Imagine being a 35-year-old employee trying to pay for your house,
car and family while still saving for retirement. You think you are on the
right track with your 401(k) contributions—you invest enough to receive the
full company match and have already saved close to a year’s worth of income in
your plan—until you receive a statement that projects the enormous amount you
will need to have saved before you retire in a few short decades.
Estimates of the total savings needed to fund a secure retirement
can be discouraging for participants, which is why some recordkeepers are
listing yearly or even monthly retirement income projections on participants’
401(k) statements. “The big-number syndrome … [is] a little scary to
participants,” says Joseph Frustaglio, vice president of sales for Nationwide
Financial in Columbus, Ohio.
Participants in 401(k) plans prefer more proactive steps to
increase their retirement readiness rather than historical transactions on
their account statements, according to the fourth annual “2012 DC Participant
Experience Study” by KK & Company and Greenwald & Associates. The study
found that most participants were extremely or very interested in having their
statements include estimates of how much they need and projections of how much they
would have in their plan at retirement age if they continued to make
contributions. Three approaches to these calculations were tested in the
survey, but the most preferred was based on a continuation of contribution
Donn Hess, managing director at J.P. Morgan Retirement Plan
Services in Overland Park, Kansas, says his company tested several options but
found it was best to present projected income as a value adjusted for inflation
and in terms of an annual salary, since many participants have no monthly
budget and are more accustomed to an annual figure.
For other companies, a monthly income projection makes more sense.
“[A monthly figure is] a number participants can more readily relate to,” says
Charlie Nelson, president of Great-West Retirement Services, a division of
Great-West Financial, in Denver.
Great-West is including income projections on participants’
fourth-quarter statements this year, Nelson says. Participants’ statements will
include a monthly projected retirement income based on the individual current
account balance, historical contributions to their retirement account and some
standardized variables and assumptions.
Nationwide’s Frustaglio agrees. “We do think it’s important that
people have this in a monthly-income format,” he says. “People can relate
better to a monthly budget than they can a big [lump-sum] number that might
seem hard to obtain down the road.”
Although Nationwide does not list income projections on its 401(k)
statements, participants can use its online On Your Side Interactive Retirement
Planner tool, which generates monthly and annual income projections based on
user inputs and then displays retirement income gaps.