On May 7, 2013, the Department of Labor ("DOL") issued an advance notice of proposed rulemaking ("ANPRM") that would require that periodic pension benefit statements provided to participants in defined contribution retirement plans (such as 401(k) and 403(b) plans) contain lifetime income illustrations. The DOL is currently seeking comments on the ANPRM.
Under the DOL's proposed rule, in addition to a participant's current account balance, a participant's pension benefit statement would be required to include the following:
- Current Account Balance Annuity Benefit: the estimated lifetime annuity benefit based on the current value of the participant's account balance assuming the participant had reached normal retirement age ("NRA") as of the date of the statement;
- Projected Account Balance Annuity Benefit: a projected account balance at NRA (assuming future contributions and earnings) and an estimated lifetime annuity benefit based on that projected account balance (both estimates would be expressed in current dollars); and
- Joint and Survivor Annuity Benefit: if the participant is married, the estimated lifetime annuity benefit based on both the current and projected account balances must also be presented as lifetime annuity benefits for the joint lives of the participant and spouse.
The benefit statement must include an understandable explanation of the assumptions behind the estimates. In addition, the benefit statement would include a statement that the projections and lifetime annuity benefits are estimates and not guarantees.
The projections must be based on "reasonable assumptions" regarding future contributions, investment returns, and the discount rate used to determine the current value of account balances and the conversion of account balances to lifetime annuity benefits. The DOL has proposed safe harbor assumptions for these calculations.
The DOL has also posted an online lifetime income calculator intended to illustrate the calculation of a participant's estimated monthly lifetime income streams based on the participant's current and projected account balance at retirement.