Why is this Topic Important to Wealth Managers? This topic discusses proposed legislation that would change defined contribution retirement reporting for plan sponsors.  The new legislation would require additional information to be disclosed to consumers.  Thus, wealth managers that are prepared with the most recent and relevant information with regards to retirement planning are better prepared to work with clients in defined contribution situations.

Senior members of the House Committee on Education and the Workforce, including U.S. House of Representatives Rush Holt (NJ) and Tom Petri (WI), recently introduced legislation which is designed to help ensure that Americans have saved enough for their full retirement.

The introducers of the bill note that many American workers have become increasingly responsible for saving for and managing their retirement investments through 401(k) plans.  However, the contention is that many Americans are not saving enough, and they are unsure how quickly to draw down their savings in their retirement years.

To that end, the Lifetime Income Disclosure Act [1] 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 the government claims they have proven to be very useful to workers in preparing for retirement.

“We should do everything we can to help Americans save for retirement. Our bipartisan bill is a common sense approach to providing Americans with the tools and information they need to plan for a secure retirement future,” Rep. Holt said.   The idea behind the legislation is that 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.

Specifically, under the legislation, 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.  “As retirement plans shift increasingly toward a defined contribution basis, individuals have a greater responsibility to ensure that they are providing adequately for their retirement,” Rep. Petri said.  “The information called for in the Lifetime Income Disclosure Act will serve as a scorecard showing savers their progress toward reaching this critical financial goal.”

To help 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.

“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 Senator Jeff Bingaman (D-NM). “This is the kind of common-sense, employer-friendly bill that deserves priority consideration.”

Such information in the hand of the consumer may lead to more retirement planning opportunities for wealth managers as the consumer seeks to “top up” for retirement.  If enacted, this bill may lead to a big boost for such retirement savings as Individual Retirement Accounts, and for the corresponding  asset management for institutions.

Senators Bingaman, Johnny Isakson (R-GA), and Herb Kohl (D-WI) previously introduced the legislation in the Senate, and Rep. Ron Kind (WI) and David Reichert (WA) are cosponsors of the bill.

Tomorrow’s blogticle will continue to discuss new and exciting planning aspects of 2011.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts