Sophie Dmuchowski won the Innovator Award in the lifetime income disclosure category by putting into action the philosophy that knowing how to spend retirement savings is as important — if not more so — than accumulating it.
She had to figure out the best way to show some 4.6 million participants in the Federal Retirement Thrift Investment Board's $370 billion retirement savings plan how to apportion their retirement savings. Her conclusion: the simpler, the better.
“A lot of people are accumulating wealth, but some are not sure what it means,” said Ms. Dmuchowski, deputy director, office of communications and education. Specifically, participants had difficulty translating lump sums into steady income streams, to figure out how to determine their lifetime savings.
So, Ms. Dmuchowski's team displayed in the plan's annual participant statements the projected monthly income stream generated by the person's account balance. The information was placed at the front of the statement in large type. It asked one question: “Will You Be Ready For Retirement?” Having provided a monthly estimate, the document encouraged participants to consider saving more.
“We thought it would be a simple way of attracting peoples' attention,” said Ms. Dmuchowski. “It's about us. It's about our families.”
The lifetime income illustration also attracted considerable praise from Innovator Award judges.
“This will motivate other plan sponsors,” wrote one judge. “I love that they did this without waiting for guidance” from the Department of Labor. (The DOL recently issued an advanced notice of proposed regulation for a lifetime income illustration on plan statements, but a final rule probably won't be issued until mid- to late 2014).
“I found the participant statement to be easy to read and to understand,” wrote another judge. “Hopefully, more plan sponsors will take their lead by adding this information to their statements.”
Although the final retirement income statement is simple, the process was a bit more complex, Renee Wilder, director of the Office of Enterprise Planning, said in her application nominating Ms. Dmuchowski for the Innovator Award. With so many participants, changing the annual participant statement is a “major undertaking,” she wrote.
“The concept of providing the monthly income projection was first explored early in 2010.” Initially, the income stream information was placed in a small box at the back of the 2010 fiscal year statement — “the only available real estate,” Ms. Wilder added. Officials began working on revising the 2012 statement in 2011.
Ms. Dmuchowski said she is happy that the plan chose a “my case” strategy to a lifetime income illustration. “A lot of times, if you approach something in a clinical way, it looks generic,” she said. “Participants want to know about "my case.'”
