There is a piece of legislation hanging around in the Senate that makes a good deal of sense, and really shouldn’t cause too much grief to implement in the long run.
This particular bill, introduced by Senators Bingaman (D-New Mexico), Isakson (R-Georgia), and Kohl (D-Wisconsin), is called the Lifetime Income Disclosure Act, and it proposes that the administrators of ERISA-approved retirement plans provide for their participants a disclosure of the “annuity equivalent” of the total benefits that each participant or beneficiary has accrued within the retirement plan.
What this means is that, for most folks, an estimate would be provided to them with their statement that outlines what that lump sum means in terms of real, annualized income replacement in retirement.
Specifically, the government would establish certain assumptions about the annuity value of a lump sum, given the participant’s age, and from those assumptions a lifetime income stream valuation would be derived.
This could be an important provision giving folks an eye-opener into what they could expect from their 401(k) plan when they retire. Most folks won’t actually purchase the annuity described for many reasons, one being that in order to purchase an annuity you must deal with an annuity salesman. But this illustration of the potential income value is a good step in the right direction for folks to gain a better understanding of their present position.
Of course, just knowing this fact won’t necessarily resolve our retirement savings shortfalls, but maybe it would help to inspire folks to save more and spend a little less. Every little bit can help.
If you agree with me that this provision makes sense and if you’re inclined to do so, write or call your representatives in Congress and tell them so. Unless you speak up, they won’t hear you.