Once in a Lifetime – Make that a Year – for Lifetime Income Illustrations of 401(k) Plan Benefits

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by Brenda Berg

Plan sponsors of defined contribution plans such as 401(k) plans will soon have to provide participants with illustrations of just how much a participant’s account balance might produce on a monthly basis if converted to a single life annuity and, for married participants, a qualified joint and survivor annuity. Many plan sponsors already provide some sort of income illustration on their quarterly benefit statements to help participants with their retirement planning.

Under the new rule, plan sponsors will not be subject to liability arising from providing the illustrations as long as the disclosures comply with applicable guidance. The Department of Labor (DOL) issued guidance in the form of an interim final rule last fall, published September 18, 2020 and effective September 18, 2021. See our previous post for discussion of the interim final rule.

The DOL clarified a few key points on July 26, 2021 with its “Temporary Implementing FAQs” on the topic:

  • The first illustrations must be included on a statement for a period that ends within 12 months of the effective date of the final rule. This means that for plans that issue quarterly statements, the statement for the second quarter of 2022 (ending June 30, 2022) must include the illustrations, unless included on an earlier statement.
  • Plans may issue additional illustrations beyond what was required in the final rules. It appears that the fiduciary protection from those disclosures will extend to the additional illustrations although that isn’t stated.
  • The DOL recognizes that if the new rule differs significantly from the interim rule, the DOL will need give plan sponsors and their providers some time for implementation; the DOL may consider a transition period if it issues the final rule close to the compliance deadline.

Plan sponsors should confirm their providers are working to revise or add the illustrations in a format that complies with the interim final rule, so that they are ready by mid-2022. Of course, if the DOL issues a final rule with transition relief in order to give plans and their providers time to comply, the implementation date could change.