Disclosure can show how much is being saved in your 401(K)

Wonder whether you are saving enough? Good news. Next year, 401(k) participants will start receiving a new type of disclosure called a “lifetime income disclosure” from their plan sponsors — as will participants of 403(b)s and other defined contribution plans.

This important disclosure will show you how much your current 401(k) balance could provide you in monthly payments when you retire, assuming you retire at age 67.

Enacted as part of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, signed into law in December of 2019 (tinyurl.com/e759ysmr), the annual disclosure is required for all ERISA-covered defined contribution plans, such as 401(k) plans. (ERISA is the Employee Retirement Security Act of 1974.)

The new law (section 203 of the SECURE Act) requires plan administrators to issue an annual lifetime income disclosure as part of a participant’s benefit plan statement.

The disclosure would show the monthly amount a participant (or a beneficiary) would get if the account balance were used to provide a single-life annuity or a joint and survivor annuity (even if the benefit plan didn’t offer an annuity).

You can see an example of the calculation on the Department of Labor’s website in an Interim Final Rule document created by the DOL’s Employee Benefits Security Administration in response to the SECURE Act and titled “Pension Benefit Statements — Lifetime Income Illustrations” (tinyurl.com/c2p5edew). The EBSA is responsible for more than 660,000 defined contribution plans that are covered by ERISA.

The example (scroll down a little from the top to see it) shows a 67-yearold participant with a 401(k) of $125,000.

A single-life annuity would provide $645 per month for life. A joint-life annuity would pay the recipient $533 per month, and the same benefit would go to a surviving spouse upon the participant’s death (assuming the spouse is also 67 years of age).

If you are younger, your disclosure will project to age 67 based on your current 401(k) balance. You may be discouraged if you see low numbers, but don’t be. Instead, do everything in your power to increase your 401(k) assets. Keep in mind that you have years of retirement saving ahead of you that will change the annuity numbers you currently see. An investment adviser will be able to run some projections based on your current account value and savings rate to make sure you are on track for your retirement goals.

The DOL published the interim final rule in September

of 2020, and it went into effect on Sept. 18, 2021, and applies to pension benefit statements issued after that date (tinyurl.com/dand7e8h). A final ruling has not yet been issued.

When might you see this disclosure on your statement? According to a DOL FAQ sheet released July 26, 2021 (tinyurl.com/yb8h76dj ), plans that are required to issue benefit statements quarterly must have their first disclosure requirement “for a quarter ending within 12 months after [September 18, 2021].”

If nothing else, a lifetime income disclosure could offer some needed perspective, and it could help you answer the question of whether you have saved enough for retirement or need to save more. (Most likely, once you see the number, you’ll lean toward saving more.)

For those of you who are following the 401(k) Champion competition, the winners will be announced in November at 401kchampion.com.

In the meantime, if you are a 401(k) expert or afficionado, I invite you to answer these two questions at https://tinyurl.com/ jczsc9r5.

1. What are the 10 most important facts you need to know about your 401(k)?

2. What are the five actions you must take to maximize your retirement savings using your 401(k)?

Your answers may help train next year’s 401(k) Champion.