Illustrating Retirement Savings: DOL Considers Lifetime Income Estimations

Scott Price, CPA

In an effort to help defined contribution plan participants more effectively save for retirement, the Department of Labor (DOL) is considering rules that would require defined contribution plans, such as 401(k), 403(b) and profit-sharing plans, to include lifetime income stream illustrations in participant statements.

Current regulations under the Employee Retirement Income Security Act of 1974 (ERISA) require plan sponsors to provide periodic benefit statements to participants or beneficiaries that show only the total accrued benefits. The regulations currently under consideration would require that these benefit statements also show the following:

  • The participant’s or beneficiary’s current account balance along with an illustration of the estimated lifetime income streams based on this balance.
  • A projection of the participant’s or beneficiary’s account balance at retirement along with an illustration of the estimated income streams the projected balance will generate.
  • A presentation of both estimated lifetime income streams as estimated monthly payments based on the expected mortality of the participant or beneficiary (joint lives if the participant or beneficiary has a spouse).
  • A clear explanation of the assumptions used to project the lifetime income stream illustrations, as well as a statement that these illustrations are estimates, not guarantees.

The DOL hopes that by providing additional information and a concrete example demonstrating just how far retirement savings will stretch participants will be motivated to optimize retirement savings.

As a plan sponsor, these new regulations could present several challenges around gathering and converting the proper data necessary to provide these illustrations. There are also concerns regarding the litigation exposure for plan fiduciaries.

These regulations have not been finalized – comments are due today. However, regardless of whether these exact ideas are implemented, plan sponsors will continue to face these types of pressures as the government reviews and implements regulations designed to increase plan participation.

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