State Street Global Advisors Issues Public Comment on Employee Benefits Security Administration Rule

WASHINGTON, Nov. 22 -- David Ireland, global head of defined contribution at State Street Global Advisors, Boston, Massachusetts, has issued a public comment on the Employee Benefits Security Administration rule entitled "Pension Benefit Statements: Lifetime Income Illustrations". The comment was written on Nov. 2, 2020, and posted on Nov. 18, 2020:

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State Street Global Advisors (SSGA) is one of the largest asset managers working with US defined contribution plans today. With nearly 40 years of experience in the Defined Contribution (DC) market, we manage more than $557 billion in DC assets around the world, of which over $413 billion belong to participants in the US./1

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 August 18, 2020 implementing Section 203 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act").

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 June 5, 2020 (which we attach to this letter as a more complete explanation of our views), given the variety and complexity of the assumptions required for lifetime income illustrations, we recommend an approach based on simplicity, as opposed to precision, to drive greater understanding of the projections by participants. Participants need to be able to draw a straightforward connection between decisions they make (e.g., increasing their savings rate) and how this affects their retirement income. Furthermore, recordkeepers are in need of a cost-effective and efficient means to provide income projections for participants. We believe the IFR achieves both of these objectives.

We further believe the IFR successfully achieves the objective of standardization across employers, which is also consistent with a recommendation from our June 5 letter. As the IFR states: "This IFR greatly standardizes lifetime income illustrations across defined contribution plans, which will save time by minimizing confusion for participants. A standardized illustration would make it easy for workers to add together their estimated Social Security and ERISA benefits, minimizing some of the complexity of retirement planning. This change will be of particular benefit to participants who change jobs or receive statements from multiple defined contribution plans, as different benefit statements with few exceptions will use the same model language and assumptions, and present the information in the same manner."/2

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.

Sincerely,

David Ireland

Global Head of Defined Contribution

State Street Global Advisors

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Footnotes:

1/ As of September 30, 2020.

2/ 85 Fed. Reg. 182, September 18, 2020, pg. 59146

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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