The SECURE Act requires that at least once per year, the benefit statements for ERISA-covered defined contribution plans (including 401(k) plans) show participants' and beneficiaries' account balances in the form of two lifetime income illustrations:
- Monthly payments in the form of a single life annuity, and
- Monthly payments in the form of a qualified joint and survivor annuity.
On September 18, 2020, the DOL published an Interim Final Rule, which
- prescribed a set of assumptions that must be used when converting a participant's current account balance (assumed to be 100% vested) into a lifetime income stream; and
- provided optional model language that could be used to explain the assumptions used for the lifetime income illustrations.
The Interim Final Rule effective date is one year from its publication date (i.e., September 18, 2021).
In response to public comments, the IRS issued Temporary Implementing FAQs on July 27, providing clarification on the following time-sensitive issues:
- Effective Date for participant-directed plans Plans that issue quarterly statements must first comply on a benefit statement for a quarter ending within 12 months after the effective date. Since the Interim Final Rule becomes effective September 18, 2021, plans that must issue quarterly statements can incorporate their first lifetime illustration on any quarterly statement up to the second calendar quarter of 2022 (ending June 30, 2022). Any delay beyond the second calendar quarter of 2022 (September 30, 2022) would be problematic since it would be after the end of the 12-month period following the effective date.
- Effective Date for non-participant-directed plans The lifetime income illustrations must be on the statement for the first plan year ending on or after September 19, 2021. For most plans this will be the statement for calendar year 2021, which is furnished no later than the last date for timely filing of the 5500 for that year for a calendar year plan (October 15, 2022).
- Use of projected account balances to normal retirement age or other illustrations based on the DOL's 2013 advance notice of proposed rulemaking to satisfy the Interim Final Rule Although the SECURE Act requires lifetime income illustrations that differ from the illustrations proposed in the 2013 advance notice of proposed rulemaking, the DOL notes that the Interim Final Rule specifically allows for additional lifetime income illustrations based on its recognition that many retirement plans have been providing various types of illustrations, including illustrations of the type contemplated by the advance notice of proposed rulemaking. The implication is that plans may continue to include such illustrations but it must still include the specific illustrations required under the Interim Final Rule.
- Transitional relief
The DOL made no commitment to providing transitional relief if the final rule is not issued significantly in advance of September 18, 2021; but rather, stated its intent to issue a final rule as soon as practicable and acknowledged commenters concerns that to the extent the final rule differs materially from the Interim Final Rule there may not be sufficient transition time for plan administrators to accommodate such changes.
Given the imminent compliance deadline and still- shifting guidance, plan administrators should be preparing to provide the required lifetime income illustrations based on the current state of guidance as set forth in the Interim Final Rule, while simultaneously monitoring the regulatory horizon for further developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.