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Bill Would Require Plans to Disclose 401(k) Purchasing Power

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On December 3, 2009 Senator Jeff Bingaman (D-NM), Senator Johnny Isakson (R-GA) and Senator Herb Kohl (D-WI) introduced the Lifetime Income Disclosure Act (S. 2832) into the Senate. This bill would require 401(k) and other individual account plans (such as 403(b) and 457 plans) to give participants estimates of how much the money in their accounts would buy in lifetime monthly payments starting at normal retirement age.

Under current law, plans are required to provide workers with individual benefit statements telling workers the amount of money in their accounts.  S. 2832 would require that once a year plans also tell workers how much the money in their accounts would provide in monthly benefits starting at age 65 if it were paid out as “a retirement paycheck for life.”

The annual statement would provide information on amounts for both single-life annuities and joint-and-survivor annuities – annuities that pay monthly benefits for the lives of workers and their surviving spouses.  Statements could also include information on annuities with other features.

If the bill becomes law, the Department of Labor (DOL) would be required to issue tables that plans could use in order to convert account balances into annuity equivalents.  The DOL would also be required to issue a model disclosure for plans to use.  The model disclosure would be written to be understood by the average plan participant and would explain the following:

  • The annuity equivalent is only an illustration;
  • The actual annuity that may be purchased will depend on many factors and could vary substantially from the annuity equivalent provided in the disclosure;
  • All the assumptions which the plan used to determine the amount of the annuity equivalent; and
  • Any other explanations the DOL deems appropriate.

Finally, plan sponsors and fiduciaries would not bear any liability for providing the annuity equivalents if they are provided in accordance with the rules and assumptions described in the bill and by the DOL.

Read the full text [PDF] of the bill.

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