Includes Isakson amendment to create level playing field, increase access for retirement income solutions

Today, the Senate Finance Committee passed legislation introduced by U.S. Senator Johnny Isakson, R-Ga., to help Americans plan ahead financially to ensure their retirement savings don’t run dry. The bill also includes an amendment introduced by Isakson that would help create a level playing field for annuity-based and non-annuity-based retirement income solutions offered by employers.

With the shift to 401(k) plans, American workers have become increasingly responsible managing their savings and retirement investments. However, many Americans do not know how much they need to save to meet their retirement goal or how quickly to draw down their savings in their retirement years.

The Lifetime Income Disclosure Act, S.1317, introduced by Isakson along with U.S. Senator Chris Murphy, D-Conn., would require 401(k) plan sponsors to inform participating workers of the projected monthly income they could expect at retirement based on their current account balance. The measure is patterned on the Social Security Administration’s annual statements, which are mailed annually to working Americans to inform them of estimated monthly Social Security benefits based on their current earnings. Congress mandated annual Social Security statements in 1989, and they have proven to be very useful to workers in preparing for retirement.

By providing similar information for 401(k) plans, the Lifetime Income Disclosure Act would give American workers a more complete snapshot of their projected income in retirement.

“American workers need access to the best available information about their investment choices and exactly what they will yield upon retirement. This information not only helps them to plan, but promotes increased savings while they are still in the work force,”said Isakson. “Defined contribution plans such as 401(k)s are increasingly the retirement plans American workers count on, and this legislation will encourage participants to think of their 401(k) investments as a vehicle for lifetime income.”

Specifically, defined contribution plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) – including 401(k) plans – would be required annually to inform participants of how their account balance would translate into a monthly income stream based on age at retirement and other factors.

To ensure there is no material burden or potential liability on employers who voluntarily sponsor 401(k) plans, Isakson’s legislation directs the Department of Labor to issue tables that employers may use in calculating an annuity equivalent, as well as a model disclosure. Employers and service providers using the model disclosure and following the prescribed assumptions and the Department of Labor rules would be insulated from liability.

Isakson also introduced a bipartisan amendment during Wednesday’s committee meeting that was included in the final bill text that provides regulatory certainty for employers who are considering adding income annuity features to the defined contribution plans they sponsor for their employees.

The Lifetime Income Disclosure Act and Isakson’s amendment were both included in the Retirement Enhancement and Savings Act of 2016, which passed the Senate Finance Committee by a unanimous vote of 26-0. The legislation now moves to the full Senate for a vote on final passage.