[Federal Register Volume 85, Number 182 (Friday, September 18, 2020)]
[Rules and Regulations]
[Pages 59132-59161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17476]



[[Page 59131]]

Vol. 85

Friday,

No. 182

September 18, 2020

Part IV





Department of Labor





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Employee Benefits Security Administration





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29 CFR Part 2520





Pension Benefit Statements--Lifetime Income Illustrations; Final Rule

  Federal Register / Vol. 85 , No. 182 / Friday, September 18, 2020 / 
Rules and Regulations  

[[Page 59132]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2520

RIN 1210-AB20


Pension Benefit Statements--Lifetime Income Illustrations

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Department of Labor (Department) is publishing an interim 
final regulation regarding the information that must be provided on 
pension benefit statements required by section 105 of the Employee 
Retirement Income Security Act of 1974, as amended (ERISA). This 
regulation reflects amendments made to ERISA section 105 by the Setting 
Every Community Up for Retirement Enhancement Act of 2019. When 
applicable, the interim final regulation requires plan administrators 
of ERISA defined contribution plans to express a participant's current 
account balance, both as a single life annuity and a qualified joint 
and survivor annuity income stream. These two income stream 
illustrations, which must be on the same pension benefit statement, 
will help participants better understand how the amount of money they 
have saved so far converts into an estimated monthly payment for the 
rest of their lives, and how this impacts their retirement planning. 
The regulation provides plan administrators with a set of assumptions 
to use in preparing the lifetime income illustrations, as well as model 
language that may be used for benefit statements by plan administrators 
who wish to obtain relief from liability for the illustrations. The 
interim final regulation also requests comments from interested parties 
on the requirements and methodologies of the regulation.

DATES: 
    Effective date. This interim final rule is effective on September 
18, 2021, and shall apply to pension benefit statements furnished after 
such date.
    Comment date. Written comments on the interim final rule must be 
received by November 17, 2020.

ADDRESSES: You may submit written comments, identified by RIN 1210-AB20 
to either of the following addresses:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Office of Regulations and Interpretations, Employee 
Benefits Security Administration, Room N-5655, U.S. Department of 
Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attention: 
Pension Benefit Statements--Lifetime Income Illustrations, RIN 1210-
AB20.
    Instructions: All submissions received must include the agency name 
and Regulatory Identifier Number (RIN) for this rulemaking. Persons 
submitting comments electronically are encouraged not to submit paper 
copies. Comments will be available to the public, without charge, 
online at https://www.regulations.gov and https://www.dol.gov/agencies/ebsa and at the Public Disclosure Room, Employee Benefits Security 
Administration, Suite N-1513, 200 Constitution Avenue NW, Washington, 
DC 20210.
    Warning: Do not include any personally identifiable or confidential 
business information that you do not want publicly disclosed. Comments 
are public records posted on the internet as received and can be 
retrieved by most internet search engines.

FOR FURTHER INFORMATION CONTACT: Rebecca Davis or Kristen Zarenko, 
Office of Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

(1) ERISA Section 105

    Historically, section 105(a) of the Employee Retirement Income 
Security Act (ERISA) has required plan administrators of defined 
contribution plans to provide periodic pension benefit statements to 
participants and certain beneficiaries.\1\ Benefit statements generally 
must be provided at least annually. If the pension plan permits 
participants and beneficiaries to direct their own investments, 
however, benefit statements must be provided at least quarterly. 
Section 105(a)(2) of ERISA contains the content requirements for 
benefit statements, including a requirement to indicate the 
participant's or beneficiary's ``total benefits accrued.'' The other 
content requirements in section 105, such as vesting information, are 
not the focus of this rulemaking.
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    \1\ 29 U.S.C. 1025(a).
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(2) Advance Notice of Proposed Rulemaking

    On May 8, 2013, the Department of Labor (Department) published an 
advance notice of proposed rulemaking (ANPRM) regarding the pension 
benefit statement requirements under section 105 of ERISA.\2\ The ANPRM 
considered requiring up to four lifetime income illustrations: (1) A 
single life annuity based on the current account balance; (2) a 
qualified joint and 50% survivor annuity, if the participant is 
married, based on the current account balance; (3) a single life 
annuity based on a projected account balance (current account balance 
projected to normal retirement age, taking into account estimated 
investment returns, future contributions, and inflation); and (4) a 
qualified joint and 50% survivor annuity, if the participant is 
married, based on a projected balance. The ANPRM included a safe harbor 
that would have deemed it reasonable for a plan administrator to use 
certain assumptions when preparing these lifetime income illustrations. 
The Department received 125 comment letters on the ANPRM, which are 
available for review on the Department's website.
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    \2\ See 78 FR 26727 (May 8, 2013). The ANPRM followed a 2010 
request for information (2010 RFI) on lifetime income options in 
retirement plans, which included questions on how best to disclose 
the income stream that can be provided from an individual account 
balance in a defined contribution plan. See 75 FR 5253 (Feb. 2, 
2010). On September 14 and 15, 2010, the Department held a public 
hearing on lifetime income options to consider several specific 
issues raised by commenters on the 2010 RFI, including methods and 
assumptions for income stream illustrations. See 75 FR 48367 (Aug. 
10, 2010).
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(3) SECURE Act Amendments

    On December 20, 2019, ERISA section 105 was amended by section 203 
of the Setting Every Community Up for Retirement Enhancement Act of 
2019 (SECURE Act).\3\ As amended, ERISA section 105 requires, in 
relevant part, that ``a lifetime income disclosure . . . be included in 
only one pension benefit statement during any one 12-month period.'' A 
lifetime income disclosure ``shall set forth the lifetime income stream 
equivalent of the total benefits accrued with respect to the 
participant or beneficiary.'' A lifetime income stream equivalent means 
the amount of monthly payments the participant or beneficiary would 
receive if the total accrued benefits of such participant or 
beneficiary were used to provide a single life annuity and a qualified 
joint and survivor annuity.
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    \3\ The SECURE Act was enacted as Division O of the Further 
Consolidated Appropriations Act, 2020, Public Law 116-94 (Dec. 20, 
2019).
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    The required lifetime income streams must be ``based on assumptions 
specified in rules prescribed by the Secretary.'' In relevant part, 
section 105(a)(2)(D)(iii) of ERISA states that

[[Page 59133]]

``[n]ot later than 1 year after the enactment of the [SECURE Act], the 
Secretary shall . . . prescribe assumptions which administrators of 
individual account plans may use in converting total accrued benefits 
into lifetime income stream equivalents[.]'' This section also provides 
that the Secretary ``shall . . . issue interim final rules . . .'' 
within this timeframe.
    Section 105(a)(2)(D)(ii) of ERISA provides for a model disclosure. 
In relevant part it states that ``[n]ot later than 1 year after the 
date of enactment of the [SECURE Act], the Secretary shall issue a 
model lifetime income disclosure, written in a manner so as to be 
understood by the average plan participant.''
    Section 105(a)(2)(D)(iv) of ERISA provides a limitation on 
liability. In relevant part it states that ``[n]o plan fiduciary, plan 
sponsor, or other person shall have any liability under this title 
solely by reason of the provision of lifetime income stream equivalents 
which are derived in accordance with the assumptions and rules 
[prescribed by the Secretary] and which include the explanations 
contained in the model lifetime income disclosure [prescribed by the 
Secretary].''
    Section 105(a)(2)(D)(v) sets forth the effective date of the SECURE 
Act amendments. In relevant part it states that the new lifetime income 
disclosure provisions ``shall apply to pension benefit statements 
furnished more than 12 months after the latest of the issuance by the 
Secretary of . . .'' the interim final rules, the model disclosure, or 
the assumptions prescribed by the Secretary. This final rule is 
considered an E.O. 13771 regulatory action. We estimate that it will 
impose $12 million in annualized costs at a 7% discount rate, 
discounted to a 2016 equivalent, over a perpetual time horizon.

