New federal legislation, the SECURE Act, directed the Employee Benefit Security Administration (EBSA) within the Department of Labor to issue rules that will require defined contribution plans to include lifetime income illustrations in at least one benefit statement annually. EBSA issued the interim final rule in mid-August to implement this new requirement. While additional modifications to the rule are possible before implementation, plans should begin preparing as compliance with the new rule will be required in August 2021.
According to the interim final rule, plans will be required to use a participant’s account balance to show a hypothetical monthly payment in the form of a Single Life Annuity and a Qualified 100% Joint and Survivor Annuity (regardless of marital status). This requirement also applies to beneficiaries and alternate payees with their own account balance. Since the illustration will be heavily dependent on the assumptions used to make the calculation, the rule also describes the assumptions the plan must use.
Should the actual monthly payments fall short of the lifetime income illustration, fiduciaries, plan sponsors or other persons cannot be held liable, as long as the plan uses the required assumptions and model language provided in the regulations.
Plan trustees will need to confirm that their administrator and/or outside recordkeeper will be prepared to include the lifetime income illustration when the rule becomes effective. Participants may also benefit from an initial letter explaining the change and why the assumptions may differ from those typically used by the plan. Finally, trustees will want to make it clear with a written disclaimer that the projection is not a guarantee of benefits.