Bipartisan, companion legislation recently introduced in Congress would require the Labor Department to dust-off a retirement policy proposal that first circulated in the early days of the Obama Presidency.

The Lifetime Income Disclosure Act of 2017 is the latest legislative effort that would amend the Employee Retirement Income Security Act to mandate annual income disclosures on 401(k) and other defined contribution account documents.

The language in the legislation is identical to a bill introduced in 2009, early in the 111^th Congress.

Under the bill, the Labor Department is instructed to create and issue a “model lifetime income disclosure,” or an estimate of what the accrued savings in an account would generate in monthly income over the course of retirement.

Other retirement legislation has included proposals to require lifetime income disclosures in account statements. Last year, the Senate Finance Committee passed a version of LIDA attached to the Retirement Enhancement Savings Act.

In theory, estimates of future retirement income motivate participants to pay closer attention to savings rates, and encourage more aggressive deferrals to make up for savings shortfalls.

In 2010, Labor officials heard testimony supporting that premise during a two-day public hearing on expanding the role of annuities in defined contribution plans.

That led to Labor’s notice of proposed rulemaking in 2013, when the Department formalized its belief that income projections are necessary to help plan participants make the most informed savings decisions.

Ultimately, the initiative stalled within the Labor Department, as a new imperative was placed on re-writing the fiduciary rule under Secretary Thomas Perez, who took the helm at Labor about the time the comment period closed on the rule of income disclosures.

Dissent within industry

Industry responded to Labor’s proposed rulemaking in 2013 with less-than-uniform support for income disclosures, or how they would be calculated, a reality that may have helped stall momentum for a new rule.

Some stakeholders argue income disclosures expose plan sponsors and service providers to future liability under ERISA, even though the various versions of LIDA, including the most recent, include language relieving anyone involved with plan administration from fiduciary liability for providing the income estimates based on models provided by the Labor Department.

By 2013, many service providers had already created income projection modeling tools. In comment letters to Labor’s proposed rule, some stakeholders argued that a mandated income modeling safe harbor could stifle the innovation of better modeling tools.

“It would be hard to envision a mandatory structure that could be dynamic enough to cover the various online tools that have been developed in recent years, much less the more robust tools that are currently under development,” wrote the Defined Contribution Institutional Investment Association in its comment letter, explaining the reservations some of its members had for Labor’s proposal at the time.

In response to the re-introduction of the 2017 version of LIDA, the ERISA Industry Committee (ERIC), which represents the interests of large plan sponsors, has said the cost of a mandate would be passed on to sponsors and participants, and that a required income disclosure would sow confusion among participants, as some would perceive the number as an actual annuitized benefit.

In a letter to the lawmakers co-sponsoring LIDA, ERIC acknowledges the value of income disclosures in some contexts, but says they should be optional for plan sponsors.

Separating income disclosures from income projection modeling

Others say it is high time for Labor to create an income disclosure framework and that benefits of a new disclosure regulation will outstrip any potential unintended consequences.

Bob Collie, the chief research strategist for Russell Investments’ Americas Institutional business, has been an advocate for lifetime income disclosures on account statements since at least 2010, when he testified before Labor and Treasury officials.

A standard, simple income calculation requirement that applies a participant’s current account balance to today’s rates in the immediate annuity market would be functional for sponsors to deploy, and clear-cut enough to avoid fiduciary liability and participant confusion, argues Collie.

Moreover, requiring a disclosure on that basic calculation would not discourage the development of more sophisticated and riskier income models, as are now deployed by some of the largest service providers and upstart robo platforms, thinks Collie.

But “you would have to keep them separate—the simpler reporting requirement would appear on account statements, but the more complex projections would live in a different place, and not be part of account statement reporting,” said Collie.

While Collie says income disclosure requirements are past due, he is sympathetic to the idea that sponsors would incur new requirements, and potentially costs.

“Any change is work, and it has to be worthwhile,” said Collie. “But it’s doable to implement this, so long as you use a standard reporting model, and not an income projection model, which increases uncertainty on an order of magnitude.”

Ultimately, a functional disclosure requirement is needed to make the country’s retirement system “an actual retirement system,” and not the underutilized savings option that it is for so many plan participants, says Collie.

Instant Insights /

Congress likes 401(k) income disclosure requirements more than plan sponsors

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