Deadline for Retirement Plans Quickly Approaching: ERISA-covered Defined Contribution Plans Need To Add Lifetime Annuity Illustrations to Benefit Statements

The Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) amended ERISA to require all ERISA-covered defined contribution plans to provide two estimated lifetime income (annuity) illustrations to participants on their benefit statements. The new disclosure will illustrate the monthly payments participants (and their surviving spouses) could receive if they used their total account balances to purchase a single life annuity (“SLA”) or a qualified joint and 100% survivor annuity (“QJSA”).

Today’s workers face greater responsibility for managing their retirement assets to provide retirement income. Individuals may not understand the savings, asset allocation, and drawdown decisions necessary to provide retirement income for life for themselves and their spouses. In particular, they may not understand the lifetime monthly income that can be generated from an account balance. The goal of the required illustrations is to help workers better understand and make informed retirement income decisions.

Quickly Approaching Deadline

The SLA and QJSA illustrations must be provided at least once during any 12-month period on a benefit statement.

Plans with participant-directed investments that issue quarterly statements must incorporate their first lifetime income illustrations on quarterly statements ending June 30, 2022, at the latest.

Plans without participant-directed investments that issue annual statements must include the first lifetime income illustrations on the annual statements for the first plan year ending on or after Sept. 19, 2021. For calendar-year plans, this will be the annual statement for the calendar year ending Dec. 31, 2021, which must be furnished no later than the extended due date for the plan’s Form 5500 filing (i.e., Oct. 15, 2022).

Model Language

The DOL’s Interim Final Rule requires various explanations about the estimated lifetime income payments to help participants understand how the lifetime income monthly amounts are calculated and that the estimates are illustrative only. To take advantage of the safe harbor from ERISA liability, administrators must calculate the lifetime income amounts in accordance with the assumptions provided in the regulation and use the model language in the participants’ benefit statements.

Published Guidance

The Interim Final Rule issued in August 2020 provides guidance on calculating the monthly payment illustrations.

The DOL issued four Frequently Asked Questions this past July on the Interim Final Rules.

We can work with you and your service providers to make sure the illustrations are compliant.

Please contact these attorneys for more information: Edward C. Hammond, Brad Oxford, Luke D. Bailey, James R. Olson, Charles M. Russman, and Michelle (“Mickey”) Bartlett.

Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.