DOL Extends Effective Date for Plan Sponsor/Fiduciary Fee Disclosure

On July 16, 2010, the Department of Labor (DOL) released an interim final regulation that requires retirement plan service providers to disclose fees and service information to assist plan sponsors and plan fiduciaries in fulfilling their obligations under Section 408(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA). The new requirements were to become effective on July 16, 2011.

The DOL has intended to finalize the interim rules sufficiently in advance of the July 16, 2011 effective date. Since the DOL is still working out some of the details, and has not finalized the rules, it intends to extend the effective date to January 1, 2012.

Lifetime Income Disclosure Act

On February 3, 2011, Senators Jeff Bingaman (D-NM), Johnny Isakson (R-GA) and Herb Kohl (D-WI) introduced the Lifetime Income Disclosure Act (S. 267). A similar bill was introduced in 2009. The purpose of this proposed legislation is to educate participants on the amount of monthly income that could be provided by their defined contribution (DC) account balance. Ultimately, it is intended to encourage participants to annuitize at least a portion of their account balance.

Lifetime Income Disclosure

Under the proposal, DC plans would be required to include on benefit statements the estimated amount of lifetime income that could be provided with the participant’s account balance. The statement would need to include the monthly income amount under both a single life annuity and a qualified joint and survivor annuity. The lifetime income disclosure would need to be included in one pension benefit statement during a 12-month period.

DOL to Provide Rules and Model Disclosure

The proposed legislation directs the DOL to issue a model benefit statement that explains:

The lifetime income amounts on the benefit statement are illustrative only.
The actual lifetime income amount a participant may receive depends on numerous factors and may vary substantially from the amount on the statement.
The assumptions used to determine the estimated income amounts.
The DOL is also directed to issue rules that would detail:
- Assumptions that may be used to convert a DC account into a lifetime income amount. The proposed legislation allows the DOL to decide whether to require a single set of specific assumptions (i.e. a specific table or factor), or allow conversions based on a range of permissible assumptions.
- Rules on the specifics of the disclosure. For example, the proposed legislation allows the DOL to decide if the lifetime income amount should be disclosed as a deferred income payable at normal retirement, or an immediate income amount.

Next Step

The proposed legislation has been referred to the Senate Committee on Health, Education, Labor and Pensions for review. We will keep you informed of any developments.