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Comment deadline extended to Aug. 7, 2013
The U.S. Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) is seeking comments before issuing a proposed rule on how plan sponsors can provide lifetime income products, such as annuities, to participants in 401(k) and 403(b) defined contribution plans.
The comment deadline, originally July 8, 2013, was subsequently extended to Aug. 7.
The advance notice of proposed rulemaking, which DOL published in the Federal Register on May 8, 2013, serves as a request for comments on specific language and concepts in advance of the proposed regulations, giving stakeholders an opportunity for early input into the development of regulations.
“We are looking for the best ideas on how to show people what their lump-sum retirement savings look like when they are spread out over all the years of retirement,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi, in a released statement. “Retirees run the risk of outliving their savings. If workers have the benefit of seeing how long their savings could last, it might spur better planning for the future, such as adopting more effective savings strategies.”
EBSA is developing proposed regulations regarding the pension benefit statement requirements under section 105 of the Employee Retirement Income Security Act (ERISA). The notice solicits input on a rule that would require a participant’s accrued benefits to be included on their pension benefit statement as an estimated lifetime stream of payments, in addition to an account balance.
EBSA also is requesting comments on a rule that would require participants’ accrued benefits to be projected up to their retirement date, assuming annual contributions and an estimated rate of return, along with an estimated lifetime stream of payments based on that projection.
“A lifetime income illustration can help workers make more informed decisions about retirement and retirement savings,” the American Council of Life Insurers, an industry group, said. “Most workers recognize the need to accumulate retirement assets, but many may not think about the need to manage their assets over the course of a retirement that could last 20 or 30 years. Understanding what a lump sum really means in terms of paying the monthly bills will help countless workers ensure they are on the right path to meeting their retirement goals.”
However, some considerations were raised by Buck Consultantsin an alert regarding the proposed notice. “Many defined contribution plans do not offer an annuity purchase option. Communicating a monthly annuity figure to employees that is not actually available, for example, may lead participants to think they can draw down the estimated amount without actually buying an annuity,” the consultancy commented.
“Ideally, the DOL’s next proposal and final rule will accommodate a wide array of approaches that allow employers to support employee education without fear of liability for actual outcomes,” the alert added. “Key tools for achieving this goal need to address both the approach of offering safe harbor values and the approach of offering innovative tools. Calculation of safe harbors should be conservative and not raise expectations beyond a reasonable level. Plan fiduciaries who offer innovative tools should have a reasonable expectation of being insulated from lawsuits by standardized disclaimers.”
Written comments may be addressed to the U.S. Department of Labor, Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, 200 Constitution Ave. NW, Washington, DC 20210, Attn: Pension Benefits Statement Project. The public also may submit comments electronically by e-mail to E-ORI@dol.gov with RIN 1210-AB20 in the subject line of the message or through the federal e-rulemaking portal at www.regulations.gov.
(A submitted comment from a retirement advisor has been posted here.)
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related DOL Resources:
Fact Sheet on Proposed Rule for Illustrating Lifetime Income to Retirement Plan Participants, May 2013
Online Lifetime Income Calculator
Related SHRM Articles:
Income Projections Motivated Savings, SHRM Online Benefits, April 2013
Secret to 401(k) Success: Income Replacement Ratio, SHRM Online Benefits, April 2012
401(k) Distributions: Easing Into Annuities, SHRM Online Benefits, June 2008
SHRM Online Benefits page
SHRM Online Retirement Plans Resource Page
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