Sunday, July 17, 2011

“Much” Ado


There were three big disclosure announcements last week. The first two were the pushback of the effective date for 408(b)(2) fee disclosures to April 1, 2012, from the previously announced effective date of January 1 of that year. In the same announcement, the Department of Labor also delayed the compliance date for the participant level fee disclosure regulation for most plans to May 31, 2012 (a month ago, the DoL had said that information would have to be made available no later than April 30)—which, from a practical standpoint, means that the information must be provided by August 14, 2012 (45 days after the end of the second quarter in which the initial disclosure is required)(see “Borzi Chats about Upcoming Definition of Fiduciary Rule”).

Those delays are, doubtless, of some relief to the provider community. They’re not pushed back far enough to significantly delay the beneficial impact of the disclosures (though this is not the first time they have been pushed back), but I’m sure even the best-prepared will appreciate a little extra breathing room.

But the more significant “announcement,” to my ears anyway, came on Friday, when Assistant Secretary of Labor Phyllis Borzi noted in an Employee Benefits Security Administration (EBSA) Web chat that the DoL was “considering, as part of the pension benefit statement regulatory initiative, requiring that pension benefit statements for defined contribution plans express the participant's ‘total accrued benefit’ in the form of a lump sum account balance and in the form of a lifetime income stream”

It’s not a new notion, of course. In fact, legislation has been introduced in Congress (twice) that would basically do the same thing (see “Retirement Income Disclosure Bill Makes a Comeback”). And while such a notion is fraught with potential problems (the assumptions, the presentation, and the caveats attendant with that presentation), I think it could be a real eye-opener for participants and plan sponsors alike. In fact, IMHO, it’s the kind of thing that could really make a difference in how people look at their retirement savings accounts.

Make no mistake, it’s going to be complicated. You can’t project retirement income from a couple of pieces of data (ostensibly current age, salary, and current 401(k) balance) without making several key assumptions. Moreover, I can’t imagine that it will be deemed sufficient to simply provide that number and, in a sentence or two, outline those assumptions. Rather, it’s entirely likely that the volume of disclosures accompanying the new piece of information will serve to obscure the impact.

Ultimately, it’s hard to know how good those disclosures will be and how much impact they will have—but, IMHO, if we expect participants to save enough, it seems well past time that we helped them know just how much “enough” is.

—Nevin E. Adams, JD

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