READER POLL: The Lowdown on Lifetime Income Disclosures

There’s no mandate to include lifetime income disclosures on participant statements – and yet, some providers are already doing so. This week, we asked NAPA Net readers about what they’ve seen – and what impact.

The notion of including those disclosures on participant statements is hardly new; the Labor Department has contemplated, and asked for comment on same, more than once. And the Lifetime Income Disclosure Act – last introduced in 2017 – has had previous iterations as well.

But if those proposed disclosures have yet to find their way into final form, some recordkeepers at least have begun providing that information on their own initiative.

Disclosure Closure?

Indeed, more than half (58%) of this week’s respondents said that some of the recordkeepers they are working with are already providing lifetime income disclosures, about 11% said that a “few” were. On the other hand, one in five (21%) said that none of them were, and the remaining 10% said they weren’t sure.

Those disclosures have to make assumptions, of course (thus, the interest in some kind of safe harbor via the Labor Department) – but only 9% of this week’s respondents said they are familiar with those, though another 28% indicated they were familiar with “most of them.” On the other hand, a similar 29% said they weren’t, another 12% “weren’t sure,” and the remaining 22% – “hadn’t really thought about it.”

We next asked readers if they thought a disclosure safe harbor was needed. Nearly a third (32%) replied “yes, we need consistency,” another 11% split between “yes, plan sponsors are afraid they’ll get sued,” and “yes, so that all providers offer these disclosures.” On the other hand, nearly half were in the “no” category – 26% said “no, the market is providing its own solution(s),” and another 21% simply responded “no.”

Difference Says?

Assumptions aside, we asked readers if they thought the disclosures that were out there already were making a difference. As it turned out, just over a quarter (26%) commented that they knew participants were saving more as a result, and another 15% said that while it hadn’t necessarily translated into more savings, “but I get more questions about how much to save/invest.” As one reader explained, “We need a safe harbor and portability improvement to get this a common option on plans.”

“Yes, if it is tied to a set of realistic assumptions that is updated periodically to reflect changes in interest rates and mortality,” noted one reader. “Given that many participants may have accounts with multiple providers over their career, they need to know that what they are seeing from each one is consistent. Otherwise, just by rolling over from one provider to another, their retirement prospects can appear to be suddenly better (or worse) than they were before.”

On the other hand, 37% responded “not that I can tell,” 5% said “not yet,” and another 26% noted “not that I can tell.”

Legislative Response?

In 2013, the Lifetime Income Disclosure Act, which was previously introduced in 2011, was re-introduced. For those of you suffering from a feeling of déjà vu, yes bipartisan, bicameral legislation that would require 401(k) plan sponsors to inform participating workers of the projected monthly income they could expect at retirement was (re)introduced on Capitol Hill just last year.

Law Yearns?

So – do we need a legislative solution?  Here again, opinions were split, but were decidedly less inclined to favor that support. “Maybe, if the DOL cannot find authority for a safe harbor in the existing disclosure rules,” noted one reader.  Among this week’s other respondents:

37% – no, let the market work it out.

26% – no, the market is providing its own solutions

Just 21% favored legislative assistance, as it turned out, and another 5% favored it “so that all providers offer this disclosure.”

Readers had a lot to say on the subject – here’s a sampling:

“Income projections only offer value if every source of income has a projection, and if the income projection has the same commencement date and in the same payout form – and if the worker has identified their income replacement goal. Better to link to existing tools that require the worker to make decisions, input assumptions,” noted one reader.

“If there is to be a mandate, the most informative option for the diverse group of American workers who have individual account retirement savings plans would be a statement on every individual account retirement savings plan quarterly statement (right under the account balance) that encourages the worker to consider retirement income and suggests that the worker divide the vested account balance on this statement by 27.4 to obtain the initial, annual MRD payment. Participants are likely to see and read that statement, it is simple, and consistent for all workers regardless of age, marital status, employment status, etc.”

“The optimal disclosure would be an estimate of all retirement income in a single statement where each and every retirement account and source of retirement income would be estimated applying the same variables (commencement date, assumptions, form of payment, etc.) – applied to all individual account retirement savings plans, defined benefit pension plans, social security, individual retirement accounts, etc. The challenge with the proposed legislative and regulatory solutions is the variability of the estimates individuals will receive, and the lack of consistency in commencement dates, assumptions, form of payment – and the fact that many will not receive any estimate because they have rolled over their monies to an IRA.”

“It is in everybody’s best interest to have a lifetime income statement, or at least show it on the website. I think it is the most effective tool in getting employees to save more! Now, does it really need to be regulated? I guess if they mandated that it be done and the assumptions disclosed, that would be plenty.”

“Many TPAs provide periodic email messages that evaluate whether or not your savings are on track. These emails provide useful tools for participants to check their progress and make changes. Just the discussion of lifetime income has prompted many TPAs to provide this information on behalf of plan sponsor. This is quite an improvement in this area.”

“No legislative/regulatory mandate: marketplace can drive, regulation will always miss something… We are finding more traction and ability for employees to save more with online tools that show how much a 401(k) account balance translates to in terms of monthly payout. This way the assumptions are readily available and can be changed, and employee can immediately change their savings rate.”

“I think making people think about their money as how much income they can derive from it puts it into better perspective versus a lump sum. However, the fear is that many may believe it to be a guaranteed amount, so it could be misleading.”

“The statement is the one tool that most participants actually look at; projecting the annual income potential is most helpful to both the advisor, trying to help with proper asset allocation and goal setting, and the participant trying to understand how and why this works for them. They can see over time how increased savings or better allocation changes the outcome….very powerful.”

Thanks to everyone who participated in this week’s NAPA Net Reader Poll!

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