B. Explanation of Interim Final Rule

(1) Overview--Required Lifetime Income Streams

    The Department is publishing an interim final rule (IFR) requiring, 
consistent with the SECURE Act amendments to ERISA section 105 and the 
Department's prior work on issues related to lifetime income options in 
defined contribution plans, that plan administrators of individual 
account plans include two lifetime income stream illustrations on 
participants' pension benefit statements, in addition to the 
participant's account balance. Specifically, paragraph (a) of the IFR 
provides that these illustrations must be furnished to participants at 
least annually. And paragraph (b) requires, in relevant part, that 
pension benefit statements include: The value of a participant's 
account balance as of the last day of the statement period (paragraph 
(b)(2)); such account balance expressed as a lifetime income stream 
payable in equal monthly payments for the life of the participant 
(single life annuity) (paragraph (b)(3)); and such account balance 
expressed as a lifetime income stream payable in equal monthly payments 
for the joint lives of the participant and spouse as a qualified joint 
and survivor annuity (QJSA) (paragraph (b)(4)). The Department 
anticipates that this required information on a participant's pension 
benefit statement might appear as follows:

------------------------------------------------------------------------
                                                  Monthly payment at 67
 Account balance as of   Monthly payment at 67     (qualified joint and
        [DATE]           (single life annuity)    100% survivor annuity)
------------------------------------------------------------------------
$125,000..............  $645/month for life of   $533/month for life of
                         participant.             participant.
                                                 $533/month for life of
                                                  participant's
                                                  surviving spouse.
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    The specific requirements concerning these lifetime income 
illustrations, including the assumptions that must be used in preparing 
the illustrations, how the illustrations will be explained to 
participants, and the treatment of in-plan annuities, are discussed in 
the sections below. For purposes of the IFR, the term ``participant'' 
is defined, in paragraph (h)(1), to include an individual beneficiary 
who has his or her own individual account under the plan, such as an 
alternate payee for example. Throughout this preamble, unless otherwise 
specified, the Department intends this definition when using the term 
``participant.''

(2) Assumptions for Lifetime Income Stream Illustrations

    The IFR requires that plan administrators provide two lifetime 
income illustrations of the value of a participant's account balance, 
at least annually, on the participant's pension benefit statement. Plan 
administrators must prepare these lifetime income illustrations using 
the annuitization methodology set forth in the IFR, which will express 
a participant's account balance as a lifetime monthly payment to the 
participant, similar in form to a pension payment made from a 
traditional defined benefit plan. Insurance companies use this 
approach, for example, to determine payment amounts for their annuity 
products. Plan administrators, or their service providers, generally 
must consider four relevant factors when converting a participant's 
account balance into lifetime income streams. The first is the date the 
payments would start, referred to as the ``commencement date,'' and the 
participant's age on such date. The second is the marital status of the 
participant. The third is the interest rate that will be applied for 
the applicable mortality period. And the fourth is the expected 
mortality of the participant and spouse. The IFR generally addresses 
the required assumptions for each of these factors in paragraph (c) of 
the IFR. This section of the preamble discusses the Department's 
reasoning behind the IFR's assumptions for these four factors, and 
other matters germane to annuitization illustrations.
(a) Commencement Date and Age
    Paragraph (c)(1) of the IFR establishes an assumed annuity 
commencement date and age that plan administrators must use to prepare 
the required illustrations. Specifically, paragraph (c)(1)(i) provides 
that the assumed annuity commencement date is the last day of the 
statement period (the commencement date). Thus, for example, if the 
benefit statement covers the period ending on December 31, 2025, the 
assumed annuity commencement date would be December 31, 2025. Paragraph 
(c)(1)(ii) of the IFR further requires that the required illustrations 
must assume the participant is age 67 on the commencement date, 
regardless of the participant's actual age. If, however, the 
participant is older than age 67, the IFR requires the plan 
administrator to use the participant's actual age as of the last day of 
the statement period. The Department understands that a younger assumed 
age at the assumed annuity commencement date would result in lower 
monthly payments in illustrations, and vice versa.

