Helping Plan Participants Reach Retirement Readiness
Having enough resources to retire comfortably is the ultimate goal of most plan participants. Certain SECURE Act provisions aim at assisting them in reaching that retirement readiness.
According to an official at the Employee Benefits Security Administration (EBSA), an objective for companies offering retirement plans is “to help workers and retirees understand how savings translate to retirement income.” By seeing an estimated monthly dollar amount on benefit statements, plan participants can use the information as a guide for savings and expenses during retirement.
Disclosures Regarding Lifetime Income on Plan Benefit Statements
Section 203 of SECURE Act amends the pension benefit statement rules (under ERISA Section 105) to require benefit statements of plan participants to include a lifetime income disclosure illustrating monthly payments a participant would receive if the total account balance were used to provide lifetime income streams.
Estimated Income for Retirement Plan Participants
On August 18, the Department of Labor announced an interim final rule (IFR) addressing the required disclosure set forth in SECURE Act that defined contribution plans must include two lifetime income illustrations on participants’ benefit statements at least annually – one as a single-life income stream and the other that factors in a survivor benefit. Such illustrations are designed to help employees understand how a retirement plan account balance translates into a monthly income. EBSA is inviting comments on the IFR from interested parties and intends to issue a final rule after sufficiently reviewing comments submitted.
Model Language and Assumptions to Alleviate Liability
The good news is, to help ease the administrative burden, the rule includes model disclosure language for use on benefit statements along with the assumptions, which, in turn, protect plan fiduciaries, plan sponsors and other persons from liability under ERISA should actual monthly payments in retirement fall short of illustrations. Both will provide consistency among recordkeepers that each are showing and using the same information.
Certain Assumptions for Estimates Are Required
Required assumptions include:
- Assumed (or stated) commencement date
- Assumed age (currently 67, which is Social Security full retirement age for most workers) or, actual age, if older
- Assumed spousal and survivor benefits (assumption that participant is married even if not and, if married, spouse is same age as the participant regardless of spouse’s actual age)
- Assumed interest rate (10-year constant Treasury rate)
- Assumed mortality (based on the Internal Revenue Code gender neutral mortality table)
Formulating Estimates Could Be Challenging
This interim final rule is waiting for publication in the Federal Register and will be effective one year after official publication in the Federal Register. With that being said, once effective the new rule will more than likely require plan sponsor recordkeepers and providers to gather more information, including actuarial factors for each plan participant. This could make it difficult to accurately estimate lifetime income. Most recordkeepers will have to adjust their systems to build in the assumptions and produce new benefit statements.
What To Do Next
As soon as the effective date is known, your recordkeeper will determine how it intends to implement the interim rule by the one year deadline. Your Retirement Plan Solutions team at Mariner Wealth Advisors is always here to help you with retirement plan concerns and to help your participants save for retirement.
U.S. Department of Labor Employee Benefits Security Administration Fact Sheet Pension Benefits Statements – Lifetime Income Illustrations
This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.