Three U.S. senators have brought back a bill, which would require plan sponsors to project how much monthly income workers can expect at retirement based on their current retirement account balance.
Reintroduced by Sens. Jeff Bingaman, D-N.M, Johnny Isakson, R-Ga., and Herb Kohl, D-Wis., the Lifetime Income Disclosure Act is patterned onthe Social Security Administration’s annual statements, which are mailed annually to working Americans to inform them of estimated monthly benefits based on their current earnings.
Specifically, under the Act, defined contribution plans subject to ERISA – including 401(k) plans – would be required annually to inform participants of how the account balance would translate into a monthly income stream based on age at retirement and other factors.
“Half of American households will lack sufficient retirement income to maintain their pre-retirement standard of living, but many are unaware of their vulnerability. Our bill will empower Americans to determine whether they are on a path to a secure retirement,” said Bingaman, a long-time Senate leader on retirement issues. “This is the kind of common-sense, employer-friendly bill that deserves priority consideration.”
To mitigate potential liability issues for employers, the bill directs the Department of Labor to issue tables that employers can use to calculate an annuity equivalent and model disclosure. Employers and service providers using the model disclosure and following the prescribed assumptions and DOL rules would be insulated from liability.
The bill’s sponsors say there’s need for this mandate because employees make financial plans based on their monthly and annual incomes, and when they receive their benefit statements, they don’t translate that lump-sum balance into a monthly income amount for life. “It is critical that employees be made more aware of the possibility of receiving at least a portion of their benefit in an annuity form that protects them against outliving their savings,” reads a background statement on the legislation.
Brian Graff, CEO of the American Society of Pension Professionals & Actuaries praised the legislation, and said, “Giving participants information about the lifetime income that can be provided by their account balance will not only help participants plan for retirement, it will help them understand that they need to save more for retirement.”
At a Feb. 3 hearing of the Senate Health, Education, Labor, and Pensions Committee, Chairman Tom Harkin, D-Iowa, also commended the senators on their “annuity equivalents” disclosure mandate. He added features like automatic enrollment and increased education are key to improving the retirement system. “Retirement issues have always been an area of great bipartisan interest, so there is a real opportunity to work together to improve retirement security for families all across America.”