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Compliance with the New Lifetime Income Disclosure Requirement

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), enacted on December 20, 2019, added a new annual disclosure requirement for benefit statements to participants and beneficiaries. The participant-disclosure requirement takes effect on September 18, 2021 and applies to retirement plan statements sent to participants after that date. The requirement applies to all ERISA-covered defined contribution plans, such as 401(k) or 403(b) plans, regardless of whether annuities are offered under the plan.

The disclosure must provide two types of illustrations which must explain to participants and beneficiaries the monthly amount they would receive from their account balance in the form of 1) a single life annuity (with equal payments over the participant’s lifetime) and 2) a joint and 100 percent survivor annuity (with equal payments over the joint lives of the participants and a spouse). The illustration will assume that participants are age 67 (or actual age, if older) on the statement date.

There has been some confusion as to when the lifetime income disclosure must first appear on benefit statements. The U.S. Department of Labor (DOL) has issued frequently asked questions (FAQs) which assist in answering key questions such as this. The FAQs state that plans that are required to issue benefit statements quarterly must first comply with the disclosure requirement “on a benefit statement for a quarter ending within 12 months after September 18, 2021.” Meaning a calendar year plan that issues statements quarterly must include its first lifetime income disclosure in a benefit statement no later than the benefit statement for the quarter ending June 30, 2022. Thereafter, the disclosure must be made at least annually (i.e., a lifetime income disclosure is required to be included in only one benefit statement during any one 12-month period).

Of note, the SECURE Act provides that no plan fiduciary, plan sponsor, or other person will be liable under ERISA solely by reason of providing lifetime income illustrations derived from using the DOL’s assumptions and that include the explanations contained in the DOL’s model lifetime income disclosure.

Next Steps for Employers

Employers are encouraged to review the DOL’s published interim regulations which contains model disclosure language. In addition, employers should confirm with their third-party administrator (TPA) that they have procedures in place to ensure compliance including, but not limited to, calculating the annuity amounts, whether they will use DOL’s model language or similar language, if they can guarantee timely distribution of the notice, and whether their current service TPA agreements may need to be changed or updated to include providing the notice.

HR Works, headquartered in Upstate New York, is a human resource management outsourcing and consulting firm serving clients throughout the United States for over thirty years. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.