Temporary Implementing FAQs: Pension Benefit Statements—Lifetime Income Illustrations Interim Final Rule (July 26, 2021)
Available at https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/temporary-implementing-faqs-lifetime-income-interim-final-rule.pdf
The DOL has issued four temporary FAQs addressing time-sensitive issues raised by its interim final regulation (IFR) regarding the lifetime income illustrations requirement for defined contribution plans, including 401(k) plans (see our Checkpoint article). Under that requirement—added to ERISA by the SECURE Act—benefit statements must express participants’ account balances as a single life annuity and a qualified joint and survivor annuity at least once every 12 months (see our Checkpoint article). The IFR, which sets the assumptions for lifetime income illustrations and offers model language, takes effect September 18, 2021. The FAQs address the deadline for providing lifetime income illustrations and other time-sensitive implementation questions.
When Illustrations Must First Be Provided. Plans that must furnish quarterly benefit statements (because participants may direct their plan investments) must first include lifetime income illustrations on benefit statements for a quarter ending within 12 months after the IFR’s September 18, 2021 effective date. Accordingly, the illustrations may be included in any quarterly statement up to the second calendar quarter of 2022 (i.e., the quarter ending June 30, 2022). Waiting until the statement for the third calendar quarter of 2022 would be too late. For plans that furnish only annual statements (because they do not allow participants to direct the investments of their accounts), the illustration must be included on the benefit statement for the first plan year ending on or after September 19, 2021. The FAQs note that for most plans this will be the statement for calendar year 2021, which must be furnished no later than the extended due date for the plan’s Form 5500 filing (October 15, 2022, for calendar-year plans).
Alternative Approaches. For plans that currently provide benefit statements with projections based on the framework set forth in the DOL’s 2013 notice of proposed rulemaking (see our Checkpoint article), one FAQ asks whether this approach would satisfy the IFR. The answer, however, only indicates that the “rule specifically allows for additional [emphasis added] lifetime income illustrations,” explaining that this permission was based on the DOL’s understanding that plans were already providing various types of illustrations, including some contemplated by the 2013 guidance.
Final Rule Timing. Noting that the preamble to the IFR indicated that a final rule would be issued before the effective date, an FAQ asks about transition relief and answers that a final rule will be issued “as soon as practicable,” simply acknowledging commenters’ concern about the challenges that would arise if the DOL adopted a materially different final rule without sufficient transition time.
EBIA Comment: As the IFR’s effective date approaches, plan administrators will no doubt appreciate the clear guidance on when lifetime income illustrations must first be included in benefit statements. The other FAQs, however, are less direct. The FAQ on alternative disclosures only affirms that they may be permitted as “additional” disclosures, so it appears that plans providing benefit projections based on the 2013 guidance will need to add income illustrations that comply with the IFR. And while the DOL seems to imply that transition relief may be issued if necessary, it makes no promises about when the final rule will be issued and whether transition relief will be included. For more information, see EBIA’s 401(k) Plans manual at Section XXVI.L.5 (“Quarterly Benefits Statements: Estimates of Lifetime Payments”).
Contributing Editors: EBIA Staff.