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Neal Challenges Lifetime Income Disclosure Assumption

Government Affairs

A primary sponsor of the SECURE Act—and Chairman of the House Ways & Means Committee—has a bone to pick with the Labor Department and a key assumption in its interim final rules regarding lifetime disclosures.

In a letter to Secretary of Labor Eugene Scalia, Rep. Richie Neal (D-MA), a sponsor of the SECURE Act which introduced several provisions designed to expand the focus on retirement income, including the lifetime income estimates in question, expressed his disappointment in a specific element in the assumptions[1] included in the presentation of a lifetime income equivalency on participant statements. 

More specifically, in one of the comment letters submitted on the interim final rule, Neal took issue with the assumption that those interim final rules put forth with regard to projected future earnings. Citing the example of a hypothetical 31-year-old, Neal commented that “the interim final rules instead assume that the 31-year old will earn zero between age 31 and age 67. From a financial and economic perspective, there is no basis for this assumption. And this assumption is certainly not required in any way by the statutory provision in the SECURE Act, which expressly authorized the Department to use any appropriate assumptions.”

Indeed, Neal offered an opinion that “…an assumption that a 31-year old will earn nothing on her account balance over the next 36 years is hardly an appropriate assumption,” urging Secretary Scalia to “correct this aspect of the interim final rule. Projecting that employees’ 401(k) accounts will earn zero over 30 or 40 years was not the type of assumption Congress intended the Department to require.” Explaining that it was important to encourage participation in these programs by workers, he noted that “assuming a mere 4% rate of return, a contribution at, for example, age 31 produces an age 67 benefit that is four times as great as the same contribution made at age 67.”

The letter concludes with Neal requesting that the Labor Department “…include a reasonable conservative earnings assumption in the final rule.”
The American Retirement Association submitted its own set of comments on the interim final rule on November 17.

Footnote

[1] Those assumptions are as follows: calculate monthly payment illustrations as if the payments begin on the last day of the benefit statement period, assume that a participant is age 67 on the assumed commencement (the Social Security full retirement age for most workers, or the participant’s actual age, if older than 67), assume that all participants have a spouse of equal age, regardless of a participant’s actual marital status or the actual age of any spouse, use the 10-year constant maturity Treasury rate (10-year CMT) as of the first business day of the last month of the statement period to calculate the monthly payments (this, the DOL says, “approximates the rate used by the insurance industry to price immediate annuities), and for life expectancy, administrators must use the gender neutral mortality table in Section 417(e)(3)(B) of the Internal Revenue Code (the mortality table generally used to determine lump sum cash-outs from defined benefit plans).