Compliance News | February 11, 2021
The DOL requested and received many comments on its interim final rule on illustrating DC plan lifetime income in participant statements. It has stated it will issue a revised rule before September 18, 2021, when the interim final rule takes effect.
The DOL has advised that the illustration requirements might change before the notice requirement is effective.
In addition, the DOL has not yet addressed whether it intends to move the effective date of the DOL interim final rule to a date later than September 18, 2021.
Even under the current effective date, no notice is required until late 2021 or 2022. That’s because the interim final rule only requires that the illustrations be included in one notice within a 12-month period. Consequently, the initial notice can be delayed as late as July 15, 2022 for a calendar-year plan that provides quarterly statements. However, if the DOL does not change the effective date, plan sponsors will have to start programming for the notices soon.
The DOL guidance does not apply to public sector plans; however, some sponsors of those plans try to follow ERISA guidance.
Under the Setting Every Community Up for Retirement Security Enhancement (SECURE) Act, sponsors of DC plans with participant-directed investments must provide an individual benefit statement at least quarterly. Other DC plans must provide the statement at least annually.
The interim final rule:
The DOL requires that DC plans provide an illustration of a single-life annuity and an illustration of a joint-and-100-percent-survivor annuity, regardless of whether the plan offers lifetime income options. The illustrations must be based on current accounts rather than projections of future contributions.
A plan may add additional illustrations — including projections — but, as discussed below, the plan will not have any relief from ERISA liability in connection with those additional illustrations.
The interim final rule specifies the assumptions plans must use:
Special rules apply for plans that offers in-plan distribution annuities through a contract with a licensed insurer. Such plans may use either the above assumptions or may base the illustrations on the actual terms of the plan’s insurance contract, subject to certain limitations.
The interim rule also provides special rules for plans that allow participants to purchase deferred income annuities that will pay a specified dollar amount to participants at retirement.
The DOL provides two structures of model language:
Plans are not required to use the model language; however, if the model language is used, the plan and its fiduciaries will be protected from possible ERISA liability. Plans can make minor changes to the model language as long as the explanations remain substantially the same in all material respects.
Relief is also conditioned on using the prescribed assumptions.
The liability relief is intended to resolve a concern that some participants may view the illustrations as a promise of the amount of their benefits rather than just illustrations based on general assumptions.
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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