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Friday September 30, 2016

Washington News

Washington Hotline

Congress Considers Retirement Plans

As the election clock continues to race forward, the Senate Finance Committee this week passed several retirement plan bills.

Many Americans have a 401(k) plan. With a traditional 401(k) plan, the employee may make tax free contributions and enjoy tax free growth. Distributions must commence after age 70½, with a starting payout rate of approximately 3.8% of the plan balance. Distribution percentages increase as the person becomes more senior.

A common plan also involves a very favorable employer match of typically 3% to 5%. In 2016, the employee may make a contribution of up to $18,000. Workers over age 50 are permitted an additional "catch up" contribution of $6,000.

The bipartisan Lifetime Disclosure Act (S. 1317) is designed to increase employer disclosures to workers. The bill is cosponsored by Sen. Johnny Isakson (R-GA) and Sen. Chris Murphy (D-CT). They seek to help workers to have a better understanding of the value of their 401(k) and their likely retirement income.

The bill is modeled on the Social Security disclosures each year. In 1969, Congress directed the Social Security Administration to send an annual statement to each worker. The annual statement shows all Social Security contributions and also projects the individual's monthly income upon retirement.

Isakson and Murphy believe that 401(k) owners should have a similar disclosure each year. Isakson stated, "American workers need access to the best available information about their investment choices and exactly what they will yield upon retirement. This information not only helps them to plan, but promotes increased savings while they are still in the workforce. Defined contribution plans such as 401(k)s are increasingly the retirement plans American workers count on, and this legislation will encourage participants to think of their 401(k) investments as a vehicle for lifetime income."

Published September 23, 2016

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