U.S. Senators Jeff Bingaman (D-NM), Johnny Isakson (R-GA), and Herb Kohl (D-WI) today renewed their push to help Americans ensure they do not outlive their retirement savings. The Senators' action coincides with a hearing today in the Senate Health, Education, Labor & Pensions (HELP) Committee, during which experts on simplifying retirement decisions for Americans praised their approach.
With the shift to 401(k) plans, American workers have become increasingly responsible for saving for 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.
The Senators today reintroduced their 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.
"Half of American households will lack sufficient retirement income to maintain their pre-retirement standard of living, but many are unaware of their vulnerability. Our bill will empower Americans to determine whether they are on a path to a secure retirement," said Bingaman, a long-time Senate leader on retirement issues. "This is the kind of common-sense, employer-friendly bill that deserves priority consideration."
"Defined contribution plans such as 401(k)s are the retirement plans of today and tomorrow," said Isakson, the ranking Republican on the Subcommittee on Employment and Workplace Safety in the Senate HELP Committee. "This legislation will increase financial literacy, promote increased savings, and encourage participants to think of their 401(k) investments as a vehicle for lifetime income."
"We have seen in the private sector that giving workers information about what their investments will provide them in retirement income spurs them to save more. This is a common sense reform and should be the standard for every worker, helping them to plan and save for their future" said Senator Kohl, who is Chairman of the Special Committee on Aging.
Next week, Congressman Tom Petri (R-WI) and Rush Holt (D-NJ), senior members of the House Committee on Education and the Workforce, intend to file a companion bill.
Specifically, under the Act, defined contribution plans subject to ERISA -- including 401(k) plans -- would be required annually to inform participants of how the 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.
The bill was praised by the American Society of Pension Professionals & Actuaries, the premier national organization for career retirement plan professionals. As its CEO, Brian Graff, explained: "Giving participants information about the lifetime income that can be provided by their account balance will not only help participants plan for retirement, it will help them understand that they need to save more for retirement."
The bill was also praised by a range of business groups, advocates, and retirement policy experts. A selection of their reactions appears below.
"Millions of Americans are not prepared for retirement -- whether their savings have been depleted in a tumultuous market, or accounts have been tapped to cover necessities, or they simply have not started the planning process," said Nancy LeaMond, AARP Executive Vice President. "AARP believes the bipartisan Lifetime Income Disclosure Act will not only provide important information on how an individual's 401(k) account will play a crucial role in his or her retirement income, but also spark a much needed, broader conversation about retirement and financial security in this country."
Said David John, Senior Research Fellow at the Heritage Foundation and Principal of the Retirement Security Project: "Sometimes a simple common sense change has the biggest effect. Including a disclosure of how much monthly income a worker can expect from 401(k) savings will encourage younger workers to save more for retirement, and older ones to convert their savings into annuity-like products so that they won't outlive their savings. The Act will build greater retirement security for everyone at virtually no cost to the taxpayers, employers, or workers."
"The U.S. Women's Chamber of Commerce strongly supports the Lifetime Income Disclosure Act as a vital step in the right direction to help women, and our members employees, overcome the financial challenges of retirement," said Margot Dorfman, CEO of the US Women's Chamber of Commerce. "Having bottom-line information about how retirement savings translates into guaranteed lifetime income is a vital planning tool for women and all American workers. The Lifetime Income Disclosure Act assures that workers will be regularly informed of how their 401 (k) account balance will match up against their anticipated retirement income needs."
"We applaud Senators Bingaman, Isakson, and Kohl for addressing the most significant risk women face in retirement -- that they will run out of money," said Cindy Hounsell, President of the Women's Institute for a Secure Retirement. "Planning for the long-term and recognizing the importance of income for life is key for all women. The sooner women can take steps to prepare for their income needs in retirement, the better off they will be."
Bingaman and Isakson are senior members of the Senate Health, Education, Labor and Pensions (HELP) Committee, which has jurisdiction over 401(k) plan disclosures. A summary of the bill can be found here, and the text of the legislation can be accessed here.
The Senators first introduced this legislation in the 111th Congress.