Ready, Set, Changes to Participant Statements Coming Soon!

Last week, the Department of Labor (“DOL”) announced its interim final rule for Lifetime Income Illustrations.  This comes as a follow-up to the SECURE Act, which was passed on December 20, 2019.  The SECURE Act had two primary goals: (1) increase coverage of American workers in employer-sponsored savings arrangements and (2) address the longevity problem; in other words, Americans outliving their retirement savings.  One way to tackle longevity is the addition of certain disclosures on participant statements to ensure that retirement savers understand how their retirement account balance might convert into income during retirement.[1] 

The mechanics:

The SECURE Act itself identified the goal (which was to reduce the number of people outliving their retirement savings), but Congress left it to the DOL to determine “how” to accomplish the goal (i.e., what disclosures should go on the participant statements). 

This isn’t an easy task because it is based on assumptions and it isn’t the first time the DOL has attempted the task.  In 2013, the DOL published a notice of proposed rulemaking on the topic, along with a comment period, but no further action was ever taken.  Now, Congress is requiring action by the DOL. 

What will be on the statement:

Participant statements will be required to have two illustrations at least annually.  One illustration must show a participant’s account balance converted to a lifetime income equivalent as a single life annuity and a second illustration as a qualified joint and survivor annuity.[2]  The known figure is the current account balance, while all other parts of the illustration are assumptions including the date payments start, date payments end (i.e., death), and interest rate.  It is important to note that even though this is shown as an annuity, the DOL and Congress are NOT requiring plans to have annuities, but rather this is a tool to show participants what their balance may look like as a stream of income in the future. 

Who is responsible:

Good news for retirement plan fiduciaries – the interim final rule includes model language and assumptions.  So as long as fiduciaries stick to the model, then plan fiduciaries will not be held liable by participants later if the participants don’t have enough money based on the assumptions in the illustrations. 

From a practical standpoint, fiduciaries aren’t producing statements; rather, recordkeepers and third party administrators are usually handling the statements.  As such, it is the responsibility of plan fiduciaries to ensure their service providers are able to perform within the requirements of the rule and monitor their providers to avoid liability. 

When must plan fiduciaries take action:

This interim final rule is now undergoing a 60-day comment period and is not yet a required rule for retirement plans. With a few tweaks, however, this will likely be a final rule soon. 

For more information:

ZUNA will continue to monitor as it moves to a final rule that requires plan fiduciaries to take action.  Be on the lookout for more as ZUNA helps your plan prepare to take action and monitor your service provider to implement this new rule.  For more information, contact the team at ZUNA to discuss.

[1] SECURE, Title II, Section 203.

[2] See, DOL Fact Sheet, Pension Benefit Statements - Lifetime Income Illustrations, available at:  https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/pension-benefit-statements-lifetime-income-illustrations.pdf.