The DOL has advised that the illustration requirements might change before the notice requirement is effective.

In addition, the DOL has not yet addressed whether it intends to move the effective date of the DOL interim final rule to a date later than September 18, 2021.

Even under the current effective date, no notice is required until late 2021 or 2022. That’s because the interim final rule only requires that the illustrations be included in one notice within a 12-month period. Consequently, the initial notice can be delayed as late as July 15, 2022 for a calendar-year plan that provides quarterly statements. However, if the DOL does not change the effective date, plan sponsors will have to start programming for the notices soon.

The DOL guidance does not apply to public sector plans; however, some sponsors of those plans try to follow ERISA guidance.

Background

Under the Setting Every Community Up for Retirement Security Enhancement (SECURE) Act, sponsors of DC plans with participant-directed investments must provide an individual benefit statement at least quarterly. Other DC plans must provide the statement at least annually.

Substance of the interim final rule

The interim final rule:

• Specifies the two illustrations that must be provided at least every 12 months
• Specifies the assumptions plans must use to calculate the illustrations
• Clarifies that the illustrations are based on the participant’s account balance as of the last day of the statement period
• Provides model language the plan may use to explain the assumptions used
• Provides relief from ERISA liability only if the model language is used

Required illustrations

The DOL requires that DC plans provide an illustration of a single-life annuity and an illustration of a joint-and-100-percent-survivor annuity, regardless of whether the plan offers lifetime income options. The illustrations must be based on current accounts rather than projections of future contributions.

A plan may add additional illustrations — including projections — but, as discussed below, the plan will not have any relief from ERISA liability in connection with those additional illustrations.

Required assumptions

The interim final rule specifies the assumptions plans must use:

• Commencement date — Assume payments begin on the last day of the benefit statement period.
• Age — Assume the participant is age 67 and the spouse is also age 67 on the applicable commencement date.
• Spousal and survivor benefits — For a single-life annuity, assume a fixed monthly benefit for life of participant with no survivor benefits. For a qualified joint-and-survivor benefit, assume a 100 percent survivor benefit with a spouse of the same age (regardless of actual marital status and ages).
• Interest rate — Assume an interest rate equal to the 10-year constant maturity Treasury rate (10-year CMT).
• Mortality — Assume the mortality table is the gender-neutral applicable mortality that is required for lump-sum payments under the IRC.

Special rules apply for plans that offers in-plan distribution annuities through a contract with a licensed insurer. Such plans may use either the above assumptions or may base the illustrations on the actual terms of the plan’s insurance contract, subject to certain limitations.

The interim rule also provides special rules for plans that allow participants to purchase deferred income annuities that will pay a specified dollar amount to participants at retirement.

Model language

The DOL provides two structures of model language:

• Separate language for each assumption so that the plan can blend the model language into its existing benefit statement
• Model language consolidated so that it can be included as an add-on or appendix to the plan’s existing benefit statement

Relief from ERISA liability

Plans are not required to use the model language; however, if the model language is used, the plan and its fiduciaries will be protected from possible ERISA liability. Plans can make minor changes to the model language as long as the explanations remain substantially the same in all material respects.

Relief is also conditioned on using the prescribed assumptions.

The liability relief is intended to resolve a concern that some participants may view the illustrations as a promise of the amount of their benefits rather than just illustrations based on general assumptions.