Employee Benefits Security Administration
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May 20, 2013

Before It's Too Late: A Retirement Security Update From Assistant Secretary Phyllis C. Borzi

Hello! I'm Phyllis C. Borzi, Assistant Secretary for the Employee Benefits Security Administration at the U.S. Department of Labor. Thanks for subscribing to my biweekly update for consumers and those interested in retirement issues.

How do I make sure I don't run out of money in retirement? It is one of the most common questions — and fears — that arise.

With the shift from defined benefit plans that typically offer employees lifetime monthly payments to 401(k) and other defined contribution plans that typically distribute retirement savings in a lump sum payment, this question increasingly has to be managed by individuals. One of the ways the Department of Labor is trying to help is by exploring ways for workers to see in their pension statements what their 401(k) account balances would look like if the worker received a monthly check for life rather than a lump sum. The illustrations would allow workers to gauge the amount of money they might need in retirement and to accordingly adjust their savings habits and investment strategies.

A retirement account balance may seem like a very large amount of money, but seeing that broken down to an estimated lifetime stream of payments can be sobering.  An example appeared in a comment letter received in response to a 2010 request for information (RFI) seeking public comments on lifetime income options for retirement plans.

A national non-profit trade association of investment managers, consultants, recordkeepers, insurance companies, plan sponsors and others pointed out that "when [workers] see that $100,000 may only generate $700 of monthly income for life, the participant may be incented to save more aggressively." Recent research supports the hypothesis that providing participants with customized information on the decumulation phase can influence contribution behavior. Receiving an illustration of their likely lifetime income stream on their retirement account statement may help savers make adjustments and better prepare for retirement while they are still in the workforce.  

Of course, we are seeking input to help inform this initiative. We received extremely helpful information and suggestions in response to the 2010 RFI (in the form of hearings and over 700 comments) and used that to further refine the Department's thinking. Earlier in May, the Department of Labor issued an advance notice of proposed rulemaking (ANPRM). This ANPRM calls for comments about requiring a participant's accrued benefits to be expressed on his pension benefit statement as an estimated lifetime stream of payments, in addition to being presented as an account balance and also whether to require a participant's accrued benefits to be projected to his retirement date and then converted to and expressed as an estimated lifetime stream of payments. Do you have an opinion about lifetime income illustrations? Public comments are being accepted until July 8, 2013.

• Read the full announcement of the ANPRM in the Federal Register
• Read a fact sheet about Lifetime Income Illustration
• Read comments and testimony about Lifetime Income Options For Participants And Beneficiaries In Retirement Plans

Try Out EBSA's New Lifetime Income Calculator

The Department has also developed an interactive Lifetime Income Calculator. In conjunction with the publication of the Lifetime Income ANPRM, it is now accessible online and can be used by both participants and service providers to compute lifetime income streams.

If you enter only a few pieces of information — retirement age, current retirement account balance, current annual contribution, the number of years to retirement, and the last day of the statement period on the most recent account statement provided by the plan — you can see for yourself an estimate of what lifetime income payments might result from your current savings.

• Try out EBSA's Lifetime Income Calculator
• Read EBSA's publications to help prepare for retirement

How Do You Know Which Financial Adviser to Trust?

I mentioned the PBS Frontline documentary, The Retirement Gamble, in my last newsletter. It has generated a lot of interest and while my appearance in the program was brief, Frontline has written a longer companion piece about some of the Department of Labor's priorities in protecting consumers and retirement savers.  You may be interested in taking a look.

• Read "How Do You Know Which Financial Adviser to Trust?"
• Watch The Retirement Gamble