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    The Department considered a number of alternatives to age 67. For 
example, the Department considered using a plan's ``normal retirement 
age,'' as defined in ERISA section 3(34). The Department decided 
against using this date, because it lacks uniformity and consistency by 
leaving it to each retirement plan to determine the retirement age for 
its participants. The Department has placed a premium on uniformity and 
consistency for the illustrations required by this IFR. The Department 
also considered age 60, which closely aligns with the earliest age that 
a participant could withdraw money from a qualified retirement plan 
without being subject to additional income tax on the early 
distribution.\4\ The Department also considered age 62, which is the 
earliest date a person can begin receiving retirement benefits 
(although reduced benefits) under Social Security.\5\ The Department 
understands that age 62 is a very common age for people to claim Social 
Security retirement benefits.\6\ The Department also considered age 65, 
which is a common retirement age for many ERISA-covered retirement 
plans, and age 65 also was for many years the historical full or normal 
retirement age under Social Security. The Department also considered 
age 72, which is the age by which federal law generally requires 
commencement of minimum distributions from qualified retirement 
plans.\7\ After considering these alternatives, the Department chose 
age 67, because this age aligns with full or normal retirement age 
under Social Security for most workers.\8\ The Department believes that 
alignment of these two dates will provide participants a clearer 
picture of their potential future monthly retirement income from these 
two important sources, if they continue working to age 67. The 
Department's decision also is supported by a majority of the commenters 
on the ANPRM.
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    \4\ See 26 U.S.C. 72(t) (absent an available exception).
    \5\ 42 U.S.C. 402(a).
    \6\ Alicia H. Munnell & Anqi Chen, Trends in Social Security 
Claiming, Center for Retirement Research (May 2015) (finding that 48 
percent of women and 42 percent of men claimed Social Security 
retired-worker benefits at age 62 in 2013).
    \7\ 26 U.S.C. 401(a)(9)(C).
    \8\ Age 67 is the full Social Security retirement age for 
individuals born in 1960 or later.
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    Although no specific age will be perfect for this purpose, the 
Department requests comments on whether age 67 is the most appropriate 
age. Commenters that believe a different age or approach would be 
better are encouraged to explain their reasoning and provide any 
germane literature or data supporting their reasoning. The Department 
also requests comments on whether the final rule should require 
illustrations based on multiple ages on the annuity commencement date, 
rather than requiring only a single age. For example, illustrations 
could be based on assumed annuity commencement ages of 62 and 67. This 
would present smaller and larger monthly payment amounts, illustrating 
the potential effects of delaying retirement on the amount of money a 
participant could receive each month. This approach would resemble the 
Social Security statement, which presently shows monthly retirement 
income based on three assumed retirement ages: 62, 67, and 70.
(b) Marital Status and Amount of Survivor's Benefit
    Paragraph (c)(2) of the IFR requires plan administrators to assume, 
for purposes of converting a participant's account balance into the 
QJSA required under paragraph (b)(4) of the IFR, that the participant 
is married and that the participant's spouse is the same age as the 
participant. Although a particular participant may not be married at 
the time a pension benefit statement is furnished, the statute 
nonetheless requires plan administrators to illustrate monthly payments 
reflecting both a single life annuity and a QJSA, and to assume a 
participant's spouse is the same age as the participant. By requiring 
both illustrations, participants (whether married or not) can better 
understand how a survivor benefit, if they are married at retirement 
and choose an annuity, could impact the amount of the participant's 
(and spouse's) monthly lifetime payment. According to general data from 
the Census Bureau, most individuals are or will be married at some 
point in their lives.\9\ Hence, it is appropriate and helpful to show 
lifetime income amounts for both singles and couples, even if the 
participant does not have a spouse at the time of the benefit 
statement.
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    \9\ U.S. Bureau of the Census, Marital Status of People 15 Years 
And Over, By Age, Sex, and Personal Earnings: 2016 Table A1 (2016), 
(showing that in 2016, 5.2% of individuals age 65 and older had 
never married, and of all individuals over age 18 years of age, 28.7 
had not yet married) available at https://www.census.gov/data/tables/2016/demo/families/cps-2016.html.
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    For the QJSA illustration, paragraph (c)(2)(ii) of the IFR requires 
plan administrators to assume that the survivor annuity percentage is 
equal to 100% of the monthly payment that is payable during the joint 
lives of the participant and spouse. The SECURE Act did not prescribe 
the specific survivor annuity percentage to be used for illustrations 
under section 105 of ERISA or whether the benefit decreases only upon 
the participant's death (a contingent annuity) or upon the first death 
of either spouse (a survivor annuity). Instead, the SECURE Act directed 
the Department to make these decisions.
    The Department considered a contingent annuity percentage of 50 
percent, which is the lowest percentage permissible under ERISA section 
205(d). The Department decided against a 50 percent contingent annuity, 
in part, because commenters on the ANPRM indicated that this type of 
annuity may be uncommon in the commercial insurance market, even though 
a contingent annuity percentage of 50 percent is common for defined 
benefit plans. The Department has concerns with illustrating for 
participants an outcome that may be uncommon in the commercial 
marketplace. Furthermore, public commentary on the ANPRM implied that 
economies of scale for a two-person household do not necessarily 
decrease by exactly 50 percent when one person leaves the 
household.\10\ Rather, general notions of scale economies in 
consumption for couples suggest a more modest reduction of 
approximately 30 percent.\11\ The Department, accordingly, is persuaded 
that it may not be appropriate to assume that a worker has higher 
spending needs than a surviving spouse or that the spending needs of a 
surviving spouse are precisely half of the consumption needs of the 
couple in a two-person household.
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    \10\ See Mark J. Warshawsky, Illustrating Retirement Income for 
Defined Contribution Plan Participants: A Critical Analysis of the 
Department of Labor Proposal, Mercatus Center (Apr., 2015) 
(advocating for an illustration of a survivor annuity percentage of 
67 percent, also noting it is consistent with the spousal benefit 
rules of Social Security).
    \11\ Id.
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    The Department, however, has chosen to use an assumption with a 
survivor benefit of 100 percent, rather than a reduced percentage. By 
incorporating the most generous benefit for a surviving spouse, a 
participant's benefit statement will illustrate the largest difference 
between the monthly payment that would result from a single life 
annuity and that which would result from a QJSA. The Department 
believes there is a benefit to showing the participant these extremes 
because all other annuity options fall somewhere in between.\12\
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    \12\ The expenditures for a retired married couple that are 
attributable to each spouse can vary significantly. For example, one 
spouse may have significant health care and/or assisted living costs 
while the other spouse does not. In the case of such a couple, the 
ongoing expenditures for the survivor will be significantly 
different depending on which spouse dies first. The Department 
believes that any specific percentage the Department might choose 
for the survivor benefit disclosure will be optimal for some 
participants, but not appropriate for others. It would not be 
helpful to show participants a survivor benefit based on average 
need when their own needs may be significantly different than the 
average.

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[[Page 59135]]

(c) Interest Rate
    Paragraph (c)(3)(i) of the IFR contains the interest rate 
assumption that must be used in preparing lifetime income illustrations 
under the IFR's annuitization methodology. Plan administrators must 
assume a rate of interest equal to the 10-year constant maturity 
Treasury (CMT) securities yield rate for the first business day of the 
last month of the period to which the benefit statement relates. In 
response to the ANPRM, one commenter with members representing more 
than 90% of the assets and premiums in the U.S. life insurance and 
annuity industry stated that its members believe that the 10-year CMT 
rate best represents the interest rates that are reflected in the 
actual pricing of commercial annuities. In addition, the 10-year CMT 
rate is published daily for the public and is widely recognized by 
industry participants.\13\ The Department is of the view that it is 
helpful to participants to use a well-known market rate that 
approximates what it actually would cost them to buy a lifetime income 
stream on the open market.\14\ In this regard lifetime income 
illustrations based on a current market rate, such as the 10-year CMT 
rate, would be especially beneficial for participants and beneficiaries 
who are close to retirement, and less so for those farther from 
retiring.
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    \13\ See https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield.
    \14\ See section B(2)(e) of the preamble, below, for a 
discussion of insurance loads (and commenters' observation of the 
implicit load in using the 10-year CMT rate).
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    The Department solicits comments on whether the 10-year CMT rate 
assumption is the best interest rate assumption to use in this context, 
or whether a different interest rate or combination of rates should be 
used, and why. For example, should the Department consider using the 
``applicable interest rate'' under Internal Revenue Code (Code) section 
417(e)(3)(C)? \15\ Furthermore, since the 10-year CMT rate fluctuates 
on a daily basis, we are soliciting comments on whether plan 
administrators should use the rate as published on the last (as opposed 
to the first) business day of the last month of the period to which the 
benefit statement relates. The IFR selects the first business day of 
such month in order to provide plan administrators with ample time to 
prepare and distribute benefit statements. Using the rate on the last 
business day of such month, however, would align with the date used for 
the account balance, and may not impose an unreasonable burden as 
interest rates are readily accessible and may be available before asset 
valuations are prepared.
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    \15\ Code section 417(e)(3) generally provides that the present 
value of certain accelerated forms of benefit under a defined 
benefit plan (including single-sum distributions) must not be less 
than the present value of the accrued benefit calculated using 
applicable interest rates (under Code section 417(e)(3)(C)) and the 
applicable mortality table (under Code section 417(e)(3)(B)). The 
Department notes that one commenter on the ANPRM expressed concern 
that the Code section 417(e)(3)(C) rates do not approximate current 
annuity prices.
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(d) Mortality
    Paragraph (c)(3)(ii) of the IFR requires that plan administrators 
convert participants' account balances assuming mortality ``as 
reflected in the applicable mortality table under Code section 
417(e)(3)(B) in effect for the last month of the period to which the 
statement relates.'' Code section 417(e)(3)(B) provides a unisex 
mortality table that is created and published by the Internal Revenue 
Service (IRS).\16\ A number of commenters on the ANPRM, which proposed 
use of the Code section 417(e)(3)(B) mortality table as a mortality 
assumption, supported use of this unisex table, explaining that it is 
administratively simple and would eliminate plan administrators' need 
to know participants' genders. Plan administrators, or plan 
recordkeepers or third party administrators, according to commenters, 
do not always have records of participants' gender. Applying unisex 
mortality assumptions also aligns with the requirement that, when 
lifetime annuities are offered by ERISA plans, they must be priced on a 
gender-neutral basis.\17\ As a result, the lifetime income stream 
illustrations required by the IFR will be consistent with annuity 
options offered by plans.
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    \16\ See IRS Notices 2019-26 (2019-15 I.R.B 943) and 2019-67 
(2019-52 I.R.B 1510), which provide the static mortality tables that 
apply under Code section 417(e)(3) for distributions with annuity 
starting dates occurring during stability periods beginning in 2020 
and 2021, respectively.
    \17\ See Arizona Governing Comm. for Tax Deferred Annuity and 
Deferred Compensation Plans v. Norris, 463 U.S. 1073 (1983).
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    Other commenters offered different suggestions for how to factor 
participants' life expectancy into required lifetime income 
illustrations. Alternative recommendations included, for example, 
allowing plan administrators discretion to select reasonable mortality 
assumptions; if applicable, using the same mortality assumptions used 
for existing in-plan annuities; or requiring more conservative lifetime 
income illustrations (i.e., lower annuity payments) by adding a number 
of years (e.g., 5 or 10) to the Code section 417(e)(3)(B) mortality 
tables or mandating a specific end date, such as age 92 or 95. Some 
commenters questioned the use of a unisex methodology, such as in Code 
section 417(e)(3)(B), rather than gender-specific methodology. Their 
principal observation was that, although in-plan annuities must be 
priced on a gender-neutral basis, most plans do not actually offer 
annuities, and that gender-specific mortality assumptions would result 
in lifetime income streams that better reflect potential pricing in the 
commercial marketplace. Unisex tables result in illustrations with 
women's monthly payments being higher, and men's payments lower, than 
what individuals could actually purchase in the open market, all else 
equal, according to the commenters. Illustrations could have even wider 
variations when applied to same-sex spouses, some commenters noted.
    The Department is not persuaded to use a different mortality 
assumption than was proposed in the ANPRM. Accordingly, paragraph 
(c)(3)(ii) of the IFR requires use of Code section 417(e)(3)(B) 
mortality tables. First, these tables are periodically updated by the 
Treasury Department. Second, these tables are publicly available and 
widely known and used by retirement plan service providers--typically 
for defined benefit pension plans, but many service providers support 
both defined benefit and defined contribution retirement plans. Third, 
the Department, by requiring gender-neutral assumptions in the IFR, is 
matching what a plan would do if it offered its participants an 
annuity.
    Finally, to the extent plan administrators and their service 
providers do not have gender data for all plan participants, the use of 
unisex mortality tables reduces administrative burden for plan 
administrators who lack gender data while still using reasonable 
assumptions. For example, a gender-distinct approach would require that 
the plan administrator know a participant's gender. A gender-distinct 
approach also would require the plan administrator to know the marital 
status of the participant and the gender of the participant's spouse. 
Commenters on the ANPRM indicated that plans currently do not 
consistently collect

