Does Income Disclosure Law Signal Industry Pushback?

By Cyril Tuohy

InsuranceNewsNet

After dying in the last session of Congress, the Lifetime Income Disclosure Act was quickly resurrected in the spring with bipartisan backing in the House and Senate. So far, so good, but there’s already been a delay, and the question is whether pushing back the comment period deadline is a harbinger of more serious political pushback to come.

The comment period set by the Department of Labor (DOL) to collect testimony was moved from July 8 to Aug. 7, pushing back by a month one of the most straightforward pieces of financial legislation making its way through Congress.

Procedural postponements are routine so there’s nothing new about that, and perhaps (DOL) could have chosen a better date given how close the original deadline was to the Independence Day weekend when much of Washington, D.C., heads out of town.

Still, a seven-page amendment to the Employee Retirement Income Security Act that would tell workers how long their retirement savings would last them would seem to be a shoo-in for passage given the bipartisan support for the bill.

A coalition of companies representing retirement plan professionals, record keepers, lifetime income product providers and retirement plan sponsors has asked the Labor Department to move back its deadline for the comment period.

“The illustrations under consideration will require software reprogramming and modeling changes,” the coalition said, in a letter to the Labor Department.

Among the groups requesting an extension are the Investment Company Institute (ICI), the Plan Sponsor Council of America, the Financial Services Roundtable, the Defined Contribution Institutional Investment Association and the National Association of Insurance and Financial Advisors (NAIFA).

In the Senate, the bill, S-1145, has the backing of Sens. Johnny Isakson, R-Ga., Christopher Murphy, D-Conn., Tim Scott, R-S.C., Bill Nelson, D-Fla., and Elizabeth Warren, D-Mass.

The House bill, H.R. 2171, was introduced by Rep. Rush Holt, D-N.J., Tom Petri, R-Wis., Ron Kind, D-Wis, and Dave Reichert, R-Wash.

“This legislation will increase financial literacy, promote increased savings, and encourage participants to think of their 401(k) investments as a vehicle for lifetime income,” Isakson said in a statement on his website.

Powerful insurance lobbies stand behind the legislation. Besides NAIFA, they include the American Council of Life Insurers (ACLI) and the Insured Retirement Institute.

“Effective planning means that workers must understand how their lump-sum savings will address their regular monthly expenses — such as housing, food, utilities and medical services — over the entire course of their lives,” ACLI said in a statement. “With the information provided by the Lifetime Income Disclosure Act, planning will be much easier.”

Julie Carsrud, director of federal government relations for NAIFA, called the bill a “common sense approach,” to informing workers preparing for retirement. “It’s not complicated with respect to the calculations that are done,” she said in an interview with InsuranceNewsNet. She also said Phyllis C. Borzi, assistant secretary of labor for the Employee Benefits Security Administration, has agreed to move back the deadline for the comment period to Aug. 7.

Program administrators and record keepers can easily add algorithms to let workers know how long their retirement savings will last them, but the legislation will also require more work on their part in terms of recoding software and sending out monthly statements with more information.

Could plan administrators and record keepers rise up and oppose the bill?

Statements about the payout phase of a retiree’s assets could include a current balance of, for instance, $125,000 and list a monthly payment of $625 as an estimated lifetime income stream. The statement would also include a projected balance of, say, $557,534, and then list a monthly payment of $2,788 as an estimated lifetime income stream.

As the DOL prepares to accept more comments over the next month, it’s worth keeping in mind that the previous version of the Senate bill was opposed by the ICI, which represents the mutual fund industry, on the grounds that the bill didn’t do enough to disclose the methods used to provide the lifetime income estimates.

In its previous incarnation, the ICI said the bill did not allow projections of future contributions and was “unclear on whether projections of account growth are allowed.”

A second shortcoming was that the legislation required plans to express estimates based only on the amount of annuity income an account balance would buy. “Although we appreciate that the bill speaks in terms of providing ‘lifetime income streams,’ specifying that the lifetime income stream must be an annuity suggests a government endorsement of annuity products as the only way to obtain lifetime income,” the ICI said.

Already, then, it looks as though the mutual fund industry and the annuity industry may be gearing up for a spat over lifetime income disclosure.

So, will the third time around for the Lifetime Income Disclosure Act be a charm? Perhaps, and if it passes about the only drawback is that it will let workers know how short they really are with their retirement nest eggs.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].