Participant Lifetime Income Disclosures Become Effective Soon

ImprovementParticipant lifetime income disclosures will soon become a reality.  Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, a new participant lifetime income disclosure goes into effect this year for ERISA retirement plans.  Specifically, plan sponsors must now provide participants with a lifetime income disclosure at least once a year.  A recent article published in BenefitsPro covered the logistics and implications of the new disclosure.  While some confusion remains about its official applicability date, plan sponsors who have not already implemented this disclosure should be ready to do so as soon as possible.

The new participant lifetime income disclosure includes estimates of a participant’s monthly retirement income based on their current savings if paid out in a guaranteed income stream via an annuity vs. a lump sum payment.  Both income illustrations must be included on a participant’s annual benefit statement.

To date, the Department of Labor has issued an interim final rule (IFR) that put forth the assumptions that must be included in the lifetime income disclosure, including commencement date, age, marital status, mortality, and interest rate, along with other factors that could be used to determine an estimated guaranteed monthly income stream.  The IFR also includes explanations plan sponsors must provide participants regarding the income illustrations.  The IFR also includes model language that can be used to satisfy this requirement.

The SECURE Act offers liability protection to fiduciaries that provide these disclosures, in case the income illustrations are inaccurate.  The DOL’s IFR provides conditions for this fiduciary relief.  To be eligible for the relief, the plan fiduciary or person providing the disclosure to participants must include the IFR’s assumptions and model language – or language that’s very similar – in participant benefit statements.

The IFR was issued on Sept. 18, 2020, and became effective on Sept. 18, 2021.  However, the DOL received requests for clarification about when the IFR requirements needed to be implemented.  It has provided an FAQs document in response to those requests.  According to BenefitsPro, “The FAQs clarify that for participant-directed plans, the initial lifetime income disclosures may be incorporated into any quarterly statement ‘up to the second calendar quarter of 2022 (ending June 30, 2022).’  For plans under which participants do not direct the investment of their account, the disclosures must be on the statement for the first plan year ending on or after September 19, 2021.  For most plans, this will be October 15, 2022.”

In addition, the DOL said in the FAQ that it intends to issue a final rule “as soon as practicable”.  It also acknowledged the challenges that would be created for plan sponsors and the retirement plan industry if it made changes to the rule that were materially different from the IFR without a reasonable transition period to implement those changes.  Nonetheless, the DOL still has not issued a final rule on the lifetime income disclosure.

As lifetime income solutions become more appealing for plan sponsors and participants, it is important to pay close attention to regulatory changes that impact them. For the time being, plan sponsors and fiduciaries should be ready to implement participant lifetime income disclosures that adhere to the IFR, and be poised to make changes per the DOL if necessary – when it issues a final rule.


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