[[Page 59136]]

such information. Without these data points, a plan administrator would 
incur additional burdens to provide a gender-distinct illustration. A 
unisex approach to preparing lifetime income illustrations avoids these 
administrative complexities.
    The Department requests comments on the IFR's use of the Code 
section 417(e)(3)(B) mortality tables. Commenters that believe a 
different approach is preferable are encouraged to identify their 
preferred approach and provide their reasoning in support of their 
position. Commenters that prefer a gender-distinct approach are 
encouraged to identify a table or tables that could be used to promote 
national uniformity and to identify the most efficient way to address 
the data gaps identified above.
(e) Insurance Loads
    The IFR's required assumptions in paragraph (c) for converting 
participants' account balances into the required lifetime income 
streams do not include an ``insurance load.'' In this context, the term 
``insurance load'' describes the difference between the market price of 
lifetime income and the price of actuarially fair lifetime income. Put 
differently, a load factor refers to the extra amount that an insurance 
company may charge for a product given extra expenses and costs beyond 
the basic charges. An insurance load may include, for example, an 
allowance for an insurance company's profits, costs of insuring against 
systemic mortality risk, costs of holding cash reserves, advertising 
costs, the cost of anti-selection (if not accounted for in the 
mortality table), or other operating costs.
    Commenters on the ANPRM expressed different views on whether and 
how insurance loads should be factored into hypothetical lifetime 
income illustrations. Some commenters supported the concept of 
incorporating insurance loads to ensure a more realistic illustration. 
One commenter, in fact, explained that an insurance load already is 
effectively factored into the illustrations if plan administrators use 
the 10-year CMT rate, especially when the Code section 417(e)(3)(B) 
mortality tables also are used.\18\ Other commenters did not support 
the inclusion of insurance loads based their view on the fact that the 
overarching goal of providing lifetime income illustrations should be 
educational in nature. Although illustrations reasonably should reflect 
actual market conditions, according to these commenters, this goal can 
be achieved in large part based on illustrations that reflect the price 
of actuarially fair lifetime income, without requiring the use of 
insurance loads. Commenters also pointed to the variability in 
insurance loads across the wide spectrum of available products and 
issuers, arguing that it would be arbitrary and inappropriate for the 
Department to select a uniform pricing load for the illustrations 
required by the IFR. The Department is persuaded that the insurance 
load implicit in use of the 10-year CMT rate renders unnecessary any 
additional or different mandatory insurance load assumption in 
paragraph (c) of the IFR. Nonetheless, the Department requests comments 
on whether paragraph (c) of the final rule should require that 
insurance loads be factored differently into lifetime income stream 
illustrations. Commenters on this IFR that disagree with the 
Department's and commenters' analysis and that support the inclusion of 
an explicit insurance load, in addition to the effective load implied 
by other IFR assumptions, are encouraged to explain in detail how the 
IFR and its assumptions should or could be amended to reflect such a 
requirement.
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    \18\ One commenter on the ANPRM explained that the 10-year CMT 
rate is a reasonable approximation for a rate that insurers would 
offer to consumers, which reflects an estimated insurance load. 
Another commenter agreed that use of the 10-year CMT rate 
assumption, combined with the Code section 417(e)(3)(B) mortality 
assumptions, would result in reasonably conservative annuity payout 
rates, without necessitating an additional insurance load adjustment 
(which, if required, would result in annuity payout rates that are 
too low).
---------------------------------------------------------------------------

(f) Inflation Adjustment
    The IFR does not include an assumed adjustment to the required 
lifetime monthly payment illustrations for inflation. Consequently, the 
IFR requires a fixed nominal annuitized income stream. The Department 
understands that, even with a low inflation rate, the purchasing power 
of a fixed nominal income stream can easily be cut in half over the 
remaining lifespan of the typical retiree. Many commenters on the ANPRM 
made this very point, and suggested that the Department require plan 
administrators to illustrate an inflation-indexed income stream. On the 
other hand, many other commenters cautioned the Department against 
adopting complex methodologies for what should be a simple hypothetical 
illustration. These commenters asserted that many plan participants do 
not properly understand the concept of inflation, and that an 
inflation-adjusted income illustration (with a resulting lower starting 
income amount) would add unnecessary complexity and potentially confuse 
participants. Further, the lower starting income amount might 
discourage participants from saving, according to some commenters. 
Commenters did agree, however, that if the Department requires fixed 
nominal annuitized income streams, then the benefit statement should at 
least contain a clear disclosure to the effect that the purchasing 
power of such an income stream will decline over time. The Department 
chose this approach, and discusses below the explanation requirements 
about this declining purchase power, but solicits comments on whether 
the right balance has been achieved.
    Commenters are invited to address whether, in lieu of a fixed 
nominal annuitized income stream, the final rule should require an 
illustration of monthly payments that increase with inflation. This 
could be accomplished by substituting the 10-year Treasury Inflation-
Protected Securities (TIPS) rate for the 10-year CMT rate in paragraph 
(c)(3)(i) of the IFR, according to one analysis.\19\ The final rule 
also would need to add an explanation that the illustrated monthly 
payment amounts are not fixed and would increase annually to keep pace 
with inflation, as measured by the Consumer Price Index. Are there 
potential benefits of this approach? Are there potential drawbacks to 
this approach? For example, would this approach require the 
introduction of an ``insurance load'' to more accurately replicate 
annuity pricing in the open market? Would this approach conflict with 
other benefit statements ERISA participants might receive from other 
plans (such as former employers' plans that have in-plan fixed nominal 
annuities)? Although a goal is that the IFR requires illustrations that 
are educational, another goal is that illustrations be as realistic as 
possible and actionable by participants. The Department seeks to avoid 
mandating illustrations based on theories that cannot be replicated by 
products or services in the insurance marketplace, due to a lack of 
demand or otherwise. In this regard, comments and data are solicited on 
the state of the market for inflation-indexed annuities in the United 
States and whether the size and maturity of the market is relevant to 
this approach.
---------------------------------------------------------------------------

