July 28, 2021
DOL Clarifies Timing of Lifetime Income Illustration Disclosures
On July 26 the U.S. Department of Labor (DOL) issued temporary frequently asked questions (FAQs) clarifying several points of confusion regarding when retirement plans are required to provide “lifetime income illustrations” to participants under its November 2020 interim final rule (IFR) (see the August 19, 2020, Benefits Byte). The requirement becomes effective on September 18, 2021.
As reported in the November 17, 2020, Benefits Byte, the IFR implements provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which requires defined contribution plan administrators to provide two lifetime income illustrations of a participant’s account balance at least once a year (see the official DOL fact sheet and a detailed summary of the rule, courtesy of Davis & Harman LLP, available for Council members).
The FAQs address timing issues with the IFR that have arisen as the effective date approaches. These questions were raised by the Council in a November 16 letter to DOL as well as during a Council webinar on the disclosure rules with then-acting assistant secretary Jeanne Klinefelter Wilson, who provided clarification to Council members in advance of these FAQs that the first statement that must contain a lifetime income illustration must be provided within one year of the effective date.
The DOL FAQs clarify that:
- For participant-directed plans that must issue quarterly statements under ERISA, the first illustration can be incorporated on any quarterly statement up to the second calendar quarter of 2022, which ends on June 30, 2022.
- For non-participant directed defined contribution plans, which are only required to send annual statements, the first illustration must be included in the statement for the plan year ending on or after September 19, 2021. For most, this means the statement for calendar year 2021, which must be provided by October 15, 2022.
- Plans must follow the required assumptions for the illustrations outlined in the IFR. However, plans may provide additional illustrations that differ from the required assumptions.
DOL also addressed timing for the impending final rule. In the IFR, the agency noted that it would adopt a final rule “sufficiently” in advance of the effective date of September 18, 2021. However, because of the scope of the comments DOL received for this IFR, the Council anticipates that the final rule may include changes to the IFR, which could delay publication (although the FAQs state that the final rule will be issued “as soon as practicable”). DOL attempted to address this concern in the FAQs by stating, “We appreciate the commenters’ concerns about the burdens and challenges that could arise if the Department issues a final rule that differs materially from the IFR without sufficient transition time for plan administrators to accommodate any changes from the IFR.”
While the announcement lacks specificity, the Council is encouraged by this acknowledgement as well as informal conversations that suggest DOL may consider providing additional transition relief with the final rules. The Council will continue to ask for additional clarification and consideration of recommendations included in our November 16 letter to the agency as it develops final rules.