There are two proposed pieces of legislation sitting in Congress that would seem to be no-brainers for helping people save for retirement and helping advisors help their clients.
One is the Lifetime Income Disclosure Act, which would require 401(k) plan sponsors to inform participating workers of the projected monthly income they could expect at retirement based on their current account balance. The Social Security Administration was mandated to issue annual statements that inform people of their estimated monthly benefits given their current earnings in 1989 and it’s been extremely valuable in helping people envision retirement income.
It’s a small and fairly obvious change but would make a world of difference in helping people understand how to translate that lump savings into retirement income rather than just seeing a pool of money they hope will be enough. Prudential Retirement has a calculator that takes this a step further and allows people to see the gap between their monthly payments in retirement and their future needs.
The second piece of proposed legislation is an evolutionary and revolutionary step forward in small business retirement plans. The Multiple Small Employer Plan would allow numerous small businesses (those with under 100 employees) to essentially pool their retirement plans for greater economies of scale. This would reduce the burden of administration on the small business owner, lower the costs of providing a plan to both employers and employees and would vastly increase the number of people with access to retirement savings.
The features are numerous but among them would be auto enrollment and escalation of contributions with an employee opt-out; they would not require any employer contribution, non-discrimination testing and would allow for default investment options; and the IRS would provide a roadmap for plan design and implementation. Advisors or plan administrators would take this model plan and decide how to allocate it.
This has numerous pluses for employers, employees and advisors. It would also be a boon for advisors, who could combine a large number of their small business clients into one plan and then act as the plan administrator for a much bigger plan than otherwise would be possible.
“They could very easily have all their employers join a model plan and then they could manage it,” says Jamie Kalamarides, senior vice president of retirement solutions at Prudential Retirement. “They could double the size of their market and serve it in a much more efficient manner. Where they don’t make money serving 10-15 employee firms now, if they could get 100 plans together and have 200 people it would increase the marketplace, which could then afford to hire them.”
While neither proposal is getting much attention right now, Kalamarides says they both would be easy to reach bipartisan consensus on in a year when congress needs badly to look like it’s doing something about helping people with retirement.
Pamela J. Black is editor-in-chief of Bank Investment Consultant.