Section 105 of the Employees Retirement Income Security Act 1974, as amended (ERISA), requires administrators of defined contribution plans to provide participants with periodic statements of retirement benefits. Benefit statements must be provided at least annually, or at least quarterly if the plan allows plan members to direct their own investments into their individual accounts. Benefit statements show a member’s ‘total accrued benefits’ (that is to say, a lump sum) based on the member’s account balance in the plan.
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) amended the ERISA Participant Disclosure Rules to require administrators of defined contribution plans to provide plan members with at least two new “life income illustrations” once a year. The new disclosure claims to help plan members prepare for retirement by providing two alternate illustrations of their estimated monthly payments if their account balance has been converted to a lifetime payment stream – (1) a single life annuity (with payments during the life of the participant), and (2) an eligible joint and survivor pension (with equal payments during the life of the participant and the spouse). As we previously reported in our August 2020 alert, the Department of Labor (DOL) has released an interim final rule outlining the different components and ways to meet the new life income illustration disclosure requirement.
The lifetime income artwork disclosure requirement is effective September 18, 2021 (one year after the September 18, 2020 interim final rule release date). On July 26, 2021, the DOL published Temporary Implementation FAQs (FAQs), clarifying the upcoming deadlines for the disclosure of life income illustrations. The FAQ answers four questions summarized below:
Deadline for member-directed plans
Lifetime income illustrations must be provided at least once per 12 month period. Participant-driven individual plans of accounts (such as 401 (k) plans) that provide quarterly benefit statements to participants must comply with the interim final rule and provide lifetime income illustrations on a benefit statement for one. quarter ending within 12 months of the provisional final rule. Effective date September 18, 2021. Therefore, these plans must include their first life income illustrations in their first or second quarterly statement of 2022. Plans cannot include life illustrations in the third quarter of the year calendar 2022 because the third quarter ends on September 30, 2022, which is beyond the expiration date of the one-year period after the 12-day effect.
Deadline for plans managed by non-members
For plans not managed by participants (plans for which the participant cannot direct the investment of assets into their account), lifetime income illustrations must be provided on the annual statement for the first year of the plan ending on the 19th. September 2021 or after. Most plans, the first lifetime income illustration should be provided on the Annual Pension Benefits Statement for the 2021 calendar year. For a calendar year plan, the deadline is October 15, 2022 – the last date for timely file the 2021 annual declaration.
Using third-party administrator projections
For a number of years, many plans have provided various illustrations in member benefit statements. Some statements include illustrations calculated by the third party administrator of the plan, projecting the account balance until normal retirement age based on the framework defined in the Advancement Notice of Proposed Rulemaking (ANPRM) published by the DOL. in 2013 or other illustrations different from the ANPRM. For example, projections show a member how much he will have in retirement if he continues to contribute at the same rate. Lifetime income illustrations under the SECURE Act require illustrations based on the participant’s current account balance (instead of projecting it at normal retirement age). The FAQ states that plan administrators may provide additional illustrations to supplement (but not replace) the illustrations required by the SECURE Act.
The DOL intends to adopt a final rule in response to many comments as soon as possible before the effective date of September 18, 2021. While it does not guarantee transitional relief in the final rule, The DOL noted that it understands the burdens and challenges associated with issuing a final rule that differs significantly from the interim final rule without providing transitional relief for plan administrators to accommodate such changes from the provisional rule. final rule.
Overall, plan sponsors should be aware of upcoming deadlines and work with their plan administrators to ensure that processes are in place to provide the required new lifetime income illustrations on their statements in a timely manner. retirement benefits. In addition, plan administrators should monitor the expected final DOL rule by September 18, 2021. For assistance in assessing the impact of these rules on your qualified plan, please contact a member of the Troutman Pepper’s Benefits and Executive Compensation team.