New Trend Employees Must Know About Today’s Retirement Environment

October 16-22 is National Retirement Security Week, a week dedicated to encouraging employees to take steps to secure their retirement. When it comes to retirement planning, an important step for employees is to stay informed. Understanding the latest developments in retirement readiness provides employees with an edge for planning a successful retirement, regardless of their current career stage.

Are you ready to take the first step in retirement planning?

Read about the lifetime income option and disclosures and what these mean for your retirement planning journey:

The 2019 SECURE Act provides for an ERISA fiduciary safe harbor for employers, which encourages defined contribution (DC) retirement plan sponsors to offer lifetime income investment options (i.e., lifetime annuity benefit) to participants. The safe harbor includes a portability feature for participants if the plan discontinues the investment option through in-service transfers of lifetime income investments (or annuity transfers) to an IRA or other retirement plan. Regardless of whether a sponsor has yet elected to include a lifetime income option, the Act also requires all DC plans to now provide participants with an annual benefit statement showing hypothetical lifetime income disclosures illustrating the monthly amount a participant would receive if their plan provided a lifetime annuity benefit. The required disclosure estimates the monthly annuity income payments that the participant would receive if their account balance was used to purchase a qualified joint and survivor annuity and a single life annuity. (The disclosures are strictly hypothetical as the plan may not actually offer these forms of benefit.) Watch for these disclosures to be included in DC plan benefit statements beginning with quarter-end June 30, 2022 statements (for participant-directed plans) and October 2022 benefit statements (for non-participant directed plans).

This safe harbor and the new hypothetical disclosures are intended to address two pressing retirement issues for employees: First, the gradual shift in retirement benefits being offered through DC plans (instead of through defined benefit (DB) pension plans) has typically prevented DC plan participants from being able to utilize the lifetime income annuity option offered through traditional pension plans. The lifetime income option is considered beneficial since participants can better plan for retirement through use of an annuitized income stream. Secondly, since today’s employees are expected to generally live longer than past generations, the retirement industry has emphasized the need for employees to understand the importance of lifetime distribution options as a means to avoid outliving their retirement savings. The new disclosures translate a current account balance into an income stream, which can help employees avoid being lulled into a false sense of security that can happen if they focus only on their total account balance.

Insight

It’s never too early to start planning for retirement! A solid understanding of retirement options and your role in shaping your future is key to achieving retirement security. Begin the process today by defining your retirement goals and learning about options available to help meet those goals. If you’re a participant in a DC plan, we encourage you to thoughtfully review the new lifetime income disclosures included in your benefit statement. Consider whether your current account balance translates into a sufficient income stream for retirement – this allows you to begin the important process of addressing retirement readiness now.

Maner Costerisan is here to help in planning your retirement journey!

Contact us at maner@manercpa.com or call us directly.