Debate: Are Lifetime Income Illustrations Helpful?

As the law stands, those illustrations are calculated as though the income would begin immediately, so that potential earnings growth is excluded. In other words, the client’s age isn’t fully factored into the equation — meaning that younger taxpayers could see numbers that actually discourage them from saving within the 401(k) vehicle.

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Byrnes: The rules as they stand may exclude the earnings component, which has always been controversial, but they’re a good middle-ground approach that balances the interests of both plan participants and plan sponsors. The initial set of rules may not cover every issue, but they’ll give us a good understanding of how taxpayers use and rely on the illustrations — and we can move forward from there.

Bloink: Yes, we need a set of rules that’s workable from the perspective of the employer and the plan sponsor. We also need a set of rules that works and does what the law sets out to accomplish — namely, encouraging taxpayers to save more for retirement to fund the future income they’ll need.

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Byrnes: Again, we have to balance the interests of retirement plan participants with the realities associated with administering employer-sponsored retirement plans. The last thing we want is to create a situation where we’re actually discouraging employers from offering retirement savings options because the burdens associated with offering the plan are just too significant.

Bloink: If we’re discouraging younger taxpayers from saving under the new rules, those rules are doing the exact opposite of what they were designed to do. Factoring in the earnings component on a retirement account balance can be complex, yes, but it’s definitely something that’s feasible and worthwhile in the long run. That’s how we’re going to actually encourage increased retirement savings among the younger generations.

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