A lot of ink has been spilled since the U.S. Department of Labor raised the issue of how to best illustrate for Americans what their retirement savings might look like, spread out over all of the years after they stop working.
Little of it has been positive.
More than 100 retirement industry associations, insurance companies, third-party administrators and service providers have written the DOL to share their thoughts on its proposal to include lifetime income illustrations on defined-contribution plan account statements.
The majority of respondents say they like the idea of helping plan participants better understand how their current retirement savings will translate into lifetime income upon retirement.
But that’s where agreement stops. After that, there are plenty of differences of opinion on the details, starting with what is clearly fervent opposition to making such illustrations mandatory.
The industry began to file its response soon after the DOL on May 7 announced it was considering requiring that pension benefit statements for defined contribution plans include the illustrations.
Under DOL’s contemplated proposal, a pension benefit statement for defined contribution retirement plans would show the current balance of a participant’s retirement account, as well as a projected account balance at retirement.
The statements also would include two lifetime income illustrations that would be based on the current balance of a participant’s retirement account and the participant’s projected account balance “at normal retirement age.”
The comment deadline was initially July 8, but DOL later extended that to Aug. 7.
The biggest sticking point to emerge? Aside from opposition to anything mandatory, the industry is clearly up in arms over what it views as a lack of flexibility in the proposal’s safe-harbor clause, which some say would expose plan sponsors to fiduciary liability.
DOL’s income tool too limiting
In its letter to the DOL, industry giant Towers Watson said it thinks the best way to educate and assist participants is through interactive modeling tools – including one created by the DOL – though TW believes the DOL’s version should include more functionality.
Indeed, lots of plan providers already use lifetime income calculators, many that are more robust than what the Department of Labor has devised.
Towers Watson, echoing an industry sentiment heard again and again, also believes that plan sponsors should have the flexibility to address these issues on a voluntary basis, in the manner that is most appropriate for their plan participants.
Perhaps more critically, TW took issue with the DOL’s flat 7 percent assumption, being used in the safe harbor to calculate investment returns, and its flat inflation safe harbor of 3 percent.