Would you like to open your 401(k) statement and see, along with your balance, an estimated lifetime income stream that your balance will generate when you reach retirement?
In May, the Department of Labor's Employee Benefit Security Administration, or EBSA, solicited comments from the public about "whether, and how, a worker's quarterly or annual pension benefit statement could present his or her accrued benefits as an estimated lifetime stream of payments." The comment period ended Aug. 7, a month later than originally scheduled after some retirement industry folks urgently requested an extension beyond the original July 8 due date.
EBSA hopes that this type of information will help 401(k) and 403(b) plan participants "better prepare for retirement" by providing them with a regular dose of retirement reality.
EBSA's advance notice of proposed rulemaking garnered 116 comments, some from individuals who read about it in the Washington Post, and many from representatives in the retirement business. I went through more than half of the comments and noticed some trends. This is not a complete assessment, since I did not read all the comments in their entirety. But it appears that there's more support than opposition for such regulation.
Input from consumers
Individual investors were more likely to support it than not. Jim Cooper of Silver Spring, Md., wrote: "I have a number of friends and family that are bright professionals and now find that they are really not financially prepared for retirement. One couple is in foreclosure, one couple cannot afford the airfare to join us on vacation even if the lodging is free. And, both are still working beyond the 65th year. ... An estimate of monthly income would have allowed them to more easily understand how prepared they were financially for retirement."
One retiree offered a different perspective: "My view is that trying to calculate how much is enough is essentially a futile exercise. … Seriously, there are too many 'assumptions' and life is way too complicated for this exercise to have any real value at all."
An anonymous person from Avondale, Ariz., succinctly wrote: "Keep the government out of my 401(k) plan!"
Input from the industry
Concerns about "lawsuit" and "fraud" were voiced among CPAs and financial advisers. Third-party administrators -- the ones who would have to conform to the new regulations and supply the information -- were generally most vociferous in their opposition to it. "I am writing to STRONGLY urge you to NOT pursue this ridiculous requirement of making the participant statements include a projected lifetime income stream," wrote Nathan Schnitman, president of SchnitmanGroup, a third-party administrator.
"Americans are smart people and can figure things out on their own. Moreover, this is not only a burdensome task for the pension administrators, it is also only mere projections and anything can happen in the future, so it could give a false reading to the participants, further confusing them..."
Some retirement industry reps took the opportunity to philosophize, providing many pages of commentary containing suggestions about best practices. Public policy organizations complained about how unprepared Americans are for retirement. Insurance companies tended to promote the idea of guaranteed lifetime income options.
And a lot of people in the retirement planning industry expressed concern about the safe harbor provisions -- the protections they would have from litigation by making certain "reasonable assumptions" in their income-stream projections. Others stated that regulation might stifle innovation, and that the public might be better served with online calculators so they can use various inputs as they figure out their future income streams.
The problem with making assumptions, reasonable or not, is that they could be way off. Market returns may disappoint, inflation may revert to 1980s levels -- and no one knows for how long the income stream should last since people aren't born with an expiration date.
Frankly, I think it's much ado about nothing because chances are excellent that you already get a monthly retirement income estimate when you open your plan statement. Some 72 percent of plan providers offer it, according to the 2013 Defined Contribution Recordkeeping Survey, conducted by PlanSponsor.com. An article about the survey that appeared in PlanSponsor Magazine earlier this year, however, notes that many participants are receiving an inflated income number that relies on assumptions about future savings rather than current savings.
If you're not already getting a projected income stream on your 401(k) statement, would you find this information beneficial? Share your thoughts.
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Barbara Whelehan is a co-author of "Future Millionaires' Guidebook," an e-book for young people by Bankrate editors and reporters. It is available at Amazon, Barnes & Noble, iBookstore and other e-book retailers.