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Drawing upon our research into the needs of retirement plan participants and deep experience working with plan sponsors, we appreciate the opportunity to provide our views and support for the interim final rule ("IFR") that the Department issued on
We commend the Department and the work of the professional staff for issuing the IFR in a timely fashion and, more importantly, for appropriately balancing the various considerations necessary to ensure that DC plan participants have the tools they need to plan for a secure retirement. While accuracy in the illustrations is a worthy goal, we believe the Department struck the appropriate balance by focusing on simplicity of communication and understanding by most plan participants.
As we stated in our letter to Acting Assistant Secretary Wilson dated
We further believe the IFR successfully achieves the objective of standardization across employers, which is also consistent with a recommendation from our
The IFR solicits views on a number of the assumptions to be used in the calculation of the lifetime income illustration. As the Department notes, consideration was given to a number of different methods that can be used to make the calculation. We applaud the Department for its consideration of the various methods and believe the assumptions that were chosen are reasonable. We believe these assumptions, particularly the use of the 100% joint & survivor annuity and unisex mortality tables, achieve the goals of simplicity and standardization, which we believe will provide clarity and understanding by most participants.
Although we strongly support the Department's chosen approach, we offer two suggested clarifications in the final rule:
1. The IFR contains special rules for plans that offer distribution annuities, deferred annuities, or both./3
We commend the Department for developing special rules that provide illustrations based on annuities that participants may actually elect, which we believe will further enhance the value of the illustration to participants in planning for retirement. We note, however, that in some cases, distribution annuities may be offered in the form of a deferred income annuity. Therefore, we suggest clarifying in the final rule that plans offering distribution annuities in the form of a deferred income annuity may elect to follow the special rules set forth in paragraph (e)(1), rather than the requirements for deferred income annuities that remain in-plan under paragraph (e)(2).
2. With regard to the model notice and required disclosures, we respectfully suggest the inclusion of an optional graphical illustration, particularly when comparing estimates based on different assumptions. In our work with DC plan sponsors, we have found that taking a varied approach to presenting information can be effective in conveying the meaning, particularly because not everyone absorbs information in the same manner. We recommend the Department consider permitting a graphical representation of how income payments might be higher or lower based on certain variables, including how much a participant saves. Such a graphical display may enhance the clarity of the disclosure for some participants versus the model disclosure alone. We believe this graphical display should be optional for plan sponsors, and the Department should make it clear that use of such a display would be considered investment/decumulation education under Interpretive Bulletin (IB) 96-1. Although not directly analogous to the IFR's lifetime income disclosure, we attach to this comment letter an example of some graphical illustrations that we have developed with clients on the benefits for participants of starting to save early in their 401(k) plans.
We want to thank the Department for issuing this IFR in a timely manner so that plan sponsors, recordkeepers and other financial service providers can make the necessary systems changes in order to meet the statutory deadline for including the lifetime income disclosure information on benefit statements in 2022. We appreciate the opportunity to comment and look forward to the final regulation being issued. In the interim, please feel free to contact me if you have any questions or need additional information.
Global Head of Defined Contribution
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1/ As of
2/ 85 Fed. Reg. 182,
3/ Ibid, pg. 59156
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The rule can be viewed at: https://www.regulations.gov/document?D=EBSA-2020-0009-0001
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