Maybe it’s because I have miles to go until I can actually collect Social Security – not to mention the fact that I’m not wholly convinced it will be available to me even when I’m eligible – but I tend to gloss over the annual SSA statements that tell me how much of a benefit I could collect once my working days are at last behind me.
That said, perhaps such statements are a more used and useful tool for other Americans. Thus, Sens. Jeff Bingaman (D-N.M.), Johnny Isakson (R-Ga.) and Herb Kohl (D-Wis.) were inspired to craft legislation that would require 401(k) sponsors to provide participants with SSA-esque statements projecting how much investors would have each month in retirement based on how much they have saved.
“It is estimated that half of American households will lack sufficient retirement income to maintain their pre-retirement standard of living,” Bingaman said, Money Management Executive reports. “Yet, many Americas are unaware of their financial vulnerability. Our bill is a common-sense approach to empowering Americans, and helping them determine whether they are on a path to a secure retirement.”
Isakson added, “Defined contribution plans such as 401(k)s are the retirement plans of the present and future. This bill will enable participants to receive additional, helpful information so they can better plan for their retirement.”
The bill, called Lifetime Income Disclosure Act, already has the thumbs-up from AARP, the Retirement Security Project and the Women’s Institute for Secure Retirement.
While that definitely increases the measure’s street cred in my eyes, I’m still not sold. Not only do I think that not many Americans actually read their SSA statements, I know for a fact that since the bottom dropped out of the economy, there’s a sizeable number than don’t read their 401(k) statements either. This recent EBN article details all the pretty colors, bells and whistles some companies are using just to get 401(k) participants to read their quarterly statements.
Not to mention that even the most “oooh, shiny!” statement won’t do any good unless two things happen in larger numbers:
1. More employees have access to, and participate in, their 401(k).
2. Comprehensive financial education goes hand-in-hand with the plan offering.
What do you think? Do you think Bingaman-Isakson-Kohl are onto something? Would SSA-type statements be helpful to participants and encourage better retirement savings/planning?
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8 Comment(s)
Posted by: Susie Q | December 31, 2009 1:02 PM
I read my 401(k) statements thoroughly every quarter, but I still do not understand what I'm reading. I believe education is the key to understanding our retirement benefits and planning for our financial security. We don't need government intervention, we need the benefit consultants to educate everyone on the plans, how and how much to save.
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Posted by: Gadget-Todd | December 10, 2009 6:03 PM
Most 401(k) participants do not have a clue regarding how much they need to save for their retirement. While there are certainly a lot of hurdles to get over in determining how to provide a good retirement income calcualtion, it will greatly help participants to have a better idea of the magnititude of wealth that they will need to accumulate to provide income for a retirement that could last 30 to 35 years (or more).
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Posted by: NW Native | December 10, 2009 5:14 PM
I agree with LS. SSA projections are very straightforward. Projecting income from DC plans would be an administrative burden and would return little value. A less expensive, more effective approach is to provide employees with education and tools to make their own projections. Providing employees with projections could give them a false sense of security. If individuals are going to be responsible for investing for their own retirement, they certainly should be required to give it some thought and understand something about the nature of risk/return and rebalancing assets as they advance in years.
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Posted by: Dennis Ackley | December 10, 2009 3:35 PM
This bill is fine...but long over due. Allowing employees to be unaware of the true cost of retirement shows that retirement industry leaders are out of touch with the needs and knowledge level of most employees. How can employees understand the critical need to save for retirement if they have no idea of how much their retirement will cost? It may take a new law so employees will find out that a $100,000 account -- something the majority of employees in their 60s do not have -- can be counted on for around $600 a month from an annuity or about $333 a month in withdrawals for life. Retirement industry leaders need to make retirement plans work...starting with effective communication techniques that grab employees' attention and motivate them to define, pursue and achieve their future financial income needs. Dennis Ackley
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Posted by: Dave W | December 10, 2009 3:06 PM
I disagree, I read my SS statement and I'm still 15 years from NSSRA. I think having the amount your personal 401k would provide for "lifetime" would be a very good thing and possibly lead more people to not only read their statements but ultimately increase their contributins. Information is power and the more information on how well I can...or can't...live at retirement shown on the 401 k statement the better
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Posted by: cms | December 10, 2009 3:03 PM
I question the value of further government intervention...however, I'd rather see these folks work on fixing the current financial woes at the SSA. I also believe the cost to recordkeepers to produce mandated 401(k)"what if" statements would be pushed to plan sponsors and/or diminish earnings for 401(k) account holders.
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Posted by: LJS | December 10, 2009 3:02 PM
I think this is a "dangerous" idea. With a DC plan, you really cannot project what any individual would or could have at retirement age. There will be people who take that example and consider it a guarantee - they won't read or understand all the necessary disclaimers that would have to accompany it. I work in retirement plan administration for a TPA - I handle about 200 plans and talk daily to participants. Contrary to what people say, a lot of participants do read their statements but they don't understand things like vesting, etc. The SSA statements are based on actual numbers - not projections and "what ifs." Any statement like that for a DC plan would be pretty worthless.
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Posted by: JewelofNile | December 10, 2009 2:34 PM
Like you stated, this would only be worth it if employees actually opened their 401(k) mail. I have yet to look at an annual SSA statement and I work as a Retirement Benefits Consultant. Financial education is needed first for most employees before you can start sending them mail they most likely won't read and/or understand.
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