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DOL Unveils (Interim Final) Lifetime Income Disclosure Rule

In the latest of a series of regulatory announcements, updates and proposals, the Labor Department has unveiled an interim final rule on lifetime income disclosures under the SECURE Act.

Under the interim final rule, retirement plans would provide lifetime income illustrations using prescribed assumptions designed, the Labor Department notes, “to give savers a realistic illustration of how much monthly retirement income they could expect to purchase with their account balance.”

The rule, which will be effective one year after publication in federal register, will require that participant statements once a year show how a participant’s account balance could be translated into a monthly income amount, both on a single life and qualified joint and survivor account (QJSA) basis.  However, and the Labor Department took pains to emphasize this, neither the interim final rule nor the SECURE Act requires that a plan offer an annuity distribution option.

Basically, the SECURE Act outlined the “what,” this interim final rule outlines how.

Producing those numbers requires five pieces of information – the account balance, the date of starting payments, the age on which the annuity starts, the interest rate and an estimated end date for the payments. Since only the first (account balance) is known at the point of producing the statement, the other assumptions are proscribed[i]in the rule.

The Labor Department outlined four goals for this undertaking:  

  • uniformity in calculation methodology,
  • providing a basic understanding of how it was calculated – clear and concise explanation of how it was done, including UNAMBIGUOUS statement that the projections are not guaranteed,
  • model language to use in doing so, and
  • “broad fiduciary relief” for those that use the regulatory assumptions and the model language prescribed by the rule, with language drawn from the SECURE Act itself that clarifies that those who do “will not be held liable in the event participants are unable to purchase equivalent monthly payments.”

The interim final rule is expected to be published “very soon” in the federal register. There will be a 60-day comment period and responses are encouraged.

In recent weeks, the Labor Department has unveiled a proposed rule to clarify standards on ERISA plan investments (notably ESG-themed investments), announced “deadline relief and other guidance” related to the impact of the Coronavirus outbreak – including expanded “good faith” application of electronic delivery, unwrapped its much anticipated fiduciary rule, and published an Information Letter that affirmed private equity investments as a component of a professionally managed multi-asset class vehicle structured as a target date, target risk or balanced fund can be offered as an investment option for participants in defined contribution plans under ERISA.     

The DOL published a fact sheet regarding the interim final rule.  

[i] Those assumptions are as follow; calculate monthly payment illustrations as if the payments begin on the last day of the benefit statement period, assume that a participant is age 67 on the assumed commencement (the Social Security full retirement age for most workers, or the participant’s actual age, if older than 67), assume that all participants have a spouse of equal age, regardless of a participant’s actual marital status or the actual age of any spouse, use the 10-year constant maturity Treasury rate (10-year CMT) as of the first business day of the last month of the statement period to calculate the monthly payments (this the DOL says “approximates the rate used by the insurance industry to price immediate annuities), and for life expectancy, administrators must use the gender neutral mortality table in section 417(e)(3)(B) of the Internal Revenue Code (the mortality table generally used to determine lump sum cash-outs from defined benefit plans).