    \19\ See Warshawsky, supra note 10.
---------------------------------------------------------------------------

(g) Terms Certain or Other Features
    Section 203(b) of the SECURE Act gives the Department discretion to 
prescribe special rules and assumptions for lifetime income streams 
with ``a term certain or other features.'' A number of annuity features 
and products exist, the

[[Page 59137]]

treatment of which currently is not reflected in the IFR, for example 
guaranteed lifetime withdrawal benefits (GLWBs), also referred to as 
guaranteed minimum withdrawal benefits (GMWBs), terms certain, and 
other optional riders that may accompany annuities. The Department 
requested feedback from interested parties on the role of these 
features in lifetime income illustrations when it issued the ANPRM. 
Commenters on the ANPRM however, as a general matter, did not provide 
the Department with sufficiently detailed or consistent proposals on 
whether or how these features should be treated on pension benefit 
statements. Therefore, the Department requests comments in response to 
the IFR as to whether, and how, to incorporate such features into the 
IFR's framework for lifetime income illustrations. Commenters also are 
encouraged to provide data and observations about the prevalence of 
these and similar features in annuities purchased by retirement savers.

(3) Explanations for Lifetime Income Stream Illustrations

    To better assist participants in understanding the lifetime income 
illustrations required by the IFR and the SECURE Act, it is essential 
that pension benefit statements include brief, understandable 
explanations of the assumptions underlying the illustrations. 
Commenters on the 2010 RFI and the ANPRM agreed with the Department's 
view that information about the lifetime income illustrations should be 
disclosed to participants for multiple reasons, but primarily in order 
to clarify to participants that the projected monthly payments are not 
guarantees.
    Paragraph (d) of the IFR contains the various explanations that 
plan administrators must provide to participants, as well as model 
language that may be used to satisfy the explanations required in these 
paragraphs. The explanations themselves in paragraph (d) are required, 
but the model language is optional. Plan fiduciaries or other persons 
who wish to benefit from the liability relief provided in paragraph (f) 
of the IFR, however, must use the model language--either separately as 
presented in paragraph (d), or as set forth in the Model Benefit 
Statement Supplement that is attached as Appendix A to the IFR. 
Paragraph (d) contains eleven paragraphs, each of which is structured 
so that it includes the explanation requirements in paragraph (i) and 
the corresponding model language in paragraph (ii). This approach 
enables plan administrators to separately insert the model language 
from each of the eleven paragraphs into their existing pension benefit 
statements, if they choose to do so, without significantly disturbing 
the existing format and presentation of the statements. Plan 
administrators who alternatively prefer a consolidated approach to 
including the IFR's model language may instead insert into or attach 
the Model Benefit Statement Supplement to their pension benefit 
statements.
    Paragraph (d)(1) addresses the IFR's assumed annuity commencement 
date and age that plan administrators must use to prepare the required 
illustrations. Paragraph (d)(1)(i) requires ``[a]n explanation of the 
commencement date and age assumptions in paragraph (c)(1)'' of the IFR. 
This paragraph also provides model language that the plan administrator 
may use to satisfy the explanation requirements. Specifically, 
paragraph (d)(1)(ii) provides the following model language: ``The 
estimated monthly payments in this statement assume that payments begin 
[insert the last day of the statement period] and that you are [insert 
67 or current age if older], on this date. Monthly payments beginning 
at a younger age would be lower than shown since payments would be made 
over more years. Monthly payments beginning at an older age would be 
higher than shown since they would be made over fewer years.''
    Paragraph (d)(2) addresses the IFR's ``single life annuity'' 
illustration. Paragraph (d)(2)(i) requires ``[a]n explanation of a 
single life annuity.'' This paragraph also provides model language that 
the plan administrator may use to satisfy the explanation requirements. 
Specifically, paragraph (d)(2)(ii) provides the following model 
language: ``A single life annuity is an arrangement that pays you a 
fixed amount of money each month for the rest of your life. Following 
your death, no further payments would be made to your spouse or 
heirs.''
    Paragraph (d)(3) addresses the IFR's ``survivor annuity'' 
illustration. Paragraph (d)(3)(i) requires ``[a]n explanation of a 
qualified joint and 100% survivor annuity, the availability of other 
survivor percentage annuities, and the impact of choosing a lower 
survivor percentage.'' This paragraph also provides model language that 
the plan administrator may use to satisfy the explanation requirements. 
Specifically, paragraph (d)(3)(ii) provides the following model 
language: ``A qualified joint and 100% survivor annuity is an 
arrangement that pays you and your spouse a fixed monthly payment for 
the rest of your joint lives. In addition, after your death, this type 
of annuity would continue to provide the same fixed monthly payment to 
your surviving spouse for their life. An annuity with a lower survivor 
percentage may be available and reducing the survivor percentage (below 
100%) would increase monthly payments during your lifetime, but would 
decrease what your surviving spouse would receive after your death.''
    Paragraph (d)(4) addresses the IFR's assumed marital status of the 
participant. Paragraph (d)(4)(i) requires ``[a]n explanation of the 
marital status assumptions in paragraph (c)(2)'' of the IFR. This 
paragraph also provides model language that the plan administrator may 
use to satisfy the explanation requirements. Specifically, paragraph 
(d)(4)(ii) provides the following model language: ``The estimated 
monthly payments for a qualified joint and 100% survivor annuity in 
this statement assume that you are married with a spouse who is the 
same age as you (even if you do not currently have a spouse, or if you 
have a spouse that is a different age). If your spouse is younger, 
monthly payments would be lower than shown since they would be expected 
to be paid over more years. If your spouse is older, monthly payments 
would be higher than shown since they would be expected to be paid over 
fewer years.''
    Paragraph (d)(5) addresses the IFR's assumed interest rate. 
Paragraph (d)(5)(i) requires ``[a]n explanation of the interest rate 
assumptions in paragraph (c)(3)'' of the IFR. This paragraph also 
provides model language that the plan administrator may use to satisfy 
the explanation requirements. Specifically, paragraph (d)(5)(ii) 
provides the following model language: ``The estimated monthly payments 
in this statement are based on an interest rate of [insert rate], which 
is the 10-year constant maturity U.S. Treasury securities yield rate as 
of [insert date], as required by federal regulations. This rate 
fluctuates based on market conditions. The lower the interest rate, the 
smaller your monthly payment will be, and the higher the interest rate, 
the larger your monthly payment will be.''
    Paragraph (d)(6) addresses the IFR's mortality assumptions. 
Paragraph (d)(6)(i) requires ``[a]n explanation of the mortality 
assumptions in paragraph (c)(3) of this section'' of the IFR. This 
paragraph also provides model language that the plan administrator may 
use to satisfy the explanation requirements. Specifically, paragraph 
(d)(6)(ii) provides the following model language: ``The estimated 
monthly payments in this statement are based on how long you and a 
spouse who is assumed to be

