In the wake of the Great Resignation, both employers and employees are continuing to keep a close watch on compensation packages, with an even greater emphasis on retirement benefits, according to J.J. Conway of J.J. Conway Law. The nationally-recognized employee benefits and ERISA attorney thinks the inclusion of the new “lifetime income illustration” — presented on 401(k) quarterly statements starting at the end of June — will help employees better foresee what their monthly savings will look like in retirement.
“The changes are a big win for reality-based thinking. Impending updates on how savings information is presented on 401(k) statements will help employees reframe their savings goals for when they are no longer working,” Conway said. “Instead of showing the usual lump sum amount with funding allocations, updated statements will enable employees to visualize how that consolidated amount translates to fixed, lifetime monthly payments.”
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) amended the Employee Retirement Security Act of 1974 (ERISA) to add two lifetime income illustrations, furnished at least annually:
• Single Life Annuity: Income for an individual buyer for life;
• Qualified Joint and Survivor Annuity: Income for an individual and a surviving spouse for life
These changes will play a role in an employee’s long-term financial security—the third piece of Conway’s foundational employee benefits principles, the “Three Pillars of Financial Security,” which involves workplace implementation of a solid employee benefit plan that makes it relatively easy for employees to save for retirement through a 401(k) or other savings vehicle with solid investment offerings, low fees and effective management.
While U.S. Department of Labor requirements to 401(k) statements are a step in the right direction, there may be further reform on the horizon. The U.S. House already passed the SECURE 2.0 bill, and Senate committee proposals have recently been approved, but differences between the two proposals still need to be resolved. However, Conway believes all this legislative activity will result in a positive outcome to employee benefits programs overall.
“Any bi-partisan consensus on improving how people save for retirement illustrates how important the goal of having a dignified retirement for workers, employers and retirees is,” Conway said.
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