On July 26, 2021, the DOL released temporary implementing FAQs regarding lifetime income illustrations for ERISA defined contribution plans, which include 401(k) and 403(b) plans. The FAQs largely address questions regarding the timing of the new disclosures to plan participants.
The SECURE Act of 2019 amended ERISA to require that, at least annually, defined contribution plan benefit statements reflect a participant’s account balance as an equivalent lifetime income stream. The income stream must be calculated as a monthly benefit, payable as both a single life annuity and a qualified joint and survivor annuity. On September 18, 2020, the DOL published an interim final rule (IFR) that provided calculations for these lifetime income streams and model language for incorporation in the benefit statements.
The FAQs clarify that for participant-directed account plans that provide quarterly statements, the lifetime income illustrations must be included on at least one statement in each 12-month period. The first disclosure must occur within a year of the IFR’s September 18, 2021 effective date. So, for example, a 401(k) plan would need to include the first illustration on any one quarterly statement through the quarter ending June 30, 2022.
For plans that do not allow participants to direct investment of their account assets, the illustrations must be provided on the statement for the first plan year ending on or after September 19, 2021. For most of these plans, the lifetime income information would be included on the statement for the 2021 calendar year, which must be provided to participants no later than the October 15, 2022 (the last date for timely filing the plan’s 2021 Form 5500, assuming the plan sponsor filed for an extension of the July 31 deadline).
Finally, the FAQs indicate that the DOL intends to issue a final rule soon based on comments received in response to the IFR. The DOL also recognized that if the final rule differs materially from the IFR, burdens would be placed on plan administrators if sufficient transition time is not provided to accommodate such changes.
Employers who sponsor defined contribution plans should be aware of this new guidance and work with their service providers to ensure the required illustrations will be timely incorporated in the benefit statements provided to plan participants.
Temporary Implementing FAQs »
PPI Benefit Solutions does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.
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