DOL seeking input on income illustrations rules
By National Underwriter
By Elizabeth D. Festa
The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) is now formally considering regulations governing the use of lifetime income illustrations that are given to participants in defined contribution pension plans. It is seeking providers to give clearer detail on retirement funds for enrollees, as estimated.
These illustrations would allow workers to gauge the amount of money they might need in retirement and to accordingly adjust their savings habits and investment strategies, DOL officials have said.
The DOL is looking for input on a rule that would require a participant’s accrued benefits to be included on his or her pension benefit statement as an estimated lifetime stream of payments, in addition to an account balance. Pension plans such as 401(k) and 403(b) plans would be affected.
EBSA is also requesting comments on a rule that would require a participant’s accrued benefits to be projected to his or her retirement date, assuming annual contributions and an estimated rate of return, and then presented as an estimated lifetime stream of payments.
“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 Phyllis C. Borzi, assistant secretary of Labor for Employee Benefits Security. “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.”
The move was long expected.
The department was looking at ways to help workers make their pension savings last throughout retirement, Borzi said last June in remarks to retirement plan professionals in Washington. According to the DOL June 21, 2012 newsletter, Borzi said the department would soon propose a way for workers to see lifetime income illustrations in their pension statements.
In addition, the DOL is studying ways to make it easier for plan sponsors to offer annuity-like payments from pension accounts, including individual 401(k) accounts. That initiative is taking shape and could be out within the year, Borzi said in June.
EBSA is developing proposed regulations regarding the pension benefit statement requirements under Section 105 of the Employee Retirement Income Security Act of 1974. The advance notice of proposed rulemaking serves as a request for comments on specific language and concepts in advance of the proposed regulations. “DOL’s lifetime income illustration proposal would go a long way toward educating workers about retirement and helping them achieve their retirement security goals. We will review the proposal’s details with our members, and we look forward to working with DOL as they move forward with this proposal," said the American Council of Life Insurers.
“ACLI has long supported the idea of providing workers with lifetime income information about their defined contribution plans. 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 in planning for retirement.”
The notice will be published in the Federal Register May 8.
Comments are due by July 8. Originally published on LifeHealthPro.com