The Institutional Retirement Income Council, a non-profit think tank, has come out in support of the Department of Labor’s proposed rule on lifetime income illustrations.
In a letter to the DOL, William Charyk, president of the IRIC, said he believes that lifetime income illustrations and projections should be mandated as part of participants’ benefit statements.
“Given the risks defined contribution plan participants face, including a lack of understanding of how much they need for retirement, how long their funds will need to last and how to spend the funds when they do retire, it is imperative that participants receive this information. To make the disclosures voluntary would be seriously detrimental to them,” he said.
Several organizations have come out this week in opposition to the Department of Labor’s proposed rules, including the SPARK Institute and Putnam Investments. Both believe the lifetime income illustrations should be voluntary and plan sponsors should be able to use their own set of assumptions when furnishing these illustrations to participants. Many organizations say they have already put tools in place to help their plan participants discover their lifetime income options in retirement.
The DOL’s proposed rules would require that benefits statements for defined contribution plans include the projected account balance at a participant’s retirement age and an estimated lifetime income stream. The benefit statement also would be required to provide an easy-to-understand explanation of the assumptions used to project the account balance to normal retirement age and to convert account balances into annuities or other lifetime income streams. It also would include a disclaimer that any projections are estimates and not guarantees.
The council said it realizes that the projection of future income streams based on an account balance is inherently uncertain and believes it would be a disservice to participants if this uncertainty were not explained. It recommended that a statement be included stating that the projection is based on a number of assumptions, including that the participant will use the account balance to purchase an immediate life annuity at retirement, and that monthly income amounts shown may or may not be achieved.
IRIC suggests that plans should be permitted to use “reasonable” assumptions for the income illustrations, but if plan sponsors and plan providers are free to use different assumptions in coming up with their projections, it would be a “disservice” to participants. That’s because the information given to them could vary and create confusion and disincentives to review and take action based on the illustrations.