Lifetime Income Disclosure Deadlines
Understanding Lifetime Income Disclosures and new regulations and deadlines that call for immediate attention by plan sponsors.
This is the second in a series of three short, informative posts reminding plan sponsors about critical deadlines related to retirement plan amendments. (See: Retirement Plan Amendment Deadlines: Critical Dates You Want to Know). We sincerely appreciate the content provided for this series by Smith & Downey, P.A.
“EBSA believes that illustrating a participant’s account balance as a stream of estimated lifetime payments, in accordance with the interim final rule (IFR), will help workers in defined contribution plans to better understand how their account balance translates into monthly income in retirement and therefore to better prepare for retirement.U.S. Department of Labor
Employee Benefits Security Administration
What Is Lifetime Income Disclosure?
The Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) established a requirement for a new “lifetime income” disclosure to be sent this year, (no later than the second quarterly statement sent to participants in 2022). This disclosure will provide an example of the annuity product a participant can buy on the open market using the current lump sum value of the participant’s plan benefit.
The Department of Labor (DOL) has issued regulations providing guidance for this new disclosure. Although there is some flexibility in these regulations, unfortunately, the DOL guidance requires the use of several unfavorable assumptions – for example, the required disclosure cannot take into account future earnings or contributions.
Plan sponsors should be prepared for potential questions these notices may raise as participants inevitably realize their lifetime income projection in the new disclosure is lower than expected. Plan sponsors should take full advantage of the limited flexibility in the DOL regulations when preparing the new lifetime income disclosure to address these questions.
Timely Next Steps Regarding Lifetime Income Disclosure Rules and Deadlines
If, as a plan sponsor, you have not already sent out the required lifetime income disclosures, you should reach out to your third-party administrator immediately to be sure that the lifetime income disclosures required by the SECURE Act will be provided by the applicable deadline (and as required periodically thereafter), and that they are maximizing the available regulatory flexibility in order to minimize employee discontent. Please see your legal counsel for additional assistance in ensuring that such disclosures are compliant with the latest guidance.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.
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