As the retirement industry prepares to provide mandatory annual lifetime income disclosures to participants in ERISA-governed defined contribution plans, a variety of stakeholders are calling on the Department of Labor to make changes before the rule goes into effect next year.
In August, the Labor Department unveiled an interim final rule outlining how plan sponsors would convert participants' account balances into an estimated monthly income stream at retirement. The Setting Every Community up for Retirement Enhancement Act, a comprehensive retirement security package known as the SECURE Act that Congress passed late last year, required the Labor Department to promulgate the regulation and issue a final rule.
Following a 60-day comment period that concluded last month, the Labor Department is now reading through the retirement industry's observations and suggestions before it issues a final rule, which likely won't happen until the Biden administration is in office next year. Since the rule was established under the bipartisan SECURE Act, the incoming administration is unlikely to attempt any fundamental changes, sources said.
There were a few common suggestions and clarification requests in many of the 36 comment letters the Labor Department received, chief among them repeated calls to amend the assumptions used to calculate lifetime income projections.
Using assumptions set forth in the rule, plan administrators would show participants equivalents of their retirement savings as monthly income under two potential scenarios — first, as a single life annuity; and second, as a qualified joint and survivor annuity that factors in a survivor benefit, the Labor Department noted in a fact sheet.
Under the interim final rule, retirement plans would provide lifetime income forecast illustrations using prescribed assumptions — based on information like a participant's marital status and assumed age at the start of the annuity.
By using a snapshot of a participant's income projection that does not include future contributions, future earnings or the account's performance growth, the lifetime income projection "that will be shown is not necessarily going to be realistic based on that individual's circumstances," said Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute in Washington.
House Ways and Means Committee Chairman Richard Neal, D-Mass., also took issue with the interim final rule and said in a comment letter that there is no basis for the assumption that a 31-year old will earn zero from age 31 to 67. "I urge you to correct this aspect of the interim final rule," Mr. Neal said. "Projecting that employees' 401(k) accounts will earn zero over 30 or 40 years was not the type of assumption Congress intended the department to require."
The interim final rule's assumption will produce a "static number that won't mean anything to a large number of participants," said Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee in Washington. Though Ms. Robinson, whose organization represents a number of large plan sponsors, supports lifetime income and participant education, she takes issue with the mandated nature of the rule and said it could lead to participant confusion.