The Department of Labor (DOL) is considering whether retirement plan sponsors should include estimated lifetime stream of payments on benefit statements. Providing participants with an estimate of the monthly amount their retirement account balance will provide at retirement age is intended to allow participants to assess their retirement readiness and better prepare for their retirement. Earlier this year, the DOL issued an Advanced Notice of Proposed Rulemaking (ANPRM) to solicit comments about this proposal.
Defined contribution plans would be impacted such as 401(k), 403(b), profit sharing, money purchase pension and employee stock ownership plans (ESOP). Participants in these plans are required to receive benefit statements at least annually. If they are allowed to direct their own investments, they are required to receive quarterly benefit statements. Generally, benefit statements disclose the current account balance activity for the benefit statement period including the beginning balance, current contributions, earnings, fees, forfeitures, ending balance and vesting.
The DOL is proposing that benefit statements also include the following:
The lifetime income streams are to be presented as estimated monthly payments based on the expected mortality of the participant. If the participant is married, a second illustration would be required equal to a level payment for the life of the participant based on the joint lives of the participant and spouse, with a 50% survivor’s benefit continuing to the surviving spouse. An assumed spouse’s age may be used. In addition, the benefit statements would need to contain an easy to understand explanation about the assumptions used for the estimated income streams and must indicate that the illustrations are estimates and are not guarantees.
The DOL has proposed a set of safe harbor assumptions that can use in order to make the projected income streams as follows:
The DOL closed the comment period on the ANPRM in the summer of 2013. A common comment to the DOL expresses concern about fiduciary litigation exposure if accounts do not provide the estimated income stream at retirement. If or until the DOL issues final guidance, employers and TPAs do not need to make any changes to their current benefit statements.
Here are a few reminders of the retirement plan administrative matters that should be reviewed and managed on or before January 1, 2014:
DOL May Require Retirement Lifetime Income Estimates on Benefit Statements
Retirement Plans: Year-End Planning
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