Compliance October 22, 2019

DOL Proposes New Electronic Disclosure Rule

The new rule would offer a safe harbor for sponsors that want to make retirement plan disclosures available on websites.

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The Department of Labor (DOL) has proposed a new electronic document disclosure rule that would permit retirement plan sponsors to make plan disclosures available online in order to reduce printing and mailing expenses.

The proposal would offer a safe harbor for those sponsors that want to make electronic retirement plan disclosures the default. Participants would be notified that information is available online, including instructions for how to access the disclosures and their right to receive paper copies of disclosures.

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The proposal also includes additional protections for participants, such as standards for the websites where disclosures will be posted and system checks for invalid electronic addresses.

“This proposal offers Americans choice in how they receive important retirement information,” says U.S. Secretary of Labor Eugene Scalia. “By adjusting for modern technology, the Department can help save billions of dollars in costs for the U.S. economy. The U.S. Department of Labor is focusing on rulemaking that eliminates unnecessary burdens while furthering the needs of the wage earners, job seekers and retirees of the United States.”

DOL projects that the proposal could save $2.4 billion over the next 10 years. It is seeking input on the scope, content, design and delivery of the disclosure information. It notes that the proposal is in line with President Trump’s Executive Order 3487.

Chris Spence, senior director, government relations and public policy at TIAA, says his firm will issue a formal opinion on the proposal once it has been able to thoroughly examine it. “That said,” Spence adds, “we have been very supportive of enhancing electronic default delivery for a number of years and have been working closely with the SPARK Institute to advocate for improving electronic delivery, either through legislation or regulation.”

Edward Gottfried, group product manager at Betterment for Business, adds, “The DOL’s new electronic disclosure rule will not only reduce paper usage and cut significant costs across the industry, but will also be beneficial in making sure plan participants are updated on disclosures in a modern and timely fashion. This is an important step in modernizing the industry overall and giving participants more choices for how they access information. We’ve seen strong inclination from plan sponsors and their employees to provide as much documentation digitally as possible, and we’re glad that policy now reflects that opinion.”

Products October 22, 2019

American Academy of Actuaries, SOA Update Longevity Illustrator

Understanding how long they may live opens up important retirement planning discussions with clients.

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The American Academy of Actuaries and the Society of Actuaries (SOA) have updated the jointly developed Actuaries Longevity Illustrator, a web-based tool that allows users to quickly generate an estimate of how long they might live in a few simple steps.

“With the Actuaries Longevity Illustrator, users can generate interesting results about the probabilities of living to different ages, which is particularly useful for understanding the risk of outliving income, or longevity risk, when planning for retirement,” says Academy Senior Pension Fellow Linda K. Stone.

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Language on the illustrator website has been clarified to help users effectively use and understand its results, and back-end data and methodologies used to calculate results have been updated. The mortality tables used to generate the illustrator’s results have been updated from the U.S. Social Security’s 2010 to 2016 tables, and the mortality improvement scale has been updated from SOA MP-2015 to MP-2018. Changes have also been made to the factors used to adjust for smoking and health status.

While the increasing life expectancy is certainly worth celebrating, it’s important to note the risks associated with it. Aside from an expected imbalanced workforce, those retiring at age 65 will still be considered a long-term investor. Ed Farrington, executive vice president at Natixis, notes that for a couple retiring in their 60s, there is a high likelihood that at least one of them will be live well into their 90s. Therefore, this perception that near-retirees are short-term investors, who must invest conservatively, isn’t realistic anymore.

In addition, as people continue to live to older ages, the main challenges they face are high out-of-pocket medical expenses, the possibility of making financial mistakes due to declining cognitive abilities and the specter of widowhood.

To use the Actuaries Longevity Illustrator, an individual or a couple enters some basic information about themselves—including their age, gender, and general health status—and the tool generates easy-to-read charts showing the likelihood of living to certain ages. For instance, a couple can determine the chance of living a given number of years together as well as the likelihood that one or the other will survive additional years. The Actuaries Longevity Illustrator does not provide financial advice but the results can be useful for individuals or couples in understanding their financial needs in retirement.

“The Actuaries Longevity Illustrator adds an important perspective to the retirement planning conversation—namely, longevity risk,” says Lisa Schilling, SOA retirement research actuary. “It’s very risky to consider just one point in time for how long you’ll live. Instead, individuals and couples should look at the potential for either one or both of them to live to a variety of points and the associated risks they face.”

The tool may be accessed at www.longevityillustrator.org.

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