Interim Final Lifetime Income Illustration Rule Published by DOL

The interim final rule includes assumptions plan administrators must use to calculate estimated lifetime benefit payments to be included on retirement plan participant statements.

The U.S. Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) released an interim final rule implementing Section 203 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which requires that a retirement plan participant’s accrued benefits be included on his benefit statement as a current account balance and as an estimated lifetime stream of payments.

Using assumptions set forth in the rule, plan administrators will show participants equivalents of their retirement savings as monthly income under two potential scenarios—first, as a single life income stream, and second, as an income stream that factors in a survivor benefit.

Under the interim final rule, retirement plan statements would include lifetime income illustrations using prescribed assumptions designed to give savers a realistic illustration of how much monthly retirement income they could expect to purchase with their account balance. The statements also will provide explanations about what the lifetime income illustrations mean and the assumptions used to calculate the illustrations. 

To help ease the administrative burdens on plan administrators, the interim final rule includes model language that may be used for these explanations. Plan fiduciaries that use the regulatory assumptions and the model language prescribed by the rule will qualify for liability relief and will not be held liable in the event participants are unable to purchase equivalent monthly payments.

The interim final rule will be effective 12 months after the date of its publication in the Federal Register. There is a 60-day comment period, and the DOL says it will use comments to improve the rule before its effective date.

Details of the Assumptions

According to a fact sheet provided by the EBSA, plan administrators must calculate monthly payment illustrations as if the payments begin on the last day of the benefit statement period. They must assume that a participant is age 67 on the assumed commencement, which is the Social Security full retirement age for most workers, or use the participant’s actual age, if older than 67.

Plan administrators must use the 10-year constant maturity Treasury rate (10-year CMT) as of the first business day of the last month of the statement period to calculate the monthly payments. The 10-year CMT approximates the rate used by the insurance industry to price immediate annuities. They must use the gender-neutral mortality table in Section 417(e)(3)(B) of the Internal Revenue Code—the mortality table generally used to determine lump-sum cash-outs from defined benefit (DB) plans.

The fact sheet also includes assumptions for spousal and survivor benefits and an example using the regulatory assumptions.

“Our goal is to help workers and retirees understand how savings translate to retirement income,” said Acting Assistant Secretary of Labor for the EBSA Jeanne Klinefelter Wilson in a DOL announcement. “Defined contribution [DC] plan savings are meant to stretch across the years of retirement. When workers are reminded of what their balances could mean in terms of an estimated monthly dollar amount, they can use this information to plan both savings and spending.”