The Honorable Orrin Hatch
Chairman, Senate Finance Committee
United States Senate
Washington, D.C. 20510
The Honorable Ronald Wyden
Ranking Member, Senate Finance Committee
United States Senate
Washington, D.C. 20510
Dear Chairman Hatch and Senator Wyden,
We strongly support the Retirement Enhancement & Savings Act (RESA), and encourage you to advance this legislation in the Omnibus package currently being debated-with one critical modification relating to the Lifetime Income Disclosure Act (LIDA) mandate. The modification would mandate that plan sponsors disclose to plan participants the importance of savings for a lifetime of needs and share with participants a Department of Labor (DOL) financial tool that would allow them to illustrate their account balance as a lifetime income stream. The financial tool would enable the individual to take into account their own realistic assumptions and not government-determined assumptions on their future contributions, length to retirement, life expectancy, and other relevant factors.
Since LIDA was introduced in 2009, the plan sponsor community has voiced serious concerns about the specific lifetime income disclosure imposed on communications between the employer and employee participants. The greatest concern is that the mandated disclosure would create needless confusion and additional costs, and not advance retirement security or lifetime income planning. I have attached our more recent letters from 2016 and 2017 that provide context behind why the plan sponsor community opposes the current version of LIDA.
The ERISA Industry Committee (ERIC) is the only national trade association that advocates exclusively for large employers on health, retirement, and compensation public policy issues at the federal, state, and local levels. ERIC supports the ability of its large employer members to tailor health, retirement, and compensation benefits for millions of employees, retirees, and their families. Our members provide comprehensive retirement benefits to tens of millions of active and retired workers and their families, as well as robust financial wellbeing programs to support employees and improve their financial health and retirement security.
We would like to work with you to enhance retirement savings opportunities, including annuities, but not in the manner laid out by LIDA. Below we share an alternative approach that would encourage plan participants to consider lifetime income streams and develop uniform illustrations that participants can use for lifetime income planning.
From what we understand, the primary public policy rationales behind LIDA are to increase plan participant understanding of the importance of saving for a lifetime of needs and to create uniform illustration methods for participants to use to calculate lifetime income streams. Plan sponsors agree with these needs, but believe strongly that there are better ways to achieve them than adding a monthly lifetime income stream number to a retirement plan statement.
We believe the current legislative proposal should be revised to modify the mandate from a specific number to educational information that supports the importance of lifetime income options and enables participants to better educate themselves on lifetime income options (as well as other distribution options), based on their own individual circumstances, with guidance from the DOL to ensure uniform application. We propose that the ‘lifetime income stream equivalent’ (the specific monthly dollar figure) in LIDA be replaced with the following:
- Lifetime income information: A congressional mandate for plan sponsors to include annually on retirement plan statements a disclosure on the importance of saving for a lifetime of needs and to consider the plan’s account balance as one factor in planning for a secure retirement. This disclosure would also include a link to a DOL tool providing participants with an illustration of their account balance as a lifetime income stream.
- Department of Labor illustration tool: Congressional direction to DOL to develop web-based and other tools that can be used by participants to determine lifetime income stream equivalents and other available distribution options. DOL should also provide guidance that enables plan sponsors to use their own financial education tools to allow participants to determine how an individual could receive funds from their retirement plan to ensure a financially secure retirement. We also recommend that the DOL provide appropriate guidance and support for uniform lifetime income stream illustrations for individuals without access to the Internet.
We urge you to retain all other measures in RESA, including the recent change to the fiduciary safe harbor language that was made at the request of advocacy groups well after the 2016 passage of RESA out of the Finance Committee. As the LIDA rule we oppose affects a plan sponsor’s own communication with its employees, we urge you to accept the plan sponsors’ recommended modification we are proposing to you.
As currently drafted, LIDA would mandate a specific monthly dollar figure to be included annually on retirement plan statements utilizing a set of assumptions to be developed by the DOL. Since only one monthly dollar figure would be displayed, it assumes certain assumptions (e.g., contribution rate, employer match, investment return, years worked, retirement age, type of annuity) without providing the individual the ability to learn about lifetime income utilizing their own assumptions. Further, it creates confusion as this monthly dollar figure would be displayed next to the overall account balance and would be meaningless for most plan participants since the vast majority of retirement plans don’t have an annuity option within the investment fund lineup. It would also lead some participants to believe they will receive both the account balance and the monthly amount.
In addition to the monthly dollar figure, the current LIDA mandates a new disclosure document to be added annually to the retirement statement, which will also increase the cost to operate the plan. The legislative text of LIDA mandates that this new additional disclosure document include language that:
‘(II) explains that the actual payments under the lifetime income stream described in clause (i)(III) which may be purchased with the total benefits accrued will depend on numerous factors and may vary substantially from the lifetime income stream equivalent in the disclosures.’
Instead of providing a monthly figure that utilizes government assumptions along with a new mandatory disclosure that states the monthly figure may vary substantially from actual future payments, we believe a statement on the importance of saving for a lifetime of needs along with modeling tools created by the DOL will greatly enhance the plan participant experience without adding unnecessary confusion and cost. This approach would support and coordinate with the robust financial planning efforts that companies are providing to their employees, and would help make significant improvements in retirement security.
We look forward to working with you to modify LIDA and support your efforts to include modified LIDA and the rest of RESA in the Omnibus bill. If you have any questions, please contact either Will Hansen, Senior Vice President for Retirement and Compensation Policy, or me, at 202-789-1400.
Annette Guarisco Fildes
President & CEO
cc: U.S. Senate