New Interim Final Rule Provides Framework for Estimates

On August 18, 2020, the U.S. Department of Labor (DOL) announced an interim final rule (IFR) to implement the SECURE Act’s requirements for lifetime income disclosures. Under the SECURE Act, defined contribution plans are required to provide illustrations of lifetime monthly income based on the current account balances of plan participants. The IFR requires that the disclosures, to be provided annually, include the value of the participant’s account balance as of the last day of the statement period, and express the account balance as a lifetime income stream in equal monthly payments as both a single life annuity (SLA) and a 100% qualified joint and survivor annuity (QJSA). The IFR specifies the assumptions that must be used for calculating these illustrations.

What You Should Know

  • The assumptions that plan administrators must use to calculate the monthly payment illustrations of a participant’s account balance as SLAs and QJSAs are: date that payments commence; age at the time that payments commence, spousal and survivor benefits, interest rate, and mortality. Significantly, the required illustrations do not project benefits to normal retirement age taking into account future contributions and interest, but are only based on the participant's current age and account balance.
  • The IFR provides model language for required explanations in participants’ statements including the assumptions used for the calculations and language explaining estimates are illustrative only and not guarantees.
  • Use of the regulatory assumptions and model language (or language that is substantially similar) will qualify fiduciaries for liability relief. Fiduciary liability relief applies to use of either full model disclosure or section-by-section model language.
  • The IFR includes special rules for DC plans that offer in-plan distribution annuities and deferred income annuities. For a distribution annuity through a contract with a licensed insurer, plan administrators have the option of using the IFR’s assumptions or basing the lifetime income illustrations on the actual terms of the plan’s insurance contract, subject to certain limitations. The IFR provides separate disclosure requirements for plans that allow participants to purchase deferred income annuities that pay a specified dollar amount to participants at retirement.
  • The IFR will be effective 12 months after the date of its publication in the Federal Register. The DOL intends to issue a final rule in advance of the IFR effective date after reviewing public input received during a 60-day comment period.

    Reference: Pension Benefits Statements – Lifetime Income Illustrations, U.S. Department of Labor Employee Benefits Security Administration[1]