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As we described in our August 31, 2020 LawFlash, the US Department of Labor (DOL) issued an Interim Final Rule (Rule) on August 18, 2020 outlining the requirement of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) for employers to provide “lifetime income illustrations” to defined contribution plan (e.g. 401(k), 403(b), etc.) participants. The purpose of the Rule is to provide participants with disclosures that will help them understand how their defined contribution plan accounts may translate into an income stream in retirement.

On July 26, 2021, the DOL issued a brief set of FAQs to address some outstanding questions regarding the Rule. A brief summary of the clarifications made in the FAQ guidance is as follows:

  • Effective Date of the Rule. The Rule is effective September 18, 2021 and generally requires that plans are required to distribute lifetime income illustrations at least once annually. Some commentators were concerned that the DOL might apply this rule to require the first illustration to be delivered shortly after the Rule's effective date (e.g., the first quarter ending after the Rule's September 18, 2021 effective date). Despite clarifying remarks to the contrary by DOL representatives, some concerns persisted. The FAQs confirm the widely anticipated and more generous interpretation of the Rule's effective date provisions as follows:
    • Participant-Directed Individual Account Plans – Individual account plans with participant-directed investments (which constitute the vast majority of individual account plans) must furnish the first income illustration for a quarter ending within 12 months after the September 18, 2021 effective date of the Rule. In other words, the plan’s first income illustration must be provided as part of a quarterly statement for a quarter ending before September 19, 2022. For example, if the plan’s income illustration is provided on the quarterly statement issued for the first or second quarters of 2022 (ending March 31 and June 30, respectively), the plan will comply with the Rule.
    • Non-Participant-Directed Individual Account Plans – Individual account plans that do not provide participants with the opportunity to direct investments must include the lifetime income illustrations on the annual statement issued for the first plan year ending on or after September 19, 2021. For plans with calendar year plan years, this means the statement must be included in the annual statement issued for the 2021 calendar year.
  • Alternative Lifetime Income Illustrations. The FAQs confirm that plans can provide participants with additional and alternative lifetime income illustrations to those required by the Rule. The DOL noted that some plans already provided participants with various types of lifetime income illustrations that may not satisfy the specific requirements of the Rule. The DOL confirmed it is permissible for plans to continue to provide these additional alternatives. However, plans must also provide a lifetime income illustration that satisfies the Rule.
  • Confirmed Adoption of a Final Rule. The FAQs confirm that the DOL intends to adopt a final rule (the current Rule is an "interim" final rule) as soon as practicable based on feedback from commentators. That is, as part of issuing the interim final Rule, the DOL requested comments on a wide range of issues and the DOL is evaluating the comments received as part of developing the final rule. Some comments expressed concerns that the final rule might differ in material respects from the interim final Rule and that plans may not be provided with sufficient transition time to implement the final rule. The DOL did not commit to any specific timing for issuing the final rule or to providing any particular form of transition relief, but it acknowledged that such transition relief may be appropriate depending on the circumstances.

On balance, the FAQs did not change any of the Rule's substantive requirements, but helpfully clarified several points relating to the timing and manner of the Rule's implementation. If you have any questions about how the Rule will affect your plan’s disclosure requirements, please contact the authors or your regular Morgan Lewis contacts for benefits matters.