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Abstract
According to the legislative history of the SECURE Act, the purpose of the new requirement is to help a defined contribution plan participant understand how his or her plan account balance correlates into a lifetime income stream.2 The SECURE Act also requires the Department of Labor ("DOL"), within one year after enactment of the SECURE Act, to issue model lifetime income disclosure language and assumptions to be used by plan administrators in complying with the lifetime income disclosure requirement.3 On August 18, 2020, the Department of Labor released an Interim Final Rule, entitled "Pension Benefit Statements - Lifetime income illustrations. According to the DOL Fact Sheet, this interest rates approximates the rate used by insurance companies in pricing immediate annuity contracts.8 * Assumed Mortality Table - For each lifetime income illustration, the plan administrator must use the gender neutral mortality table in Section 417(e)(3)(B) of the Internal Revenue Code. * Plan Loans - Plan loans are included in a participant's account balance for purposes of calculating a lifetime income illustration unless the participant has defaulted on the loan. * Vesting - For purposes of calculating a lifetime income illustration, a participant is assumed to be 100 percent vested in his or her plan account.9 Assumptions for Defined Contribution Plans With Annuity Distribution Options In the case of defined contribution plans offering an annuity distribution option through a licensed insurer, the plan administrator may substitute the assumptions in the terms of the plan's insurance contract in lieu of the assumptions listed in the Interim Final Rule. [...]the Lifetime income illustration statement must include the following information with respect to the deferred annuity: * The date payments are scheduled to commence and the age of the participant on such date; * The frequency and amount of payments as of the commencement date, expressed in current dollars; * A description of any survivor benefit, term certain, or other similar feature; and * A statement whether payments are fixed, adjust with inflation, or adjust in some other way and how such adjustment is determined.12 Interim Final Rule Includes Model Explanatory Language The Interim Final Rule requires that benefit statements include explanations of the assumptions used in calculating the monthly payments in the illustration and provides optional model language for the explanations. According to the DOL Fact Sheet, the explanations are designed to help participants and beneficiaries understand the method of calculating the estimated monthly payments and that the estimates are only illustrations and not guarantees with respect to future benefits.