Groups Say Lifetime Income Guidance Should Be Flexible, Provide Protections

Any guidance promulgated by the Department of Labor's Employee Benefits Security Administration on lifetime income illustrations should be optional for retirement plans and provide fiduciary protections, according to comment letters from retirement and financial industry groups. 

 “The current voluntary [retirement] system has been very effective in encouraging innovation in retirement plans. This has been critical given the diverse nature of workers that are covered by the system. The Department should continue to foster this innovation instead of imposing a mandate on plans. Furthermore, we are concerned that the method by which the Department would impose a mandate … exceeds the Department's statutory authority,” an Aug. 7 comment letter from the ERISA Industry Committee said.

The American Benefits Council also expressed concern in an Aug. 7 letter about the prospect of requiring a lifetime income projection on retirement benefit statements, saying its members “remain concerned about mandates rather than voluntary disclosures, and [ABC] would instead recommend that the DOL encourage this disclosure by, for example, providing models and on-line resources such as the on-line calculator created by the DOL as part of this project.”

On May 7, DOL announced in an advance notice of proposed rulemaking that it was considering a proposal that would require that pension benefit statements for defined contribution plans include lifetime income illustrations. Under DOL's contemplated proposal, a pension benefit statement for defined contribution retirement plans would show the current balance of a participant's retirement account, as well as a projected account balance at retirement. The statements also would include two lifetime income illustrations that would be based on the current balance of a participant's retirement account and the participant's projected account balance “at normal retirement age.”

The comment deadline was initially July 8, but DOL later extended that to Aug. 7.

J.P. Morgan Retirement Plan Services and Boston-based Fidelity Investments also had reservations about making mandatory the inclusion of lifetime income projections on tax code Section 401(k) statements. An Aug. 5 letter from J.P. Morgan said that “[i]mposing a mandate that participant statements include a lifetime income projection could have the unintended consequence of limiting the use and effectiveness of many of the industry tools currently available. … J.P. Morgan suggests that the Department take steps to encourage rather than require illustrations on pension benefit statements.”

Fidelity's Aug. 1 letter questioned DOL's authority to “mandate the additions to benefit statements proposed” in the advance notice. Fidelity also reflected on its recent experience with DOL's participant disclosure requirements under Section 404 of the Employee Retirement Income Security Act, saying that “information provided in a static format does not promote participant engagement. As an equally important consideration, the disclosures that would need to accompany the projections and illustrations would greatly add to both the length and complexity of participant statements, increasing the risk of reader disengagement from any of the information provided on the statement.”

Several groups also worried that regulations requiring lifetime income projections and calculations might open up employers and plan sponsors to fiduciary liability if plan participants did not achieve a projected account balance upon retirement.

Excerpted from a story that ran in Pension & Benefits Daily (8/12/13).