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Old 12-07-2009, 12:17 PM
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Default Bill calls for 401K income estimates

http://www.lifeandhealthinsurancenew...Estimates.aspx

Quote:
Legislation introduced in the Senate this week would mandate that 401(k)s and other defined contribution plans show beneficiaries the value of their retirement account.

The legislation would require plan sponsors to provide data on how much income a participant’s account balance would generate each month at retirement.

The legislation, the Lifetime Income Disclosure Act, was introduced by Senators Jeff Bingaman, D-N.M.; Johnny Isakson, R-Ga.; and Herb Kohl, D, Wis.

The senators said they introduced the bill because the shift to 401(k) plans has made employees increasingly responsible for saving for retirement and managing their retirement investments.

“Many Americans are not saving enough, and they are unsure how quickly to draw down their savings in their retirement years,” they explained.

Officials of the American Council of Life Insurers, Washington, lauded the bill and urged its quick passage.
I didn't see anywhere in the article what assumption set would be used for this.

Would the calculations and assumptions be set from provider to provider? From client to client [employer to employer]?

And would they need to have an actuary sign off on these [hmmmmmmm]?

Will they be allowed to reflect a difference in male and female annuity rates, given most of these DC plans don't have a right to annuitize accumulations within the plan [if they did, you can't use sex-distinct annuity rates... just FYI. This came up at TIAA-CREF, as you might imagine - annuities generally aren't a part of DC plans.]

Would the Academy like to say anything about this?

[I assume the ACLI is gung-ho, because they'd like to sell people income annuities]
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Old 12-07-2009, 03:33 PM
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According to PlanSponsor: "Specifically, according to a press release, under the Lifetime Income Disclosure Act, defined contribution plans subject to the Employee Retirement Income Security Act (ERISA) would be required annually to inform participants of how the account balance would translate into guaranteed monthly payments 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, the legislation directs the Department of Labor to issue tables that employers may use in calculating an annuity equivalent, as well as a model disclosure."

Oh goodie, another "index" for us to think about...I wonder how this will work out when someone can't find an insurer to actually issue an annuity contract for the table price, what the expense load will be, how alternative forms of distribution will be handled, what happens when someone's account runs out if they decide to take the income without actually purchasing an annuity, what this will do vs RMDs,...
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Old 12-07-2009, 04:50 PM
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Oh, so there will be work, once, for some government actuary somewhere to create this table. They'd probably ask the SSA to come up with this table. Maybe they'd update it from time to time.

Would be interesting to see how it would actually compare with reality.
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Old 12-07-2009, 05:52 PM
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Would be interesting to see how it would actually compare with reality.
Reality? Since when did that have anything to do with government work?
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Old 12-07-2009, 06:06 PM
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Oh, so there will be work, once, for some government actuary somewhere to create this table. They'd probably ask the SSA to come up with this table. Maybe they'd update it from time to time.

Would be interesting to see how it would actually compare with reality.
I would think the rates would be based on market rates that an annuity could be purchased for. I don't think they just pick an interest rate and a mortality table they like. I mean, if they want to disclose the lifetime income, then they should disclose the lifetime income, not some theoretical number.

Interestingly, a lot of plans already do this. A lot of "401(k) plans" are not just 401(k) plans. 401(k) is the section that allows employee money to be pre-tax. A lot of DC plans have employer money as well, and many are categorized as pension plans by the IRS. The normal form is a life annuity and they are subject to the qualified joint and survivor restrictions. The benefit is defined in terms of an account balance, but they already offer an annuity. They simply have to disclose what that conversion factor is projected to be. They don't have to invent anything.
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Old 12-07-2009, 06:39 PM
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Originally Posted by Fuzzy View Post
According to PlanSponsor: "Specifically, according to a press release, under the Lifetime Income Disclosure Act, defined contribution plans subject to the Employee Retirement Income Security Act (ERISA) would be required annually to inform participants of how the account balance would translate into guaranteed monthly payments 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, the legislation directs the Department of Labor to issue tables that employers may use in calculating an annuity equivalent, as well as a model disclosure."
Do you know if the dollar amounts would be in today's dollars or future dollars? I don't see how knowing a guaranteed payout in future dollars would be useful for anyone with a lot of years before retirement.
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Old 12-08-2009, 07:43 AM
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Oh, I used to do these types of illustrations for customers of TIAA-CREF, and we disclosed various assumptions.

I was just wondering what the government tables would be based on for these illustrations. There's lots of assumptions in there:

- mortality - would mortality improvement be used to project future annuity factors? would they use sex-distinct factors in illustration? [think that would go over well - a woman getting a different amount of money than a man]
- retirement age - would that be bumped up to higher ages in reflection of higher NRA for SocSec, mortality improvement, etc?
- investment returns - that would be a fun one
- inflation - what dollars would this be in? present or future?
- salary raises - if it would be given in terms of future replacement ratio
- joint annuity? single? For life?

I may have forgotten something in that set above, but I remember having to consider all of the above. For TIAA-CREF annuities within the ERISA plans, they couldn't use sex-distinct tables [but one might have to do mortality improvement different for males/females, as that's definitely different].

I have a feeling they're not going to use annuity rates, actually, for this, but pretend the old five percent withdrawal rate will work.

Again, why is ACLI for this? Is this really going to help them sell annuities? I don't know that's the case.
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Old 12-08-2009, 08:18 AM
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This is useless because of all the variables Mary Pat listed above that have to go onto such a calculation.

My company plan's site has a headline telling me that I'm "on track" to get $59K per year in retirement. I have $139K in the plan and I'm 57 years old. I do have other assets but that calculation had no way of taking them into account. I did some digging into how they got this happy number and found they were anticipating that part of that would come from SS. Like that's gonna happen.
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Old 12-08-2009, 09:59 AM
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My company plan's site has a headline telling me that I'm "on track" to get $59K per year in retirement. I have $139K in the plan and I'm 57 years old.
Easy. You hit the retire at 80 switch.
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Old 12-08-2009, 10:15 AM
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Originally Posted by Salzmann View Post
This is useless because of all the variables Mary Pat listed above that have to go onto such a calculation.

My company plan's site has a headline telling me that I'm "on track" to get $59K per year in retirement. I have $139K in the plan and I'm 57 years old. I do have other assets but that calculation had no way of taking them into account. I did some digging into how they got this happy number and found they were anticipating that part of that would come from SS. Like that's gonna happen.
The current NRA annual SS payout for someone 57 years old that has always earned above the limit is a shade under $30k, so not terribly unreasonable.

Still, rather shady that your employer is 'taking credit' for social security.
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