Department of Labor Releases FAQs on Required Lifetime Income Illustrations for DC Plans

On July 26, 2021, the Department of Labor (“DOL”) released Temporary Implementing FAQs (Frequently Asked Questions) for the lifetime income illustrations that will be required for most Defined Contribution (“DC”) plans. As you may recall from our last article, the DOL released an Interim Final Regulation (IFR) on September 18, 2020 requiring compliance one year thereafter (September 18, 2021). Since the disclosure is only required once per year, it was unclear what the first required quarter would be (with the earliest possible being September 30, 2021). Public comments were solicited regarding the guidance provided.

The July 26th FAQs provide the needed clarity around when it will be required. The guidance drew a distinction between “participant-directed” plans and “non-participant-directed” plans.

Non-Participant-Directed Plans

For plans where the participant or beneficiary does not have the option to determine (direct) how their account is invested the illustration is required for the first plan year ending after September 18, 2021. For a plan with a calendar plan year it will be December 31, 2021. See below for the most common plan years:

Participant-Directed Plans

Plans where the participant or beneficiary have the option to determine (direct) how their account is invested are required to provide statements at least quarterly. For these plans, an illustration must be provided in one of the three quarters ending after September 18, 2021. Therefore, the latest required date is June 30, 2022.

The FAQs also responded to two other questions raised during the IFR comment period. One clarified that Plans can provide additional illustrations – e.g., an illustration to age 65 with projected future contributions and/or future earnings, but such an illustration must be in addition to the DOL required illustration (rather than in lieu of). The other noted that if the final rules, which have not been finalized, differ materially from the September 18, 2020 interim regulations, the DOL would consider a delay in required compliance.

For any impacted plans for whom Zenith American Solutions produces pension benefit statements, we have already begun preparing for this new requirement. Further, as a member of the American Academy of Actuaries Lifetime Income Risk Committee, we are tracking this closely. As always, please call your Zenith American Solutions Client Services team with any questions.