Social Security sends income projections—why not 401(k)s?
A bipartisan piece of legislation from 2016 was reintroduced last week (to coincide with National Retirement Planning Week) that would do just that.
Senators Johnny Isakson, R-Georgia, and Chris Murphy, D-Connecticut, introduced The Lifetime Income Disclosure Act, S.868, which would require 401k plan sponsors to inform participants of the projected monthly income they could expect at retirement based on their current account balance.
It notes that “with the shift to 401(k) plans, American workers have become increasingly responsible for putting savings into and managing their retirement investments.”
However, studies have found that many Americans are not saving enough, and they are unsure how quickly or slowly to draw down their savings in their retirement years.
The Lifetime Income Disclosure Act is patterned on the Social Security Administration’s annual statements, which are mailed each year to working Americans to inform them of their estimated monthly benefits based on their current earnings. Congress mandated annual Social Security statements in 1989, and they have proven to be very useful to workers in preparing for retirement.
By providing similar information for 401(k) plans, the Lifetime Income Disclosure Act would give American workers a more complete snapshot of their projected income in retirement.
Specifically, under the Act, defined contribution plans subject to Employee Retirement Income Security Act (ERISA) of 1974 – including 401(k) plans – would be required annually to inform participants of how their account balance would translate into a monthly income stream based on age at retirement and other factors.
To ensure there is no material burden or potential liability on employers who voluntarily sponsor 401(k) plans, the legislation directs the Department of Labor to issue tables that employers may use in calculating an annuity equivalent, as well as a model disclosure. Employers and service providers using the model disclosure and following the prescribed assumptions and Department of Labor rules would be insulated from liability.
Companion legislation was introduced in the U.S. House of Representatives today by U.S. Reps. Luke Messer, R-Indiana.-06, and Mark Pocan, D-Wisconsin.-02.
“American workers need access to the best available information about their investment choices and exactly how much they will have earned when they retire,” Isakson said in a statement. “This information not only helps them to plan, but promotes increased savings while they are still working. Many workers count on defined contribution plans such as 401(k)s in their retirement planning, and this legislation will encourage participants to think of their 401(k) investments as a vehicle for lifetime income.”
Several industry groups are urging support for the Lifetime Income Disclosure Act, including American Council of Life Insurers (ACLI), TIAA Financial Services, the Insured Retirement Institute (IRI) and the Women’s Institute for a Secure Retirement (WISER).
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
