New changes coming to your Retirement statements


If you’re saving in a retirement plan, such as a 401(k) or 403(b), you receive a quarterly statement detailing your account balance and investments held. Beginning this year, your retirement plan provider will be assisting you with calculating how much monthly income your current account balance will generate in retirement by including—at least annually— two lifetime income illustrations with your statements.

What assumptions do these illustrations take into consideration?

The income projections for the new lifetime income illustrations must be based on the following assumptions:

  1. The participant is retiring at age 67 (the Social Security full retirement age for many workers) or the participant's actual age, if older than 67).
  2. Interest rate calculations for purposes of calculating interest earned on income payouts over time, based on an interest rate that is the 10- year constant maturity Treasuries (CMT) securities yield rate for the first business day of the last month of the period to which the benefit statement relates.
  3. Life expectancy values to illustrate the length of lifetime income payments based on values from a gender-neutral mortality table pursuant to IRC Sec. 417(e)(3)(B); and
    4. The current account value—which assumes you are making no further contributions into the account.

Keep in mind:

By not accounting for future contributions, the retirement income projections will likely be significantly less than the actual value of the account at retirement—which could be shocking, especially for younger participants. As such, these lifetime income illustrations should be used as a guide to benchmark where you are in relation to your retirement savings goals, and whether it makes sense to begin saving more to reach your goals.

For example: Theresa is age 40 and single. Her account balance on Dec. 31, 2022, is $125,000. The 10-year CMT rate is 1.83% per year on the first business day of December. The benefit statement of this participant would show the following amounts:

Current Account Balance $125,000
Single Life Annuity (SLA) $645 per month for life (assuming Theresa is age 67 on Dec. 31, 2022). This option pays you for the rest of your life, but once you pass away there is no remainder interest for a beneficiary.
Qualified Joint and 100% Annuity (QJSA) $533 per month for participant’s life, and $533 for the life of spouse following participant’s death (assuming Theresa and her hypothetical spouse are age 67 on Dec. 31, 2022). This option pays for the lives of both Theresa and her spouse, whoever lives longer. Because this annuity will theoretically be paid for a longer period of time – more payments made over the course of two lives – the monthly QJSA payment will always be for a lesser amount.

As noted in the illustration, even though Theresa is only 40, the illustrations detailed what her monthly income would be as if she was age 67, thus giving her no credit for the 27 years her $125,000 could potentially be growing or additional contributions she may be intending to make. If Theresa felt as though $645 (or $533 for a QJSA) per month would not be sufficient retirement income, this would be a great starting point to discuss saving more for retirement.

We understand that confusion might arise from these new illustrations and we’re here to help. If you have any questions regarding your statements or retirement Plan, please don’t hesitate to contact us.

Sources:

• Lifetime income illustrations | John Hancock Retirement. (2021, December 17). EN. https://retirement.johnhancock.com/us/en/viewpoints/retirement-readiness/what-are-the-lifetime-income-illustrations-on-my-401-k--statemen
• Case of the Week: Get Ready to Explain Lifetime Income Illustrations. (2022, April 6). National Association of Plan Advisors. https://www.napa-net.org/news-info/daily-news/case-week-get-ready-explain-lifetime-income-illustrations
• U.S Department of Labor (DOL). (2020). Pension Benefit Statements – Lifetime Income Illustrations [PDF]. https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/pension-benefit-statements-lifetime-income-illustrations.pdf

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