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  • Writer's pictureChris Stein, CFP®

Retirement Plan Benefit Estimates

In 2013, the Department of Labor announced that they were going to require the plan administrators of “qualified” employer sponsored retirement plans, like your 401k, to supply to plan participants a retirement plan benefit estimate of the amount of “income” the balance in the retirement plan would provide to a retiree.  While a few plans have been proactive in offering this information, the requirement to supply this information will not go into effect until later in 2015 or even into 2016.  Since this will be new information people will see on their 401k statements we want to discuss how to interpret this information so you really know what it is telling you.

First, the DOL will require that plans supply two different figures; an income estimate based on the current account balance, and also an estimate of the income available at retirement based on assumptions for interest rates, savings rates and investment returns.  They have not yet specified what these assumptions will be or who will make them, and of course the devil is in the details.  We will be watching closely in 2015 for the final version of the DOL regulations to see how they decide to handle this.

Second, some plans have already decided to start providing their own estimates.  This is where things might get a little foggy.  Some plans have decided on their own set of assumptions and some have decided to offer even MORE estimates than what will be required by DOL, including estimates for Social Security income.  As you will know from reading last week’s blog, Social Security estimates are very tricky and are likely to be inaccurate.  We are bringing this to everyone’s attention so that as you begin to see these sorts of estimates show up on your 401k statements you will take the time to investigate HOW they are coming up with these numbers.  Ask what assumptions they are making if it is not clearly spelled out.  This way you will have a better sense how reliable this information is as it pertains to your specific situation.

This is another example of possibly great information becoming available, but information designed for “averages”;  average life spans, average investment returns, average savings rates, and the list goes on.  These numbers will only apply to you with a high degree of accuracy if you fit that definition of “average”, and in our experience most people do not.  Your estimates for your plan should be based on your numbers and your life.

For more information, please use the play button below to listen to our audio post.

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