Compliance News | July 29, 2021

Dates for Annuity Illustrations in DC Plan Statements

The DOL has clarified the dates as of which the first benefit illustrations of annuity payments need to be included with DC plan benefit statements. For calendar-year DC plans with participant direction, the date is August 14, 2022, using data as of June 30, 2022. For other calendar-year DC plans, the date is October 15, 2022, using data as of December 31, 2021.

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The DOL also clarified that it will not be issuing final benefit illustration regulations by the September 18, 2021 effective date of the interim final rule (IFR), as it previously promised. However, it does intend to issue them at some point before the benefit illustrations must be provided to participants.

Background

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) required DC plans to supplement currently required benefit statements with lifetime income illustrations. In the IFR, issued on September 18, 2020, the DOL promised to issue final regulations before September 18, 2021 — the date the IFR is effective.

We described the details of the IFR in our February 11, 2021 insight, “DOL Guidance on Illustrating DC Plan Lifetime Income.”

The IFR, which was issued under the Trump administration, received numerous comments focused on the assumptions and methodology that the DOL was requiring. Among other issues were the required use of immediate annuities rather than deferred annuities and the requirement that all calculations be made as if the participant was now age 67 and married to a same-age spouse.

Due dates

The benefit illustrations are part of the long-required benefit statements DC plans must provide to participants and beneficiaries. Plans with participant direction of investments must provide these statements quarterly, within 45 days of the end of each quarter. Other DC plans issue one pension statement within a 12-month period.

The date for including benefit illustrations depends on whether the plan allows for participant direction or not. No plan must provide benefit illustrations more than once every 12 months, and all plans must provide their first benefit illustration as of a date that is within 12 months of the September 18, 2021 effective date. Plans that offer participant direction must provide benefit statements quarterly — only one of which must include the benefit illustrations.

Other DC plans provide one benefit statement within a 12-month period. Thus, the benefit illustrations must be provided with that one benefit statement.

  • For calendar-year participant-directed plans with quarterly statements, the latest date as of which the first statement must be provided is June 30, 2022, and the statement must be provided to participants within 45 days after that date.
  • For calendar-year DC plans with an annual statement, the latest date as of which the first statement must be provided is December 31, 2021 and the statement must be provided to participants by the due date of the Form 5500 for 2021 — October 15, 2022 (if there is a Form 5500 extension).

Fiscal year plans will have later dates for the first benefit illustrations.

Action items for plan sponsors

Plan sponsors should discuss with legal counsel and their actuaries the requirements for the new illustrations and determining what will be required administratively to be able to meet the DOL deadlines. If programming changes will be needed, plans should be prepared to schedule the necessary programming sufficiently ahead of due dates so the systems have time to be tested.

Plans are likely to need actuarial help. The amount of actuarial help required will depend on the plan’s or its record keeper’s administrative capabilities and whether, and how, DOL changes the regulations. If DOL moves to require projections between current age and projection to age 67 (i.e., deferred annuities) or if the plan decides to provide alternative projections, the plan will need more assistance from its actuary.

Some plans have considered providing explanations in or with the statement (beyond the required DOL language) to their participants with respect to the meaning of the illustrations or multiple illustrations. Other plans have considered whether to provide websites with computer models that allow participants to put in their own assumptions. Any expansion beyond what the DOL requires could be viewed as investment advice rather than investment education. Plans should discuss this with legal counsel. If plans decide to provide computer models, more lead-time will be required.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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