The Department of Labor (DOL) released regulations that require retirement plan sponsors to attach on participants’ account statements an estimate of how much monthly income their accrued account balance would produce when they’re retired.
Two-lifetime income illustrations would be required annually. One would convert accumulated savings to a single life annuity. Another would convert them to a qualified joint and survivor annuity. The rule would apply to defined contribution retirement plans, such as 401(k)s.
The lifetime income disclosure interim final rule will go into effect one year after it is published in the Federal Register.
The DOL rule does contain assumptions that plan administrators must use to ensure a uniform methodology in calculating the monthly payment illustrations. The assumptions cover the date on when the annuity payments begin, age, spousal and survivor benefits, interest rate, and mortality.
While I’m wary of annuities in defined contribution plans, I should note that the DOL rule does not require a retirement plan to offer annuities or participants to use annuities. So if this helps participants understand their retirement needs, I’m all for it.