[[Page 59138]]

your age are expected to live. For this purpose, federal regulations 
require that your life expectancy be estimated using mortality 
assumptions established by the Internal Revenue Service.''
    Paragraph (d)(7) requires plan administrators to caution 
participants that the lifetime income illustrations on their pension 
benefit statements are not guaranteed. Paragraph (d)(7)(i) requires 
``[a]n explanation that the monthly payment amounts required under 
paragraphs (b)(3) and (4) of [the IFR] are illustrations only.'' This 
paragraph also provides model language that the plan administrator may 
use to satisfy the explanation requirements. Specifically, paragraph 
(d)(7)(ii) provides the following model language: ``The estimated 
monthly payments in this statement are for illustrative purposes only; 
they are not a guarantee.''
    Paragraph (d)(8) requires plan administrators to advise 
participants that a variety of factors could cause the participant's 
actual monthly income, based on their current account balance, to be 
different than what is illustrated. Paragraph (d)(8)(i) requires ``[a]n 
explanation that the actual monthly payments that may be purchased with 
the amount specified in paragraph (b)(2) of [the IFR] will depend on 
numerous factors and may vary substantially from the illustrations 
under this section.'' This paragraph also provides model language that 
the plan administrator may use to satisfy the explanation requirements. 
Specifically, paragraph (d)(8)(ii) provides the following model 
language: ``The estimated monthly payments in this statement are based 
on prevailing market conditions and other assumptions required under 
federal regulations. If you decide to purchase an annuity, the actual 
payments you receive will depend on a number of factors and may vary 
substantially from the estimated monthly payments in this statement. 
For example, your actual age at retirement, your actual account balance 
(reflecting future investment gains and losses, contributions, 
distributions, and fees), and the market conditions at the time of 
purchase will affect your actual payment amounts. The estimated monthly 
payments in this statement are the same whether you are male or female. 
This is required for annuities payable from an employer's plan. 
However, the same amount paid for an annuity available outside of an 
employer's plan may provide a larger monthly payment for males than for 
females since females are expected to live longer.''
    Paragraph (d)(9) requires plan administrators to explain that 
monthly payment amounts will not be adjusted for inflation. Paragraph 
(d)(9)(i) requires ``[a]n explanation that the monthly payment amounts 
required under paragraphs (b)(3) and (4) of [the IFR] are fixed amounts 
that would not increase for inflation.'' This paragraph also provides 
model language that the plan administrator may use to satisfy the 
explanation requirements. Specifically, paragraph (d)(9)(ii) provides 
the following model language: ``Unlike Social Security payments, the 
amounts shown in this statement do not increase each year with a cost-
of-living adjustment. Therefore, as prices increase over time, the 
fixed monthly payment will buy fewer goods and services.''
    Paragraph (d)(10) requires plan administrators to explain that the 
monthly income illustrations assume that participants are 100% vested 
in their accounts. Paragraph (d)(10)(i) requires ``[a]n explanation 
that the monthly payment amounts required under paragraphs (b)(3) and 
(4) of [the IFR] are based on total benefits accrued, regardless of 
whether such benefits are nonforfeitable.'' This paragraph also 
provides model language that the plan administrator may use to satisfy 
the explanation requirements. Specifically, paragraph (d)(10)(ii) 
provides the following model language: ``The estimated monthly payment 
amounts in this statement assume that your account balance is 100% 
vested.''
    Finally, paragraph (d)(11) requires plan administrators to explain 
that the income illustrations assume, for participants who have taken 
plan loans and are not in default on such loans, that the loan is fully 
repaid by the time the participant retires. Paragraph (d)(11)(i) 
requires ``[a]n explanation that the account balance includes the 
outstanding balance of any participant loan, unless the participant is 
in default of repayment on such loan.'' This paragraph also provides 
model language that the plan administrator may use to satisfy the 
explanation requirements. Specifically, paragraph (d)(11)(ii) provides 
the following model language: ``If you have taken a loan from the plan 
and are not in default on the loan, the estimated monthly payments in 
this statement assume that the loan has been fully repaid.'' Plan 
administrators are not required to include the explanation in paragraph 
(d)(11)(i) for a plan that does not have a participant loan program.
    The Department is interested in comments on both the substance of 
what plan administrators must explain to participants and the model 
language developed by the Department to implement the explanation 
requirements. Is the model language in paragraph (d) ``written in a 
manner calculated to be understood by the average plan participant,'' 
as is required for information disclosed to participants? Are there 
additional or different formatting or presentation techniques relevant 
to this inquiry that the Department should have considered or included 
in the IFR? For example, does the Model Benefit Statement Supplement, 
attached as Appendix A to the IFR, work well for plan administrators as 
a unified insert into benefit statements? Alternatively, do commenters 
believe it is preferable to use the separate model language for each 
explanation requirement, in paragraph (d), which may provide additional 
flexibility to plan administrators as to how they incorporate the 
required information into existing pension benefit statements?

(4) Special Rules for In-Plan Annuities

    Section 105(a)(2)(D)(iii) of ERISA, states that ``to the extent 
that an accrued benefit is or may be invested in a lifetime income 
stream described in clause (i)(III), the assumptions described under 
subclause (I) shall, to the extent appropriate, permit plan 
administrators of individual account plans to use the amounts payable 
under such lifetime income streams as a lifetime income stream 
equivalent.'' Pursuant to this provision, the IFR contains special 
rules for plans that offer distribution annuities, deferred annuities, 
or both. The special rules are described below.
(a) Plans With Distribution Annuities
    Many defined contribution plans provide for distribution annuities 
so that participants may elect to receive their retirement benefits in 
periodic payments over the course of their lives, instead of as a lump 
sum payment. Paragraph (e)(1) of the IFR provides a special rule for 
plan administrators of plans that offer such annuities through a 
contract with a licensed insurance company. The special rule, if 
applicable, allows plan administrators to base the two mandatory 
lifetime income illustrations on the terms of the insurance contract, 
instead of on the otherwise mandatory assumptions set forth in 
paragraph (c) of the IFR. The special rule, thus, provides for 
illustrations based on annuities that participants may actually elect, 
instead of hypothetical illustrations otherwise required by the IFR. 
The special rule is optional. Plan administrators may elect to provide 
illustrations under this special rule or use the standard assumptions 
in paragraph (c) of the IFR.

