WASHINGTON – Today, U.S. Senator Johnny Isakson (R-Ga.), and U.S. Senator Chris Murphy (D-Conn.) introduced bipartisan legislation to help Americans plan in advance to help ensure they do not outlive their retirement savings.
With the shift to 401(k) plans, American workers have become increasingly responsible for putting savings into and managing their retirement investments. However, many Americans are not saving enough, and they are unsure how quickly to draw down their savings in their retirement years.
Isakson and Murphy today introduced the Lifetime Income Disclosure Act, S. 267, which would require 401(k) plan sponsors to inform participating workers of the projected monthly income they could expect at retirement based on their current account balance. The measure is patterned on the Social Security Administration's annual statements, which are mailed annually to working Americans to inform them of estimated monthly benefits based on their current earnings. Congress mandated annual Social Security statements in 1989, and they have proven to be very useful to workers in preparing for retirement.
By providing similar information for 401(k) plans, the Lifetime Income Disclosure Act would give American workers a more complete snapshot of their projected income in retirement.
“American workers need access to the best available information about their investment choices and exactly what they will yield upon retirement. This information not only helps them to plan, but promotes increased savings while they are still in the work force,” said Isakson. “Defined contribution plans such as 401(k)s are the retirement plans we count on in America, and this legislation will encourage participants to think of their 401(k) investments as a vehicle for lifetime income.”
“For too many Connecticut families, saving for retirement is daunting, if not impossible. The fact is too many people find out too late in their careers that they haven’t been saving enough,” said Murphy. “The Lifetime Income Disclosure Act is a simple solution to give working Americans an easy way to judge for themselves whether they’re saving enough to maintain the standard of living they’re used to. This bill won't put money in workers' pockets, but it will empower them to make smarter decisions."
Specifically, under the Act, defined contribution plans subject to ERISA - including 401(k) plans - would be required annually to inform participants of how their account balance would translate into a monthly income stream based on age at retirement and other factors.
To ensure there is no material burden or potential liability on employers who voluntarily sponsor 401(k) plans, the legislation directs the Department of Labor to issue tables that employers may use in calculating an annuity equivalent, as well as a model disclosure. Employers and service providers using the model disclosure and following the prescribed assumptions and DOL rules would be insulated from liability.
Full text of the legislation is available here.