Instead of hoping Americans educate themselves about planning and saving for retirement, a new piece of legislation was introduced in the Senate this week that would mandate that 401(k) and other defined contribution plans show beneficiaries the projected value of their retirement account.
 
Just like the Social Security Administration's annual statements, the Lifetime Income Disclosure Act, which was introduced by Sens. Jeff Bingaman, (D-N.M.), Johnny Isakson, (R-Ga.), and Herb Kohl, (D-Wis.), would require retirement plan sponsors to provide data on how much income a participant’s account balance would generate each month at retirement. This projected income will be based on age at retirement and other factors. In 1989 Congress mandated annual Social Security statements, which have helped workers in preparing for retirement.
 
“It is estimated that half of American households will lack sufficient retirement income to maintain their pre-retirement standard of living,” said Bingaman, a senior member of the Senate Health, Education, Labor and Pensions (HELP) Committee, which has jurisdiction over 401(k) plan disclosures. “Yet many Americans are unaware of their financial vulnerability. Our bill is a common-sense approach to empowering Americans, and helping them determine whether they are on a path to a secure retirement.”
 
Kohl, the chairman of the Special Committee on Aging, said it is not enough that participants make the choice to save. “Then they have to decide how much to save, where to invest their savings, and how to make the best use of it when they retire,” he said.

The truth is, many retirement plan participants may be surprised at how long their retirement income will last. The reality is a 401(k) account that has $50,0000 goes fast, according to Catherine Collinson, president of The Transamerica Center for Retirement Studies.

Despite the best efforts of the retirement industry, year after year the level of education among planned participants doesn’t seem to be increasing. “When it comes to a proposed legislation like the Disclosure of Lifetime Income Act it’s really exciting,” Collinson said in an interview. “Many people have been guessing how much their retirement income will be. For the vast majority of plan participants it will be a big wake up call.”
 
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, so there is no material burden or potential liability on employers who voluntarily sponsor 401 (k) plans.
 
David Wray, president of the Profit Sharing/401k Council of America, a Chicago-based association of providers of 401(k)s and other profit-sharing plans, anticipates that having a government mandate will add on another layer of responsibility on plan sponsors as well as additional costs that will then be passed on to plan participants.

“Plan sponsors have to run their businesses and if you make the process more complex a lot of smaller companies that don’t have plans won’t want to sponsor them,” he said. “We don’t need another government mandate on plans. We like to let the marketplace provide the solution.”
 
In addition, the Department of Labor and the Department of the Treasury are jointly submitting a request for information from the retirement income industry to determine if there needs to be regulation of the retirement plan market.