There is renewed optimism in Washington that a retirement reform package will pass Congress in 2019. And while there's broad support for provisions contained in several proposed bills, such as expanding multiple employer plans and easing non-discrimination rules for frozen defined benefit plans, there are differing opinions with respect to lifetime income.
The Retirement Enhancement and Savings Act has garnered support from all corners of the retirement industry as well as both Republicans and Democrats, but no action has been taken in the last two congressional sessions.
Last month, Reps. Ron Kind, D-Wis., and Mike Kelly, R-Pa., reintroduced the bill in the House, and a Senate counterpart is expected soon.
On the subject of lifetime income, RESA would create a stronger safe harbor for sponsors seeking to evaluate the health of insurers providing these in-plan products, let participants more easily transfer their in-plan assets, including an annuity, to an individual retirement account without paying taxes on those amounts, and would set guidelines for sponsors' educating participants on how their balances translate into a post-retirement income stream.
The last provision has garnered the most debate.
Exactly what sponsors should tell participants about how long their retirement nest egg might last has troubled regulators for years.
The Department of Labor investigated the matter in 2013, triggering a free-for-all of public comment and sharply divergent opinions from different industry groups and sometimes from within the same groups, but never issued a regulation.
Under RESA, the DOL would issue a rule outlining "a single set of specific assumptions" or "ranges of permissible assumptions" for an annual retirement income statement that sponsors would be required to send to participants.
Fiduciaries wouldn't be liable if they follow the rules governing a model lifetime income disclosure document developed by the DOL.
Will Hansen, chief governmental affairs officer at the American Retirement Association, a retirement industry trade group in Washington, said the disclosure provision would be a burden to plan sponsors and bring confusion to participants.
"It's yet another disclosure that they are mandated to provide that will increase compliance burdens," Mr. Hansen said. And since a majority of employers do not currently offer lifetime income products, the nest egg figure will "lead to confusion among plan participants on whether or not that type of product is offered," he added.
While the bill does not mandate a lifetime income product within a given plan, the disclosure figure must mimic an annuity product, Mr. Hansen said.
"Our employers, being large plan sponsors who provide a variety of benefits and have a very diversified workforce, do not like one size fits all," said Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee in Washington. And while ERIC does not object to a disclosure, "we would prefer that it include flexibility to allow employers to provide a disclosure that is appropriate for its workforce," she added.
Paul Richman, vice president of government affairs for the Insured Retirement Institute in Washington, favors the disclosure provision and dismissed claims that it would force sponsors into offering a lifetime income product. "The bill does not say you must buy an annuity," he said. "There are other products out there. It's just a statement to give you an illustration of how much your nest egg will produce on a monthly basis."
Citing a 2015 IRI study that found 90% of consumers would like to have information about how much monthly income their retirement savings account may deliver and that 75% of consumers said the information would encourage them to save more, Mr. Richman said the provision is important for Americans planning their retirements.
Ms. Robinson said the disclosure would likely cause confusion because many ERIC members already provide a similar figure through an online calculator. "So if you have an employer that's already providing the online calculator, now they have to provide an annuity number, which is static on a piece of paper; it can be confusing to participants about what their benefit is," she said.