The Department of Labor’s (DOL) lifetime income statement rule goes into effect in mid-September, but it has yet to issue a final rule for plan advisers. In “DOL Still Isn’t Ready For Its Own Lifetime Income Rule,” InsuranceNewsNet provided key takeaways from benefits and executive compensation partners Brad Campbell and Fred Reish during Faegre Drinker’s “Inside the Beltway” webinar.
Reish said the interim rule would have advisers provide irrelevant projections to clients. He continued, “I think plan sponsors, providers and advisers should be thinking about how to deal with that now because I think it will take some education and explanation.” The plan committee members would want to know if they should provide alternative calculations, and they would want to know in the next three months, Reish said.
In a recent FAQ, the DOL said the first statement would not be needed until the end of the second quarter of 2022, Reish explained. However, the DOL has been delayed because the environmental, social and governance rule had a higher priority, which pushed back work on the rule and delayed the appointment of a key assistant secretary position, he added.
Campbell added that he knows from experience that the information the interim rule requires often is not useful. Campbell remembered receiving lifetime income statements on his Thrift Savings Plan when he was a federal employee.
“Unfortunately, way too many simplistic bad ideas for the real 401(k) world come out of the government’s experience with its own very bare-bones plan,” Campbell said, describing the annuity calculation he received annually, which was based on retiring in that year. “As a 30-year-old, I found that a really worthless projection. I really think you need to project it forward to have some sort of more realistic balance.”
Because the Biden administration said they would be drafting a final rule rather than relying on the interim regulation, Campbell stated that he had hope that they will be revisiting these details. In the meantime, the DOL produced an FAQ that allows for other projections, although they won’t receive the benefit of safe harbor, he noted.
“I don’t think it’s going to achieve the goal that the Congress had in the SECURE Act,” Campbell said, “even though one could argue the DOL’s approach here may have actually been a faithful interpretation of what Congress wrote.”
Going with a more helpful projection might help plan participants, but only the government-sanctioned would provide fiduciary safe harbor, Reish said. He also noted that advisers and others have been asking if they would be liable if their projections did not hold up.
“Folks have been doing this for years. One particular provider has been doing it for decades,” Reish said of projections. “Nobody has ever filed any kind of a claim that I’m aware of. I just think people worry too much about the projections that don’t have a fiduciary safe harbor.” He also stated that the illustrations should include the caveat that the projections are just that, projections, and not promises.