The U.S. Department of Labor recently issued an Advance Notice of Proposed Rule Making concerning the projection of retirement income for participants. In effect, an ANPRM is a discussion draft. In other words, the DOL is providing proposed regulatory language, together with questions for private sector input. This ANPRM is the second of a four-step process.
The first step was a request for information -- RFI, where the DOL solicited responses to a list of specific questions about retirement income projections. The second step reflects the responses to those questions and the DOL’s thinking about the requirements and safe harbors for the projection of income. The next step will be the issuance of a proposed regulation, and the final step will be the issuance of a final regulation. At each step of the way, there will be additional opportunities for private sector input.
Based on the ANPRM, my best bet is that the DOL will ultimately require that participants be given retirement income projections on their quarterly statements. I also believe that the Department will provide safe harbors for plan sponsors, so that they can have assurance that they will not be liable for any projections that are inaccurate. (As a practical matter, projections are necessarily based on assumptions—and the odds of the assumptions producing accurate results—when compounded over many years, are remote. Nonetheless, since participants will be given projections each quarter, the projections will, over time, be based more on actual results and less on assumptions. In that sense, the projections will be self-correcting.)
At this point, industry trade associations and individual service providers are preparing comments. As a result—and based on my understanding of the nature of some of the comments, it appears that the proposed regulation (that is, the next step) will be modified, at least slightly. That will be followed by another comment period… and then the final regulation will be issued. At this point, the effective date of the final regulation could be a year and a half away. As a result, this is not an immediate issue for plan sponsors, but it is for service providers… since they will bear the burden of preparing and distributing the calculations.