March 6, 2012

Dear Academy Member,

In August 2011, the Academy’s Public Interest Committee (PIC) sought input from the membership on a proposed statement advocating stronger policy support for lifetime income solutions for Americans. We received 111 comments, all of which reflected a great deal of thought regarding the proposed statement and the subject of lifetime income itself. The quality of the responses was impressive, reflecting both extraordinary expertise in lifetime income issues as well as intense interest in the topic.

The membership’s response affirmed the Academy’s motivation for addressing this issue: that this is an important topic on which the actuarial voice needs to be heard. The feedback also illustrated, however, that, for actuaries, the issues are varied and complex—and that the contribution of the actuarial profession to this important policy area cannot adequately be captured in a single, brief statement.

As a result, and with the concurrence of its Board of Directors, the Academy is expanding its lifetime income initiative to a year-long examination of these critical areas:

• The nature of longevity risk
• How people make decisions related to lifetime income
• The role of taxes, incentives, mandates, and defaults

Over the course of 2012, we plan to engage actuaries and non-actuaries alike in a close and thorough examination of these critical areas. We will be sponsoring webinars, panel discussions, and symposia to stimulate discussion and the exchange of ideas both within and beyond the profession. Our objectives are to:

• Educate consumers and the public—either directly or indirectly
• Educate policy makers about the important actuarial aspects of lifetime income
• Develop specific policy recommendations

We sincerely thank the many members who responded so thoughtfully last year to the proposed statement. You had much to say—and we heard you!

Sincerely,

Tom Terry
Chairperson, Public Interest Committee
American Academy of Actuaries

Summary of feedback from members

Overall, the membership response affirmed that the Academy should speak out on lifetime income. Many of the comments received from members expressed approval of our general direction. They also suggested ways to improve the statement via expansion, greater focus, avoiding pitfalls, or substantiating data.

The following is a summary of the criticisms and suggestions.

Missing Elements

• Given what we as actuaries know about lifetime income, we should offer more specific policy solutions. As written, the statement is too general.
• While longevity risk in the payout phase of retirement is important, there are many other related topics that actuaries should not overlook. These include:
• The accumulation phase (pre-retirement)
• Investment risk
• Inflation risk
• Retiree medical
• Lifetime income is already “top of list” for many in the policy community. Our statement should acknowledge this and be clear about what we, as actuaries, can uniquely contribute to the dialogue.

Stronger focus needed

• The statement should sharpen its focus on longevity. The statement specifically should be absolutely clear about the definitions of longevity and longevity risk; we need to be more expansive in describing the implications of both.
• The statement should be more direct in its commentary on the problems stemming from the proliferation of lump sum distributions from both defined contribution and defined benefit plans.
• The statement should more strongly emphasize the need for public education related to longevity, longevity risk, and lifetime income solutions.

Secondary effects of a singular focus on lifetime income

• Orientation towards lifetime income and away from lump sum investment accounts will raise the ire of those whose interests are more oriented toward generational transfer of a retiree’s wealth.
• We risk coming across as a profession wearing blinders if we don't acknowledge that lifetime income may not be for everyone and that different circumstances will drive different solutions.
• While the statement as written does not address specific policy options, it might be incorrectly inferred or assumed that we are promoting government mandates.
• Because retirement policy is inextricably linked to the tax code, promotion of any retirement policy initiative could be construed as advocating changes that worsen the budget deficit.
• We must be aware of, and willing to live with, potential criticism that actuaries advocating for lifetime income is self-promotion.

Supporting data

• Statistics and data sources should be cited or otherwise appropriately documented.

Role of the Academy

• The Academy should avoid advocating for any specific policy solutions.