U.S. Senators Jeff Bingaman (D-New Mexico), Johnny Isakson (R-Georgia), and Herb Kohl (D-Wisconsin) have reintroduced their Lifetime Income Disclosure Act (S. 267), legislation that 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. According to a press release, 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. 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, in announcing the move. “This is the kind of common-sense, employer-friendly bill that deserves priority consideration.”
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.
The bill’s sponsors say that in order 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 reintroduction of the legislation coincided with a hearing by the Senate Health, Education, Labor & Pensions (HELP) Committee (see HELP Panel Witnesses Back Auto Features, More Education).
"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.
According to the senators, next week, Congressman Tom Petri (R-Wisconsin) and Rush Holt (D-New Jersey), senior members of the House Committee on Education and the Workforce, intend to file a companion bill.
A summary of the bill can be found at http://bingaman.senate.gov/upload/Lifetime_Disclosure_Act.pdf .
The Senators first introduced this legislation in the 111th Congress (see Bill Would Require Disclosure of Participants' Expected Retirement Income).