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Few Read Mandatory Benefit Disclosures; Even Fewer Take Action (Reprise)

10/29/2018
By Jack Towarnicky

Congress has proposed that participants should pay more fees to receive yet another mandated disclosure – this time, a lifetime income estimate that participants didn’t ask for, that will almost always be inaccurate, that doesn’t apply to all retirement savings, that few will notice, even fewer will read, less still will understand, and that almost no one will correctly apply in retirement savings decision-making.

I feel like a broken record.1 We went over this in 2017 and also just four short months ago.2  

A recent post by an industry expert3 backed a mandate to guesstimate lifetime income coupled with a gap analysis as “best practices.” They claimed that citing account balance statements are merely “a snapshot” and doesn’t provide “the most important information, which is whether a participant is on course to have a financially secure retirement.” That observation is somewhat consistent with those of Nobel prize winning economist Robert Merton,4 whose focus on retirement has centered on many issues. These issues include, but are not limited to, the mismatch between a retirement saver’s ultimate goal (retirement income) and the metrics used to measure results (current account balance and recent investment performance.)

I agree that a voluntary estimate of lifetime income based on accumulated savings has merit, but only if the estimate:

  • Is accurate;
  • Is understandable to everyday workers who often suffer from financial innumeracy;5 and 
  • Can be applied to all retirement-related assets.

That is not what has been proposed.6 The mandate instead would allow each plan sponsor or service provider to concoct an estimate using their own assumptions, varying interest rates, future deferrals, mortality, inflation and other factors to deliver a single, monthly number using whatever form of “lifetime stream of income” they select. The mandate would not apply to IRA account balances, even though IRA assets exceed 401(k) and 403(b) assets combined. Because the median tenure of American workers ages 25-64 is five years and because, according to one study, workers age 50 in 2016 had an average of 11.9 different employers, any projection based on the current employer, compensation and plan provisions, using the current tax/ERISA statutes and associated regulations is more likely to mislead than to inform.  

Here’s the thing: an income estimate commencing at age 65 will almost always be inaccurate for someone who is age 65! So, while most workers haven’t taken the time to project their retirement income needs or project their lifetime income from accumulated savings, that’s no excuse to mandate each be provided an inaccurate, misleading estimate. 

A Better Solution:

A better option would be to have each plan and IRA provide a link in every quarterly statement to a universally available tool that participants can use for every IRA and qualified plan account balance. The tool would project the income stream from required minimum distributions that a participant would receive (commencing April 1 of the calendar year, following the calendar year he or she reaches age 70 ½ through age 100,) as if today was the required beginning date. That estimate, in nominal, current dollars, offers a consistent, reasonably accurate estimate of the income he or she would have from accumulated savings, relative to current income.

Do you prefer Congress’ proposed mandate? Go ahead and convince me - send me your comments on why the proposed mandate is superior. 

If you have a better solution, send it in: jtowarnicky@usaretirement.org.


If you are under age 40, a broken vinyl record that has a scratch in it will skip back and repeat the same portion of the song, over and over and over until you lift the stylus and place it on a different part of the record. It’s like a music variant of the movie Groundhog Day. 
2 Towarnicky, Why Don’t Employees Read What We Send Them? Would Reading Mandatory Disclosures Make A Difference, Anyway? (Parts One, Two and Three.) 8/28/17, 8/30/17, 9/05/17, https://www.psca.org/mandated_disclosure_testimony_part1 https://www.psca.org/mandated_disclosure_testimony_part2 https://www.psca.org/mandated_disclosure_testimony_part3 See also: Few Read Mandatory Benefit Disclosures; Even Fewer Take Action, 07/12/18, Accessed 10/24/18 at: https://www.psca.org/blog_jack_2018_35  
3 F. Reish, Best Interest and Best Practices #3, 9/26/18, Accessed 10/24/18: http://fredreish.com/best-interest-and-best-practices-3/   J. Towarnicky, Another Nobel Laureate in Economics Who Is Focused on 401(k) Plans - Part 3 of 3, 1/30/18, Accessed 10/24/18 at: https://www.psca.org/blog_jack_2018_2  
A. Lusardi, O. Mitchell, Financial Literacy and Economic Outcomes: Evidence and Policy Implications, January 2015, Accessed 10/24/18 at: https://pensionresearchcouncil.wharton.upenn.edu/wp-content/uploads/2015/08/WP2015-01.pdf 
5 H.R.2055 - Lifetime Income Disclosure Act, Accessed 10/24/18 at: https://www.congress.gov/bill/115th-congress/house-bill/2055 ; See also: S.2526 - Retirement Enhancement and Savings Act of 2018, Accessed 10/24/18 at: https://www.congress.gov/bill/115th-congress/senate-bill/2526  
6 ICI Factbook 2018, Accessed 10/24/18 at: https://www.ici.org/pdf/2018_factbook.pdf 

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