New Lifetime Income Disclosures for Retirement Plans

Posted July 27, 2022

Retirement readiness has been a popular topic of discussion for the last five years. Beyond this being a mantra of recordkeepers and financial advisors, the government has stepped in to further help ensure Americans have the best chance of retiring successfully.

A portion of the “SECURE” Act (passed in 2019) has required that plan sponsors deliver a new participant disclosure that should have already been implemented for all participant-directed plans. Citing concerns that participants may not have enough information to; 1) understand whether or not they are saving enough for retirement and 2) know how much income their current account balance could produce in retirement, new income projections are now required to be given to participants at least annually and must have been delivered by last quarter’s benefit statement (usually on their quarterly participant statement).

About the New Lifetime Income Participant Disclosure

This new participant disclosure must estimate the monthly income that a participant’s plan account balance could produce if paid in both a qualified joint and survivor annuity (QJSA) and a single life annuity (SLA). These two illustrations must be included on the benefit statement that participants receive.

Timing

For participant-directed plans, this information should be delivered at least quarterly starting in July 2022.
For plans with no participant investment direction, the annual pension benefit statement due date coincides with a plan’s Form 5500 filing deadline, plus extensions (by October 15, 2022).

Does Your Plan Offer Brokerage Accounts or Investment Advisory Accounts?

All of the traditional 401(k) recordkeepers have been preparing to comply with this new requirement for years and have implemented the requirements without most plan sponsors being aware. They have simply changed their quarterly participant statement to incorporate this requirement.

However, we run into many small plans that are not held (or have a portion of their plan that is not held) with a traditional recordkeeper but instead have elected to offer their participants managed investment accounts or brokerage accounts. These investment options are still technically participant-directed and are therefore subject to this requirement.

These unsuspecting plan sponsors have largely not done anything to comply with the new law. This will probably result in the need for many plans to hire an ERISA attorney to help them file through the Voluntary Correction Program (VCP) with the IRS.

We strongly suggest that you discuss this new requirement with your service providers to ensure compliance, especially in cases where a plan does not utilize a traditional recordkeeping platform.