Retirement Savings Plans,Custom

DOL Releases Interim Final Rule on Lifetime Income Illustrations

August 25, 2020

On August 18, 2020, the Department of Labor (DOL) released its Interim Final Rule (IFR) implementing the SECURE Act requirement that participants in ERISA-governed defined contribution plans be provided a lifetime income illustration (LII) at least once per year. DOL also released an accompanying fact sheet and news release. Links to all three documents are contained in the article.

While the rule is not applicable to governmental plans, private sector rules often serve as a best practice broadly in retirement plan administration. For ERISA plans, this rule will be effective one year after the date the final rule is published.

The DOL is seeking comments on the IFR over a period of 60 days and states it will take these comments into account in issuing a final rule. The following are highlights of the 112-page rule:

  • For purposes of displaying the LII, the participant's account balance as of the statement date is converted to both a single life annuity and a 100% joint life annuity (QJSA) assuming the participant and spouse are age 67, or actual age if older.
    • It is important to note that the calculation method does not account for future contributions or investment earnings
  • Payment is assumed to commence immediately.
  • The QJSA annuity illustration must be provided regardless of the participant's marital status.
  • The interest rate that must be used to convert the account balance into a single life annuity and QJSA is the 10-year constant maturity Treasury securities yield rate for the first business day of the last month of the period to which the benefit statement relates.
    • As of August 14, 2020, the required interest rate is 0.71%1
  • The mortality table that must be used to convert the account balance into a single life annuity and QJSA is the applicable unisex mortality table under section 417(e)(3)(B) of the Internal Revenue Code in effect for the calendar year which contains the last day of the statement period. This is the mortality table that private defined benefit plans must use to calculate lump sums when offered.
  • Participants would be provided a variety of disclosures and explanations to explain the calculation and to make clear it is only an estimate and is not a guarantee.
  • There are additional rules for defined contribution plans which offer annuities.

ICMA-RC already provides participants a host of tools and education including defined benefit integration tools to provide a holistic estimate of retirement income. We are currently reviewing the IFR and will inform clients of any changes we may incorporate into account statement retirement income projections or our suite of web-based tools.

1 https://www.treasury.gov/resource-center/data-chart-center/interest-rates

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