What’s the News on Lifetime Income Disclosures?
As you may recall, last October we provided you with some information regarding the new Lifetime Income Disclosure requirements under the SECURE Act for all ERISA-covered defined contributions plans.
To recap, under the SECURE Act, ERISA-covered defined contribution plans will be required to show the participant’s account value as an equivalent lifetime annuity payable in equal monthly installments, both as a single life annuity and as a 100% joint and survivor annuity at least annually on the benefit statement. The plans are not required to offer an annuity, just illustrate an annuity value. Below is a current “timeline” for compliance:
September 2020:
The Department of Labor (DOL) released Interim Final Regulations. These are interim rules and they requested comments with the intent of publishing final regulations after they reviewed the submitted comments.
November 2020:
The comment period ended; the DOL received 36 letters. For the most part the comments focused on the fact that the DOL requirements did not include a projection of future contributions or earnings. Some commentators expressed concerns that this simplification by the DOL could cause the statements to be somewhat misleading.
Present:
The DOL is reviewing the comment letters and based on that review will release final regulations.
Assuming no significant changes, this requirement is expected to be effective September 18, 2021.
However, since it’s an annual (not quarterly) requirement, it remains to be seen if it will apply to the first statement after that date or one within the plan’s current or next Plan Year.
One concern in particular for multiemployer defined contribution plans that already offer annuities is the present limitation on when they may use the plan’s assumptions rather than those mandated by the DOL. Under the interim regulations, the plan may only use the plan’s assumptions if they are directly tied to an external insurance contract. Therefore, plans that offer an “in-plan” annuity may be forced to provide two very different annuity illustrations, one based on the DOL regulations and one illustrating what the plan would actually offer. Based on the DOL’s mandated assumptions, these amounts could be significantly different.
For any impacted plans for whom Zenith American Solutions produces pension benefit statements, we have already begun preparing for this new requirement. Further, as a member of the American Academy of Actuaries Lifetime Income Risk Committee, I am tracking this closely (comment letter #24). As always, please call your Zenith American Solutions Client Services team with any questions.
