Defined Contribution Plans Mandatory Lifetime Income Disclosures

With the intent to give retirees more visibility into how retirement savings translate into lifetime income, as part of the Setting Every Community Up for Retirement (SECURE) Act of 2019, ERISA defined contribution plans are required to provide an annual lifetime income disclosure.  In August 2020, the Department of Labor (DOL) issued an interim final rule (IFR), that implements the lifetime income disclosure requirement and provides specifics on what plan sponsors must do. The DOL’s IFR lays out the specific assumptions that are required for calculating the annuity amounts and provides model language that plan sponsors can use to describe the calculations. The IFR is set to take effect on September 18, 2021 and will apply to benefits statements made after that date.

The rule requires plan sponsors to annually provide participants’ account balances and illustrate those amounts at least annually in the following two ways:

1. Monthly payments in the form of Single Life Annuity (SLA)
2. Monthly payments in the form of a Qualified Joint and Survivor Annuity (QJSA)

The rule doesn’t require plan sponsors to offer annuities but simply use annuities as the method used to give plan participants a sense of their monthly income at retirement. The rules outline four key pieces of information to be used in the SLA and QJSA calculations:

1. Participant’s vested account balance on the last day of the statement period
2. Start date for annuity payments and participant’s age at that time
3. Participant’s marital status
4. 10-year Constant Maturity Treasury (CMT) securities yield rate that will be used in conjunction with the appropriate mortality table

The DOL’s Model Benefit Statement, is recommended to use and provides model language for each of the required explanations. Plan sponsors can choose to modify the model language to a limited extend, but the DOL has stated that the language used must be substantially similar to the DOL’s model language. Plan sponsors should understand that sticking to the model language is the safest route to avoid potential liability.

Plan sponsors should review their participant statements and work with their service providers to ensure they are in compliance with the rule once it becomes effective. Maner’s expert team is ready to help you review the DOL’s interim final rule. Contact us with any questions or to review your plan for this new compliance requirement.