Wouldn’t it be great if, in the future, 401(k) plan statements included an estimate of how much monthly income the account balance could produce in retirement? Good news – soon, all 401(k) statements will include this type of illustration.
That’s due to a provision in the Setting Every Community Up for Retirement Enhancement (SECURE) Act, a groundbreaking law signed by President Trump last December that will help more people retire with peace of mind.
The SECURE Act also directed the Department of Labor to, within one year of the Act’s enactment, prescribe assumptions for retirement plan administrators to complete these illustrations and to issue model disclosures. The good news is that the Department issued implementing rules this month – well ahead of schedule.
This type of illustration will help savers decide if they should save more – or if their savings are on track. It will provide savers with a “snapshot” estimate of how much monthly income their account balance would generate in retirement. This income estimate would be in the form of an annuity, the only product in the marketplace that offers guaranteed income for life. But the Act does not require plan sponsors to offer an annuity within their plan or require participants to purchase an annuity within their plan or upon retirement.
Of note, the Thrift Savings Plan for federal workers has included this type of illustration on benefit statements since 2011.
For many workers today, Social Security and savings in a 401(k) or Individual Retirement Account will be their primary sources of retirement income. This is in contrast to 30 years ago, when many workers could rely on employer-provided pension payments that guaranteed them an income stream in retirement.
Illustrating the value of retirement account balances as lifetime monthly income gives retirement savers a better understanding of their potential income in retirement based on what they have saved. While participants may choose from a variety of distribution strategies, a lifetime income illustration provides the most meaningful picture of income that will truly last throughout retirement.
Howard Bard is Senior Vice President and Deputy General Counsel with the American Council of Life Insurers (ACLI). Howard reports directly to the General Counsel with responsibility for supporting the legal needs of the organization. He also helps guide ACLI policy on regulation and legislation affecting the retirement security business of its members.
