New disclosure may show how much you’re saving on your 401 (K)

0


[ad_1]

Are you wondering if you are saving enough? Good news. Next year, 401 (k) plan participants will begin to receive a new type of disclosure called “lifetime income disclosure” from their plan sponsors, as will 403 (b) plan participants and 403 (b) plan members. other defined contribution plans.

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

Adopted under the 2019 law on the establishment of each community for the improvement of retirement (SECURE), promulgated in December 2019 (tinyurl.com/e759ysmr), annual disclosure is required for all defined contribution plans covered by ERISA, such as 401 (k) plans. (ERISA is the Employees Retirement Security Act 1974.)

The new law (Section 203 of the SECURE Act) requires plan administrators to publish an annual lifetime income statement as part of the member’s benefit plan statement.

The disclosure would state the monthly amount that a participant (or beneficiary) would get if the account balance was used to provide a single life annuity or joint life annuity (even if the benefit plan did not offer an annuity).

You can see a sample calculation on the Department of Labor website in an interim final rule document created by the DOL’s Employee Benefits Security Administration in response to the SECURE Act and titled “Retirement Benefit Withdrawals – Lifetime Income Illustrations “(tinyurl.com/c2p5edew). EBSA is responsible for more than 660,000 defined contribution plans which are covered by ERISA.

The example (scroll down a bit to see it) shows a 67-year-old participant with a 401 (k) of $ 125,000.

A single life annuity would earn $ 645 per month for life. A joint life annuity would pay the beneficiary $ 533 per month, and the same benefit would go to the surviving spouse upon the member’s death (assuming the spouse is also 67).

If you are younger, your disclosure will be projected 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 whatever it takes to increase your 401 (k) assets. Keep in mind that you have years of retirement savings ahead of you that will change the number of annuities you see now. An Investment Advisor will be able to make projections based on your current account value and your savings rate to make sure you’re on track to meet your retirement goals.

The DOL published the interim final rule in September 2020, and it entered into force on September 18, 2021 and applies to pension benefit reports issued after that date (tinyurl.com/dand7e8h). A final decision has yet to be made.

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

At the very least, a lifetime income disclosure might offer some needed perspective and might help answer the question of whether you’ve saved enough for retirement or whether you need to save more. (Most likely, once you see the number, you’ll be leaning in to save more.)

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

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

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

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

Your answers can help form next year’s 401 (k) Champion.

Julie Jason, JD, LLM, Personal Fund Manager (Jackson, Grant of Stamford) and Author, welcomes your questions / comments ([email protected]). Its awards include the 2020 Clarion Award, symbolizing excellence in clear and concise communications. Her latest book, an organized collection of Julie’s Chronicles, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Chronicist”. To hear Julie speak, visit juliejason.com/events.

[ad_2]

Share.

Leave A Reply