PLANSPONSOR - February/March 2020 - 39

TOTAL BENEFITS
use to make lifetime income disclosures.
Therefore, interim final rules must be
issued by this December 20, if not sooner.
In terms of plan sponsor compliance, the
law states that the lifetime income disclosure
requirement will become applicable
to pension benefit statements furnished
more than 12 months after the latest of the
DOL's issuance of: 1) interim final rules; 2)
a model lifetime income disclosure; or 3)
assumptions used to convert total accrued
benefits to lifetime income streams.
For purposes of developing these
interim final rules, the DOL is expressly
granted the flexibility either to prescribe
a single set of assumptions or ranges
of permissible assumptions. Within the
same one-year period, the department
is also required to issue a " model lifetime
income disclosure. " That model is
required to contain a series of prescribed
explanations including that the lifetime
income stream illustration is merely an
example, and that, if the participant's total
accrued benefits were actually applied to
the purchase of a lifetime income stream,
his monthly amounts payable could vary
substantially from those illustrated. The
model must also give an explanation of the
assumptions on which the lifetime income
stream equivalents were determined.
Notably, under the law as it was
passed, if plan sponsors follow the projection
model eventually set forth by the
DOL-i.e., using the agency's assumptions
and rules and including the explanations
contained in the model disclosures-
they will not be liable for any differences,
questions or changes that may come about
based on the projection over time. In other
words, sponsors will not be held liable if
the DOL-mandated projections turn out to
be overly generous, for example.
Dietrich expects the income projection
wrinkles to be smoothed out by
early 2022 at the latest, by which time he
predicts plan sponsors and participants
alike will start to grow more accustomed
to thinking in terms of lifetime income.
Dan Keady, chief financial planning
strategist at TIAA in New York
If plan sponsors follow the
projection model eventually set
forth by the DOL, they will not be
liable for any differences, questions
or changes that may come about
based on the projection over time.
City, agrees with Dietrich's assessment,
suggesting that the accurate provision
of lifetime income provisions is of the
utmost importance as plan providers,
sponsors and other stakeholders work to
implement the SECURE Act.
" With the SECURE Act's passage, we
can expect these lifetime income projections
to become much more front-andcenter
in the communications and statements
sent to participants, " Keady says.
Some will be shocked by the figure
they see expressed as a monthly retirement
check rather than a lump sum,
Keady predicts, whereas others, perhaps
Millennials who have been saving aggressively
and have a long career path ahead
of them, may react very positively to their
projections. Either way, he says, it is going
to be up to plan sponsors and providers
to help participants understand the information
they are presented.
" Naturally, ensuring the reliability of
the projected income figures is a big topic, "
Keady says. " From our experience and
perspective at TIAA, we understand that
these figures will be generic when they are
first set up. We have to encourage people
KEY POINTS
* Per the legislation signed into law this past December, the DOL has until
this December to craft a model lifetime income projection for use by
plan sponsors and providers.
* Lifetime income projections are most useful when complemented by
advice and education.
* Just as there is no true one-size-fits-all annuity or investment, there is
no one-size-fits-all methodology for projecting lifetime income figures.
PLANSPONSOR.COM February - March 2020 39
to learn more about lifetime income topics
and to engage with their projection to
really understand what it all means. "
Given this challenge, Keady says, plan
sponsors, working in concert with their
service provider partners, will have to
develop strategies and educational materials
to help people understand the ins and
outs of guaranteed lifetime income.
" You could think of three groups of
participants we are dealing with here, one
of which is small but very mathematically
or academically minded, and they
already understand what annuities are
and why they make sense, " he says. " They
are happy to give up a significant sum of
money in exchange for an open-ended
income guarantee for life. "
The second group, also relatively
small, will never give up their principal
and will always prefer to maintain full
control over their assets. The third group,
he says, is the vast majority of real-world
defined contribution (DC) plan investors,
who are generally uninformed about the
topic of annuities and guaranteed income
and can benefit greatly from targeted
support and education. -John Manganaro
http://www.PLANSPONSOR.COM
PLANSPONSOR - February/March 2020

Table of Contents for the Digital Edition of PLANSPONSOR - February/March 2020
