Pension & Benefits News DOL interim final rule requires individual account plans to provide lifetime income estimates
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Tuesday, September 15, 2020

DOL interim final rule requires individual account plans to provide lifetime income estimates

By Pension and Benefits Editorial Staff

On August 18, 2020, theDepartment of Labor released interim final regulations on the information that must be provided on pension benefit statements required by ERISA Sec. 105 to reflect amendments made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. ERISA defined contribution plans will be required to express a participant’s current account balance in both a single life annuity and a qualified joint and survivor annuity income stream.

The DOL expects that the regulations will help workers determine their ability to retire by permitting them to estimate how their current savings in a 401(k)-type plan might translate into lifetime monthly payments. The interim final regulations will take effect one year after the date on which it is published in the Federal Register and will apply to pension benefit statements furnished after that date.

The DOL says that the two income stream illustrations, which must be on the same pension benefit statement, will help participants better understand how the amount of money they have saved thus far converts into an estimated monthly payment for the rest of their lives, and how this impacts their retirement planning.

SECURE Act. On December 20, 2019, ERISA Sec. 105 was amended by Section 203 of the SECURE Act. As amended, ERISA Sec. 105 requires, in relevant part, that “a lifetime income disclosure … be included in only one pension benefit statement during any one 12-month period.” A lifetime income disclosure “shall set forth the lifetime income stream equivalent of the total benefits accrued with respect to the participant or beneficiary.” A lifetime income stream equivalent means the amount of monthly payments the participant or beneficiary would receive if the total accrued benefits of such participant or beneficiary were used to provide a single life annuity and a qualified joint and survivor annuity.

Interim final regs. The DOL has issued the interim final regulations requiring that plan administrators of individual account plans include two lifetime income stream illustrations on participants’ pension benefit statements, in addition to the participant’s account balance. These illustrations must be furnished to participants at least annually. Specifically, the interim final regulations require that pension benefit statements include: the value of a participant’s account balance as of the last day of the statement period; the account balance expressed as a lifetime income stream payable in equal monthly payments for the life of the participant (single life annuity); and the account balance expressed as a lifetime income stream payable in equal monthly payments for the joint lives of the participant and spouse as a qualified joint and survivor annuity.

Assumptions and relief from liability. The interim final regulations provide plan administrators with a set of assumptions to use in preparing the lifetime income illustrations. To help “ease the administrative burdens on plan administrators,” the interim final rules includes model language that may be used for these explanations. Plan fiduciaries that use the regulatory assumptions and the model language prescribed by the rules will qualify for liability relief—they will not be held liable in the event participants are unable to purchase equivalent monthly payments.

Fact sheet. The DOL has also posted a fact sheet about the interim final regulations, which includes, among other things, information about the regulatory assumptions to be made in calculating participants’ monthly payment illustrations of account balances, such as assumed commencement date, age, spousal and survivor benefits, interest rates, and mortality rates, and provides an example illustration. The fact sheet is at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/pension-benefit-statements-lifetime-income-illustrations.

Comments. The interim final rule includes a 60-day comment period. The DOL intends to use the comments to improve the rule before its effective date.

“Our goal is to help workers and retirees understand how savings translate to retirement income,” Acting Assistant Secretary of Labor for EBSA Jeanne Klinefelter Wilson said in a news release. “Defined contribution plan savings are meant to stretch across the years of retirement. When workers are reminded of what their balances could mean in terms of an estimated monthly dollar amount, they can use this information to plan both savings and spending.”

Source: DOL News Release No. 20-1541-NAT.

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