Employers have a year to implement a new 401(k) rule, but it’ll take some preparation. The Department of Labor (DOL) is requiring firms to provide employees with lifetime income estimates to help them determine their retirement readiness.
The DOL’s Employee Benefits Security Administration (EBSA) has announced this interim final rule. It’s meant to help workers realize how their current retirement plan might translate into lifetime monthly payments, in a similar fashion to what the Social Security Administration provides employees.
This rule was set in motion by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019. This Act amended the pension benefit statement requirements to show participants equivalents of their retirement savings as monthly income.
“Our goal is to help workers and retirees understand how savings translate to retirement income,” says EBSA’s acting assistant secretary Jeanne Klinefelter Wilson.
To help ease administrative burdens on employers, the new rule includes 11 brief model language inserts that may be used in an employer’s own plan disclosure. Firms can access the new rule online, since it’s now published in the Federal Register.
The DOL’s fact sheet includes an example of a plan disclosure for a 40-year-old employee, using a 10-year constant maturity Treasury rate to calculate the monthly payments. Here is the information that must be provided:
• current account balance: $125,000
• single life annuity: $645 per month for life, and
• qualified joint and 100% annuity: $533 per month for an employee’s life and $533 for the life of a spouse following participant’s death.
The DOL is allowing a 60-day comment period, giving employers until Nov. 17, 2020 to submit or mail comments (tinyurl.com/DOL614) on this new rule.