A bipartisan bill recently introduced in the House and Senate would require employer-sponsored retirement plans to provide participants with an estimate of how much lifetime income they could expect from their current savings.
American workers today are faced with the increasingly difficult task of making a lifetime of savings last throughout all their retirement years. Showing workers how much monthly income their savings may generate in retirement will provide workers with a better understanding of their savings options and help them to plan for their future financial security, said Cathy Weatherford, president and CEO of the Insured Retirement Institute. As such, we strongly support policy initiatives, such as the Lifetime Income Disclosure Act, that lead to more informed financial decision making.
In its own research, the IRI found that nine in 10 workers want this information on their benefit statements and find the information helpful in planning for their future financial security. Additionally more than 75% of plan participants in the study said they would increase their plan contributions by 4 percentage points or more after seeing lifetime income estimates.
This confirms our belief that these estimates would promote better savings habits, Weatherford said.
The IRI survey, which was released in January, also found that more than 90% of respondents want their employers to provide online retirement income calculators so they can select their own assumptions to calculate estimates of lifetime retirement income.
The legislation, which would amend the Employee Retirement Income Security Act of 1974 to require a lifetime income disclosure, was sponsored by Rep. Luke Messer (R-Ind.), Rep. Mark Pocan (D-Wis.), Sen. Johnny Isakson (R-Ga.), and Sen. Christopher Murphy (D-Conn.).
The IRI supports the legislation saying that the estimates given will be based on the amount of retirement income a person could receive if they chose to convert their account balance into an insured guaranteed lifetime income product.
In a letter to Congressmen Messer and Pocan, Weatherford pointed out that Americans today are living longer than any previous generation, making it more and more difficult for consumers to be certain their retirement savings will be sufficient to last throughout all their retirement years.
She highlighted research the Institute had done on Baby Boomers, which found that only 27% of this group was highly confident their retirement savings would last them throughout retirement.
This was the lowest percentage level during the five years we have conducted this study, she said. Considering these findings, it is imperative that we help consumers understand how much lifetime income can be generated from their retirement plans so they can better prepare for their future financial security.
The legislation, if it passes, would require the Secretary to provide a model disclosure no later than one year after the date of the enactment of the Lifetime Income Disclosure Act, which would be written in a manner that could be understood by the average plan participant. It would explain that the lifetime income stream equivalent is only provided as an illustration and that the actual payments under the lifetime income stream described will depend on numerous factors and may vary substantially from the lifetime income stream equivalent in the disclosures.
It also should explain the assumptions upon which the lifetime income stream equivalent was determined.
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