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Retirement Pros Weigh In on DOL’s Lifetime Income Plan

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Retirement planning groups are weighing in with their reviews of the Department of Labor’s proposed rule that would require lifetime income illustrations be given to participants in defined contribution plans, such as 401(k)s and 403(b)s.

In early May, DOL’s Employee Benefits Security Administration announced that it was seeking public input on the proposed rule, and said it would take comments until July 8. However, that comment period was extended until Aug. 7.

Phyllis BorziPhyllis Borzi (left), assistant secretary of Labor for EBSA, said in releasing the proposal that EBSA is “looking for the best ideas on how to show people what their lump-sum retirement savings look like when they are spread out over all the years of retirement.” Retirees, she said, “run the risk of outliving their savings. If workers have the benefit of seeing how long their savings could last, it might spur better planning for the future, such as adopting more effective savings strategies.”

A bipartisan group of senators took a cue from the DOL when they introduced a bill in mid-June that would allow workers in retirement plans to receive an annual statement of how their lump-sum savings translate into a lifetime stream of monthly income.

The Lifetime Income Disclosure Act was introduced by Sens. Johnny Isakson, R-Ga.; Christopher Murphy, D-Conn.; Tim Scott, R-S.C.; Bill Nelson, D-Fla.; and Elizabeth Warren, D-Mass.

The companion bill, H.R. 2171, was previously introduced in the House by Reps. Rush Holt, D-N.J.; Tom Petri, R-Wis.; Ron Kind, D-Wis.; and Dave Reichert, R-Wash.

The Insured Retirement Institute told EBSA in its comment letter that it is “highly supportive” of EBSA’s initiative as it enhances “Americans’ understanding of their retirement savings and helps them effectively” plan for retirement.

Cathy Weatherford“Given the prevailing need to improve education about lifetime income needs, we strongly support the concept of providing lifetime income illustrations on participant benefit statements,” said IRI President Cathy Weatherford (right). “These illustrations would provide participants with a better understanding about how much income can be generated from savings and go a long way toward helping participants put their savings in proper perspective. As such, providing lifetime income illustrations may spur participants to begin saving more and help them to plan more effectively for retirement.”

While the American Society of Pension Professionals and Actuaries says that it also supports EBSA’s lifetime income initiative, ASPPA would like to see some enhancements made to the current proposal.

“ASPPA recommends that a lifetime income disclosure be focused and concise,” Craig Hoffman, ASPPA’s general counsel and director of regulatory affairs, told EBSA in his comment letter.

“The [lifetime income] estimates should be calculated using 3%, 5%, and 7% as the three nominal rates of return to provide useful information without overloading the benefit statement,” he said, and “the calculation should be done without any assumption that there will be future contributions by the employer or the employee, because future contributions are rarely guaranteed.”

Also, Hoffman said that ASPPA recommends that the proposal include a “safe harbor” that plan sponsors can rely on “for the assumptions used in calculating the lifetime income stream, and that those assumptions be modified in several ways to facilitate the disclosure regime in a cost-effective manner.”

The modifications would include “setting the time period for the projection as a static age and limiting the form of distribution to a single life annuity and a 50% joint and survivor annuity for a spouse of the same age, to make results across multiple plan sponsors more consistent.

Finally, ASPPA said that DOL’s online calculator could be enhanced to be “more educational and to allow consideration of many different assumptions including retirement assets held outside of the plan, such as in an IRA.” The use of an enhanced DOL calculator or the use of a private service provider online calculator, Hoffman said, “should then be encouraged so participants can individualize the assumptions used to calculate potential lifetime income distribution streams.”


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