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Retirement Planning > Saving for Retirement

NEWS & PRODUCTS, June 2007

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SEC Chairman Christopher Cox said the SEC’s examination of what goes into a 401(k)–such as expenses of the underlying funds–which the regulator is performing in tandem with the Department of Labor should be showing “progress” in the next few months. Cox, who made his comments May 10 at the Investment Company Institute’s (ICI) annual conference in Washington, added that because millions of Americans are charged with saving for their retirement, they are now “going to be active investors,” and the SEC wants to ensure they have the proper disclosures available to them about what they are investing in. To this end, Cox said the SEC is examining the different types of disclosures that investors receive so that they can “make sound decisions.”

ICI Chairman Martin Flanagan echoed Cox’s sentiments about clearer disclosures during comments May 9 at the annual event, saying that the mutual fund industry is committed to ensuring that investors in 401(k)s get better disclosures than they’re currently offered. Whether their 401(k)s–which have accumulated $2.7 trillion in assets–are invested in mutual funds, annuities, or other products, “workers and [plan sponsors] need the same clear and transparent information,” Flanagan said.

The ICI released a report May 7 revealing that Americans held a record $16.4 trillion in retirement assets at the end of 2006, up $1.7 trillion from the previous year, or a 12% increase. At year-end 2006, investors held $8.3 trillion in IRAs and defined contribution plans, accounting for about half of the entire retirement market, ICI said.

ICI researchers combine their data on IRAs and DC plans with publicly available data on defined benefit plans, government employees’ plans, and annuities to produce what it calls “an authoritative measure of Americans’ overall retirement savings.” Last year, assets in IRAs rose 17% to $4.2 trillion–$2 trillion of that held in mutual funds, the ICI reports. Assets held in employer-sponsored defined contribution plans were not far behind, totaling $4.1 trillion. Mutual funds accounted for $2.1 trillion of that total.

The Women’s Retirement Security Act of 2007 (S.1288), introduced on May 4 by Sens. Gordon Smith (R-Oregon) and Kent Conrad (D-North Dakota), would create incentives for women to convert a portion of their retirement savings into an annuity that guarantees a steady stream of income for life, and encourage use of longevity insurance as part of their retirement planning. Since women live longer than men and often stay out of the workforce for longer periods to care for children and aging parents, they are more at risk of outliving their retirement assets. According to the American Council of Life Insurers (ACLI), the bill states that half of lifetime annuity payouts generated from nonqualified contracts would be tax free, up to $20,000, and 10% of lifetime annuity payouts generated from qualified contracts could be tax free, up to $2,000 annually. Longevity insurance, ACLI says, is a life annuity that begins payment at the end of a person’s life expectancy, such as age 85.


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