The DOL’s Employee Benefits Security Administration (“EBSA”) recently released an advance notice of proposed rulemaking (“ANPR”) focusing on lifetime income illustrations that may be required to be provided to participants in defined contribution retirement plans (including 401(k) and 403(b) plans). The impetus for the ANPR is the shift from the historical defined benefit (i.e., pension) structure to the defined contribution structure provided over the last several decades, and the corresponding need of employees to focus on the income they need to save to secure their retirement. The ANPR provides an opportunity for early input into the development of proposed regulations; comments will be accepted through July 8th.
As described by Assistant Secretary of Labor Phyllis C. Borzi in the DOL’s news release, EBSA hopes that providing defined contribution plan participants with “a lifetime income illustration might spur better planning for the future.” EBSA’s goal is to illustrate for workers what their lump-sum retirement savings would actually “look like when they are spread out over all the years of retirement.”
The lifetime income topic has been on the DOL’s radar for some time. In fact, in early 2010, the DOL jointly published a request for information (“RFI”) with the Department of Treasury requesting input regarding lifetime income options for those covered in retirement plans. In that request, the Departments were exploring how they “could or should” enhance potential retirement security of retirement plan participants by “facilitating” access to, and use of, lifetime income products (e.g., annuities) or other mechanisms geared toward providing a lifetime income stream following retirement. Over 700 comments were provided in response to the RFI and hearings were held in the fall of 2010 in order to flesh out several specific issues. For your reference, comments received in response to the RFI, written hearing testimony, and the official hearing transcripts are available on the DOL’s website here.
In its latest request for input, the DOL reveals that it is contemplating enhancing the requirements set forth in Section 105 of ERISA (which currently requires that administrators of defined contribution plans to provide pension benefit statements at least annually or, in the case of participant-directed plans, quarterly). The ANPR solicits input on a rule that would require a participant’s accrued benefits to be included on his or her pension benefit statement as an estimated lifetime stream of payments, in addition to an account balance. EBSA also requests comments on a rule that would require a participant’s accrued benefits to be projected to his or her retirement date, assuming annual contributions and an estimated rate of return, and then presented as an estimated lifetime stream of payments.
The DOL has also posted a “Lifetime Income Calculator” on its website that allows an individual to estimate his/her monthly income stream by inserting his/her projected retirement age, current account balance, current annual contribution amount, and the number of years until expected retirement. The calculator provides lifetime income calculations based on both the participant’s current account balance and on the projected value of the account balance at retirement (using the safe harbor assumptions proposed in the ANPR).