[[Page 59139]]

A plan administrator is eligible for the relief under paragraph (f) of 
the IFR under either approach. Paragraph (e)(1) is adopted pursuant to 
section 105(a)(2)(D)(iii) of ERISA, which in relevant part states that 
``[t]o the extent that an accrued benefit is or may be invested in a 
lifetime income stream,'' the IFR ``shall, to the extent appropriate, 
permit administrators of individual account plans to use the amounts 
payable under such lifetime income stream as a lifetime income stream 
equivalent.''
    While paragraph (e)(1) permits plan administrators to substitute 
actual contract terms for assumptions in paragraph (c) of this IFR, it 
contains certain limitations. Illustrations under paragraph (e)(1) 
still must show two lifetime income streams--a single life annuity and 
qualified joint and survivor annuity. These illustrations also still 
must assume the first payment is made on the last day of the statement 
period, that the participant is age 67 (unless older) on such date, and 
has a spouse the same age. Beyond these limitations, however, the 
illustrations under this special rule may be based on the actual 
contract terms. For example, the illustrations would use the interest 
rate assumptions under the contract, rather than the 10-year CMT rate. 
In addition, illustrations also would use the unisex mortality 
experience as provided for under the contract (for example, the 
insurance company's tables), rather than mortality as reflected in the 
mortality tables under Code section 417(e)(3)(B). Illustrations also 
may reflect the survivor's benefit percentage specified in the 
contract, if less than 100%.
    As with lifetime income illustrations based on the Department's 
required assumptions in paragraph (c) of the IFR, it is critical that 
illustrations provided pursuant to paragraph (e)(1) also are 
accompanied by clear and understandable explanations of the assumptions 
underlying the illustrations. For example, it is essential that 
participants understand the projected monthly payments are not 
guaranteed, and that there are a number of variables that impact the 
projected payments--variables that may change over time. Paragraph 
(e)(1)(iii) of the IFR contains the explanations that plan 
administrators must provide to participants, as well as model language 
that may be used to satisfy the explanation requirements. Consistent 
with paragraph (d) of the IFR, the explanations in paragraph 
(e)(1)(iii) are required, but the model language is optional, unless a 
plan fiduciary or other person wishes to benefit from the liability 
relief provided in paragraph (f) of the IFR, in which case the model 
language is mandatory. The model language may be incorporated 
separately, as presented in paragraph (e)(1)(iii), into existing 
pension benefit statements, or in the consolidated format set forth in 
the Model Benefit Statement Supplement that is attached as Appendix B 
to the IFR. Also consistent with paragraph (d) of the IFR, paragraph 
(e)(1)(iii) contains eleven paragraphs, each of which is structured so 
that it includes the explanation requirement in paragraph (1) and the 
corresponding model language in paragraph (2).
    The explanations and model language in paragraph (e)(1)(iii) are 
modeled on those in paragraph (d) of the IFR, with modifications 
necessary to accommodate potential variations in assumptions as a 
result of applicable contract terms. For example, the Department 
revised the explanations in paragraph (e)(1)(iii) to reflect the fact 
that a particular contract may offer a qualified joint and survivor 
annuity with a different survivor benefit percentage, such as 50% or 
75%, price annuities based on different interest rate or mortality 
assumptions than those required in paragraph (c)(3) of the IFR, or 
provide for inflation or other adjustments to monthly payments over 
time. The Department is interested in comments on the modified 
explanations and model language in paragraph (e)(1)(iii), the Model 
Benefit Statement Supplement attached as Appendix B, as well as input 
on formatting or presentation techniques as discussed above, with 
respect to the explanations in paragraph (d) of the IFR.
(b) Plans With Participants That Purchased Deferred Annuities
    In addition, or as an alternative, to distribution annuities, some 
plans offer participants the ability to purchase deferred income 
annuities (DIAs) during the accumulation phase. DIAs allow participants 
to purchase, or to make ongoing contributions toward the current 
purchase of, a future stream of retirement income payments that is 
provided by an insurance company. Although the purchase occurs during 
the accumulation phase, the payments themselves are deferred to a 
selected retirement age (or even later in the case of certain DIAs, 
such as qualifying longevity annuity contracts (QLACs)). Within any 
particular plan offering a DIA, some participants may choose to 
purchase deferred income and others may not. Each purchase reflects the 
interest rate environment and the participant's age at the time of the 
purchase. Participants' ownership interests in DIAs often can be 
converted to a lump sum cash amount, but not always.
    Paragraph (e)(2) of the IFR addresses how plan administrators must 
disclose on benefit statements the portion, if any, of a participant's 
accrued benefit that has been used to purchase a DIA. For any portion 
of a participant's accrued benefit that has been used to purchase a 
DIA, paragraph (e)(2)(i) of the IFR directs the plan administrator to 
ignore the otherwise applicable assumptions and disclosure requirements 
in paragraphs (c) and (d) of the IFR, and to instead disclose the 
amounts payable under the DIA in accordance with requirements in 
paragraph (e)(2)(ii) of the IFR. For any portion of the participant's 
accrued benefit that has not been used to purchase a DIA, however, the 
plan administrator must use the generally applicable disclosure 
requirements in paragraphs (c) and (d), or paragraph (e)(1) if 
applicable, of the IFR.
    Paragraph (e)(2)(ii) of the IFR sets forth the information that 
must be disclosed with respect to the portion of the participant's 
accrued benefit that purchased the DIA. First, paragraph (e)(2)(ii)(A) 
requires disclosure of the date payments are scheduled to commence and 
the participant's age on such date. The Department understands that 
participants select the age at which payments will commence when they 
purchase a DIA. The plan administrator also must disclose, under 
paragraph (e)(2)(ii)(B), the frequency and amount of deferred income 
stream payments under the contract as of the commencement date, in 
current dollars; and, under paragraph (e)(2)(ii)(C), a description of 
any survivor benefit, period certain commitment, or similar feature. 
The final disclosure requirement, in paragraph (e)(2)(ii)(D), is a 
statement as to whether the deferred income stream payments are fixed 
or will adjust with inflation or in some other way during retirement, 
and a general explanation of how any such adjustment is determined.
    To align with the special treatment provided for DIAs by paragraph 
(e)(2) of the IFR, paragraph (b)(2) of the IFR provides that the value 
of a DIA is excluded from the participant's account balance. This is to 
avoid confusion or double counting the value of the DIA. The Department 
solicits comments on this special rule.

(5) Model Disclosure

    The SECURE Act requires that the Department issue a model lifetime 
income disclosure, written in a manner so as to be understood by the 
average

[[Page 59140]]

plan participant. The statute provides that the model income disclosure 
must explain a variety of topics, including the assumptions on which 
the lifetime income stream was determined and any other matters 
considered to be appropriate by the Department.
    The IFR satisfies this requirement in two ways. First, as described 
in detail above, paragraph (d) of the IFR contains eleven brief model 
language inserts. Plan administrators may use these inserts to satisfy 
the general content requirements in paragraph (d) of the final rule, as 
well as to qualify for the liability relief in paragraph (f) of the 
IFR. Plan administrators may integrate these inserts into their 
existing pension benefit statements in any manner or format determined 
to be appropriate by the plan administrators. This flexibility is 
limited only by the general requirement in paragraph (a) of the IFR 
that the integrated benefit statement must be written in a manner 
calculated to be understood by the average plan participant.
    Second, in contrast to the eleven brief inserts in paragraph (d), 
the Department included, as an Appendix to the IFR, a full model 
disclosure that may be used to satisfy the requirements in paragraph 
(d) of the IFR. This full model disclosure includes all of the 
substance of the eleven inserts collectively, but is formatted as a 
single document to supplement or append to an existing benefit 
statement, rather than being integrated into the statement. Like the 
eleven brief inserts, this full model disclosure, entitled Model 
Benefit Statement Supplement, can be used by plan administrators to 
satisfy paragraph (d) of the IFR and to qualify for the liability 
limitation in paragraph (f).
    The IFR takes a similar approach for plans that use the special 
rule in paragraph (e)(1) of the IFR. Paragraphs (e)(1)(iii)(A) through 
(K) set forth both the required contents and brief model language 
inserts that may be used to satisfy these requirements. Alternatively, 
Appendix B to the IFR contains a full model disclosure document that 
also may be used to satisfy the content requirements.
    The IFR does not, however, provide plan administrators with model 
disclosure language to use for benefit statements with respect to DIAs 
as provided for under paragraph (e)(2) of the IFR.\20\ This is because 
the statutory directive in section 203(b) of the SECURE Act, by its 
very text, is limited to lifetime income stream equivalents based on 
hypothetical assumptions. This makes the content requirements of that 
section wholly incompatible with DIAs which, of course, provide 
participants with specified monthly payments based on real factors and 
enforceable contracts. For example, section 203(b) of the SECURE Act 
requires model disclosure language to state ``that the lifetime income 
stream equivalent is only provided as an illustration'' and that ``the 
actual payments under the lifetime income stream . . . which may be 
purchased with the total benefits accrued will depend on numerous 
factors and may vary substantially from the lifetime income stream 
equivalents'' that are disclosed. These statements simply are not 
correct descriptions of deferred income streams, which already have 
been purchased, and for which actual (not illustrated or estimated) 
payments can be disclosed. The deferred income stream payments will not 
vary from the dollar amount illustrated on a participant's benefit 
statement based on numerous assumed factors. Rather, the amount of the 
future payments (or the formula for the payments) was determined at the 
time the deferred annuity was purchased and can be disclosed in actual 
dollars. The rest of the model language required by section 203(b) of 
the SECURE Act similarly contemplates annuity payment estimates and 
hypotheticals, not actual annuity payments purchased by the 
participant.
---------------------------------------------------------------------------

