DOL Issues New Rules On Retirement Plan Income Disclosures

Industry trade associations applauded a new rule today from the Trump administration requiring retirement plans to provide an illustration of the amount of monthly income that might be generated by an individual’s retirement savings.

The rule was mandated in the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

The SECURE Act required a participant’s accrued benefits to be included on his or her pension benefit statement as a current account balance, and as an estimated lifetime stream of payments.

Using assumptions set forth in the rule, plan administrators will show participants equivalents of their retirement savings as monthly income under two potential scenarios – first, as a single life income stream, and second, as an income stream that factors in a survivor benefit.

“Our goal is to help workers and retirees understand how savings translate to retirement income,” said acting assistant secretary of labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson. “Defined contribution plan savings are meant to stretch across the years of retirement. When workers are reminded of what their balances could mean in terms of an estimated monthly dollar amount, they can use this information to plan both savings and spending.”

Trade associations representing financial service providers are happy with the final rule.

“Showing the value of retirement account balances in terms of lifetime monthly income gives plan participants a better understanding of what their potential income in retirement is likely to be, based on what they have saved," said Susan Neely, president and CEO of the American Council of Life Insurers.

Research by Insured Retirement Institute shows that ninety percent of workers want these illustration estimates on their plan statements and find them useful, and 75 percent of workers said they would increase their retirement plan contributions after seeing these estimates.

“An illustration that translates retirement account balances into monthly income helps consumers to think of retirement savings more like a paycheck than a lump sum," said Jason Berkowitz, IRI chief legal and regulatory affairs officer.

Under the interim final rule, retirement plans would provide lifetime income illustrations using prescribed assumptions designed to give savers a realistic illustration of how much monthly retirement income they could expect to purchase with their account balance. Retirement plans also will provide explanations about what the lifetime income illustrations mean and the assumptions used to calculate the illustrations.

To help ease the administrative burdens on plan administrators, the interim final rule includes model language that may be used for these explanations. Plan fiduciaries that use the regulatory assumptions and the model language prescribed by the rule will qualify for liability relief and will not be held liable in the event participants are unable to purchase equivalent monthly payments.

The interim final rule will be effective 12 months after the date of its publication in the Federal Register. The interim final rule includes a 60-day comment period. The Department will use comments to improve the rule before its effective date.

This report compiled by InsuranceNewsNet staff.