Porter Wright Morris & Arthur
United States: Plan Sponsors Now Have a Deadline to Provide Lifetime Income Artwork
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Employers who sponsor 401 (k) plans and other defined contribution plans in which participants can direct investments from their accounts now have a deadline for providing lifetime income illustrations on benefit statements for those plans. The Department of Labor (DOL) recently issued guidelines addressing these requirements. Although useful, the guidelines are still subject to change in a possible final regulation. As such, employers should work closely with their plan administrators and their legal advisors to navigate the contours of evolving life income rules.
Provisional final rule on life income illustrations
As a backdrop, the SAFETY Act (Setting Every Community Up for Retirement Enhancement) amended the Employee Retirement Income Security Act (ERISA) to add two lifetime income illustrations, provided at least once a year, to the individual account plans benefit statements. The DOL issued an Interim Final Rule (IFR) on September 18, 2020, which described how plan administrators should calculate the estimated lifetime income stream that a participant account balance could generate. The DOL invited public comment on the Interim Final Rule, soliciting comments on how the IFR might be clarified.
A number of speakers requested clarification regarding the date of applicability of the IFR and the method of presentation of benefit statements. In some cases, stakeholders have requested a transition waiver to ensure that affected parties have sufficient time to effectively implement the requirements of the IFR.
FAQ for furnishing illustrations
In response, the DOL recently published a set of FAQs to answer these questions. As a first step, individual plans of accounts managed by participants that provide quarterly benefit statements (for example, 401 (k) plans) should include the lifetime income illustrations on one pension benefit statement per benefit period. 12 months. Therefore, since plans must provide lifetime income illustrations at least once a year, plans that issue quarterly statements must first comply with the IFR on a benefit statement for a quarter ending in 12 months following the effective date.
This is how it works
The IFR was published in the Federal Register on September 18, 2020 and came into effect on September 18, 2021. Plans that are required to issue quarterly statements may incorporate their first lifetime income illustration on any quarterly statement until second calendar quarter of 2022 (ending June 30, 2022). However, a delay beyond the second calendar quarter of 2022 would not be allowed, as the end date of the third calendar quarter, September 30, 2022, would be after the expiration of the applicable 12-month period.
For plans where a participant or beneficiary has their own account but is not entitled to direct the investment of assets into that account, lifetime income illustrations must appear on the plan’s first year statement. ending on or after September 19, 2021. For most of these plans, this will be the return for the calendar year 2021, which would be provided on or before the deadline for timely filing of the return annual for that year for a plan for the calendar year (October 15, 2022).
The DOL has not said whether it will provide transitional relief if it does not issue a final regulation soon. Due to the uncertainty as to the substance and timing of a final settlement, employers should work closely with their service providers and legal advisors to ensure compliance with statement of benefits requirements.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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