The Department of Labor released an FAQ on Monday in an attempt to clarify further details about its soon-to-be effective interim final rule requiring ERISA-governed defined contribution plans to incorporate an annual lifetime income illustration for participants.
In September 2020, the Labor Department published an interim final rule outlining how such plan sponsors should convert participants' account balances into an estimated monthly income stream at retirement. The interim final rule, which the Labor Department was directed to promulgate under the 2019 Setting Every Community up for Retirement Enhancement Act — a comprehensive retirement security package known as the SECURE Act — takes effect Sept. 18.
For participant-directed plans that issue quarterly benefit statements, administrators must include the lifetime income illustrations on only one benefit statement in any 12-month period within a year of the Sept. 18 effective date, according to the Labor Department FAQ. That means such plans must incorporate their first lifetime illustration on any quarterly statement by the second calendar quarter of 2022 because the third quarter ends Sept. 30.
For non-participant-directed plans, the lifetime income illustrations must be on a statement with the first plan year ending on or after Sept. 19, the Labor Department said.
The Labor Department also reiterated that it intends to issue a final rule "as soon as practicable" in advance of the Sept. 18 effective date based on feedback received during the public comment period on the interim final rule. "We appreciate the commenters' concerns about the burdens and challenges that could arise if the department issues a final rule that differs materially from the (interim final rule) without sufficient transition time for plan administrators to accommodate any changes from the (interim final rule)," the Labor Department said in the FAQ.
Using assumptions set forth in the interim final 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 2020 fact sheet.
Under the interim final rule, retirement plans would provide lifetime income forecast illustrations using prescribed assumptions — based on information such as a participant's marital status and assumed age at the start of the annuity.
Stakeholders have criticized the interim final rule's assumptions because they use only a snapshot of a participant's income projection that does not include future contributions, future earnings or the account's performance growth.
