The past week has seen a flurry of letters to the Department of Labor regarding its proposed rule on lifetime income illustrations for defined contribution plan participants. The Insured Retirement Institute and the American Society of Pension Professionals & Actuaries are now the latest to weigh in.
The IRI said it supports the DOL’s focus on guaranteed lifetime income products and strategies. Like other industry organizations that have commented on the proposed rule, the IRI believes more flexibility is needed. Instead of compelling everyone to use the same assumptions in their calculations of lifetime income for participants, they should be able to use different retirement ages and include outside savings in their calculations, it said.
“We are concerned that including specific assumptions in the safe harbors described in the Notice will steer plan sponsors to utilize these assumptions to ensure compliance at the expense of flexibility and innovation,” the IRI said in its letter. “In lieu of the safe harbor approach, we urge DOL to adopt a rule under which plan sponsors would be required to provide lifetime income illustrations based on generally accepted investment theories and generally accepted actuarial principles.”
As other groups have mentioned, IRI would like the DOL rule to state that providing income illustrations to participants falls under education rather than investment advice, which would invoke the fiduciary standard.
It also believes the illustrations should be provided at least once a year but plan sponsors should have the flexibility to determine when to provide them based on cost and the needs of participants.
The American Society of Pension Professionals & Actuaries also believes the safe harbor for the assumptions used in calculating the lifetime income stream of participants should be modified to make them more flexible.
The organization, which represents 16,000 retirement plan professionals who provide consulting and administrative services for qualified retirement plans, also believes the DOL’s online calculator should be enhanced and its use or the use of a private-service provider online calculator should be encouraged so participants can individualize the assumptions used to calculate their potential lifetime income.
ASPPA said it strongly supports the concept of lifetime income illustrations but believes it is critically important that employees understand the concept of “lifetime income” and the role it plays in retirement planning.
Statements, it said, should include a straightforward calculation of what the participant’s current account balance – projected for earnings and discounted for inflation – could be expected to provide at a prescribed age, either age 65 or Social Security Normal Retirement Age.
The account balance should not be increased for future contributions, it counseled, because those are rarely guaranteed.
Both IRI and ASPPA believe the illustrations should include projections based on 7 percent, 5 percent and 3 percent investment return projections and be discounted for inflation at the 3 percent rate. By showing all three rates, participants will realize that future earnings are unpredictable, they said.