is in the interest of the participant population generally, the fact that certain participants may be disadvantaged does not preclude the change.

In addition, providers are currently working on ways to ensure that if a plan makes a provider change, the GWB product purchased by individual participants may be retained. In the case of Lincoln, for example, it uses a recordkeeping system, also used by several other providers, under which the participant will be able to retain the GWB product and access information about it on the new provider's website. In addition, an industry group to which many recordkeepers belong has developed protocols that, if adopted by the recordkeepers will lead to the same result. While a change in providers that will not disadvantage participants and will make for a seamless transition is still a work in progress, it can be anticipated that a resolution of the portability issue will be forthcoming in the not too distant future.

GWBs as a QDIA

In a participant-directed plan, if a participant fails to provide instructions for the investment of deferrals or other contributions to his account, the fiduciaries are required to invest those amounts for him. As with any fiduciary decision, the fiduciaries must act prudently in making the investment decision and can be held liable for losses suffered by the participant if they fail to do so. ERISA Section 404(c)(5) and a related regulation under that section provide fiduciaries with a safe harbor, so long as the amounts are invested in a "qualified default investment alternative" (or QDIA) and the fiduciaries comply with certain notice requirements. In essence, the participant is deemed to have exercised control over his account.

The regulation under Section 404(c)(5) provides that three types of investments qualify as QDIAs: target-date funds, a balanced fund and a managed account service that allocates the participants account among the investment options available under the plan. It would appear that a GWB product, such as the Lincoln Secured Retirement IncomeSM solution which uses a moderate balanced fund as the underlying investment, would meet this requirement except for the fact that it includes the GWB guarantee, which is an insurance feature. So the question becomes whether this added feature disqualifies the GWB as a QDIA.

In the regulation under Section 404(c)(5), the DOL indicated that QDIAs may be offered through "variable annuity or similar contracts" and "without regard to whether such contracts or funds provide annuity purchase rights, investment guarantees, death benefit guarantees or other features ancillary to the investment fund product or model portfolio."19 In light of this statement, it is clear that a product that otherwise meets the definition of a QDIA will still qualify if it also contains the GWB feature.

CONCLUSION

The selection of an annuity provider is not inherently different from any other decision that must be made by plan fiduciaries. While the ERISA safe harbor regulation does not provide a roadmap of the specific information for fiduciaries to review, fiduciaries may not need to follow all the steps outlined in the safe harbor regulation, if they select an insurance company with the following characteristics:

  • A well-known reputation
  • A significant volume of annuity business and a history of successful management of that business
  • Consistently high ratings from the major ratings agencies over a long period
  • A company that is well-financed

Nevertheless, we believe that the criteria reflected in the checklist attached as Appendix A would be appropriate in selecting a provider.

To read the full White Paper, click here.

To view a sample checklist for evaluating an insurance company, please click here.

Footnotes

1 Mr. Schmidt is a Principal with HS2 Solutions. With more than 25 years of experience working with both plan sponsors and providers of benefit-related issues, he focuses on retirement for HS2 Solutions. Mr. Schmidt's expertise covers a range of both technical and strategic issues affecting benefit and retirement plans. His areas of concentration include plan design, asset allocation strategies, fee benchmarking, and vendor selection. Prior to joining HS2, Mr. Schmidt was a Midwest region leader with Buck Consultants' Defined Contribution practice. He previously worked at Hewitt Associates in the Benefits Outsourcing practice in a variety of leadership roles with a concentration on relationship management, product design, financial services, and service delivery. Mr. Schmidt is a founding member, member of the board of directors and adviser member of the Institutional Retirement Income Council. For further information, go to http://iricouncil.org/advisers#mSchmidt.

2 See www.hs2solutions.com for further information.

3 Ibbotson provides three landing points as part of the glide path it designs – 100%, 75%, or 50% in which the annual amount allocated to the Moderate Fund increases by 10%, 7.5% and 5% respectively. Other glide paths can be accommodated within the asset allocation models.

4 Lincoln has created three additional version of the Lincoln Secured Retirement IncomeSM guarantee with M&E charges of 25, 45 or 65 basis points to accommodate plans with different cost structures. The higher M&E charges are available to the plan as additional revenue sharing.

5 The Lincoln contract allows flexibility with the payout rates. For example, if interest rates and inflation rise, Lincoln could increase the payout rates accordingly. If this occurs, participants "lock in" their old rate on existing balances and the new rate applies to new contributions to the Moderate Fund. This creates a weighted average guaranteed annual income that is consolidated under the existing contract and consolidated within the Lincoln recordkeeping system.

6 ERISA Section 404(a)(1).

7 Id at subsection (a)(1)(B).

8 Fink v. National Savings & Trust Co., 772 F.2d 951, 962 (D.C. Cir. 1985)

9 Id.

10 See, e.g., ERISA Regulation Section 2550.404a-4.

11 Id.

12 72 Fed.Reg. 52025.

13 See 73 Fed.Reg. 58448.

14 Id.

15 See, e.g., http://iricouncil.org/docs/Comparison%20of%20Product%20Features%20High%20Res.pdf.

16 ERISA Regulation Section 2550.404a-4(c).

17 See www.dol.gov/ebsa/publications/fiduciaryresponsibility.html. Emphasis added.

18 See, e.g., DOL Field Assistance Bulletin 2006-01, addressing the allocation of market timing proceeds among the plan's participants. See also FAB 2003-3, and Borneman v. Principal, 291 F. Supp. 2d 935 (S.D. Iowa 2003) ("As a fiduciary, [the plan sponsor] has a duty to act in the best interests of all plan participants and beneficiaries, not simply a duty to act in the best interests of each individual plan participant or beneficiary.")

19 ERISA Regulation §2550.404a-5(e)(4)((vi).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Frederick Reish
Bruce L. Ashton
 
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The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.