Debate: are lifetime income illustrations useful?
As the law currently stands, these illustrations are calculated as if income began immediately, so potential growth in profits is excluded. In other words, the customer’s age isn’t fully factored into the equation, which means younger taxpayers might see numbers that actually discourage them from saving in the 401(k) vehicle. .
Byrne: The rules as they stand may exclude the earnings component, which has always been controversial, but this is a good middle ground approach that balances the interests of plan members and plan sponsors. The initial set of rules may not cover all the issues, but they will give us a clear understanding of how taxpayers use and rely on illustrations – and we can move forward from there.
Bloink: Yes, we need a set of applicable rules from the perspective of the employer and the plan sponsor. We also need a set of rules that work and do what the law intends to do, which is to encourage taxpayers to save more for retirement in order to finance the future incomes they will need.
Byrne: Again, we must balance the interests of pension plan members with the realities of administering employer-sponsored pension plans. The last thing we want is to create a situation where we actually deter employers from offering retirement savings options because the charges associated with offering the plan are simply too onerous.
Bloink: If we discourage young taxpayers from saving under the new rules, these rules do the exact opposite of what they were designed to do. Factoring in the income component of a retirement account balance can be tricky, yes, but it’s certainly doable and worthwhile in the long run. This is how we will really encourage the increase in retirement savings among the younger generations.
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