    \20\ As a result, and as discussed further below in section B(6) 
of this preamble, Limitation on Liability, plan administrators and 
other parties will not be able to avail themselves of the liability 
relief provided in paragraph (f) of the IFR. The SECURE Act amended 
ERISA to provide such relief when both specified annuity assumptions 
and model language provided by the Department are used; neither 
applies with respect to disclosure concerning deferred income 
streams.
---------------------------------------------------------------------------

(6) Limitation on Liability

    Paragraph (f) of the IFR provides that no plan fiduciary, plan 
sponsor, or other person shall have any liability under Title I of the 
ERISA solely by reason of providing the lifetime income stream 
equivalents described in paragraphs (b)(3) and (4) of the rule. To 
qualify for this limitation on liability, paragraph (f)(1) requires 
that such equivalents be derived in accordance with the assumptions in 
paragraph (c) or (e)(1)(i) of the IFR. In addition, paragraph (f)(2) 
requires that benefit statements include language substantially similar 
in all material respects to either the model language in paragraphs 
(d)(1)(ii) through (d)(11)(ii) of the IFR, or the Model Benefit 
Statement Supplement in Appendix A of the IFR. Alternatively, if a plan 
administrator elects to use certain contract assumptions instead of the 
assumptions in paragraph (c) of the IFR, benefit statements must 
include language substantially similar in all material respects to 
either the model language in paragraphs (e)(1)(iii)(A)(2) through 
(e)(1)(iii)(K)(2) or the Model Benefit Statement Supplement in Appendix 
B of the IFR. Thus, although use of the model language is required for 
the relief from liability in paragraph (f), plan administrators will 
have flexibility under the IFR as to how they incorporate the model 
language. And although the IFR only requires that plan administrators 
furnish the illustrations in paragraphs (b)(3) and (4) at least 
annually, plan administrators may rely on paragraph (f) for liability 
relief with respect to more frequent illustrations. For example, the 
administrator of a participant-directed individual account plan may 
choose to provide lifetime income illustrations for each quarterly 
benefit statement. In that case, to the extent the plan administrator 
includes illustrations as described in paragraphs (b)(3) and (4) and 
satisfies the conditions of paragraph (f), the plan administrator will 
be eligible for liability relief for such quarterly lifetime income 
illustrations.
    Liability relief under the IFR is available so long as plan 
administrators use the Department's model language or language that is 
``substantially similar in all material respects'' to the Department's 
model language. Word-for-word adoption of the model language is not 
required, and plan administrators can make minor, non-substantive 
changes to the IFR's model language or format in their plans' benefit 
statements without losing relief from liability. Any such changes may 
not, individually or in combination, affect the substance, clarity, or 
meaning of the model language; otherwise relief from liability will not 
be available under paragraph (f) of the IFR. For example, plan 
administrators may not deviate from any of the IFR's required 
assumptions (e.g., required commencement date, age, rate of interest, 
mortality). The ``substantially similar'' standard in the IFR is 
intended only to provide flexibility to plan administrators to make 
minimal and substantively immaterial modifications. A plan 
administrator could, for example, refer to ``your statement'' instead 
of ``this statement;'' add a reference to the plan by name (e.g., ``the 
COMPANY XYZ Profit Sharing Plan''); use the name of the employer or 
plan administrator instead of ``we;'' choose to say if ``your spouse 
predeceases you'' instead of if ``your spouse dies first;'' or describe 
a single life annuity as a ``payment form''

[[Page 59141]]

rather than an ``arrangement.'' Modifications of this scale would not 
render relief from liability under the IFR unavailable to a plan 
administrator.
    Paragraph (f) addresses longstanding concerns of employers, plan 
sponsors, plan administrators and other plan fiduciaries, and plan 
service providers, that lifetime income illustrations could expose them 
to unwanted litigation from participants, for example because of unmet 
expectations. If participants, during their working years, mistakenly 
believe that the lifetime income illustrations on their pension benefit 
statements are promises or guarantees of a specific income stream, they 
might sue if their actual account balances at retirement do not 
generate an income stream equal to or greater than the stream depicted 
in past benefit statement illustrations. Another concern of these 
parties is that illustrations could be viewed as a type of investment 
advice, for example, suggesting that participants choose investment 
options that contain or are offered through an annuity contract. 
Paragraph (f) of the IFR resolves these concerns by providing that no 
plan fiduciary, plan sponsor, or other person shall have any liability 
under Title I of the ERISA solely by reason of providing the lifetime 
income stream equivalents described in paragraphs (b)(3) and (4) of the 
rule.
    Paragraph (f), however, is not available to plan administrators or 
other parties who must disclose information about deferred income 
streams under paragraph (e)(2) of the IFR. As a technical matter, the 
disclosure of this information does not qualify for relief, because the 
information is neither derived in accordance with the Department's 
prescribed assumptions in paragraph (c) of the IFR, nor disclosed using 
model language provided by the Department--each of which is a condition 
in section 203 of the SECURE Act for liability relief. As discussed 
above, in section B(4) of the preamble, Special rules for in-plan 
annuities, the contract-specific nature of payments that a participant 
will receive based on their purchase of deferred income streams is 
fundamentally different from the estimated illustrations of lifetime 
income that must be disclosed under paragraphs (b)(3) and (4) of the 
rule. And as a practical matter, disclosure about specific, actual 
payments that will be made to a participant in the future based on a 
prior purchase according to real contract terms does not present the 
same concerns that exist when plan administrators disclose projected, 
hypothetical lifetime income illustrations based on a number of assumed 
factors. There is no similar concern about litigation risk based on a 
participant's unmet expectations regarding the lifetime income that can 
actually be obtained when they retire--the payment amounts disclosed 
under paragraph (e)(2) of the IFR are facts. Disclosure of these 
deferred payments also is not likely to be misconstrued as investment 
advice--the participant already has purchased the ``investment'' by 
contributing to the deferred annuity. Accordingly, although the 
limitation on liability in paragraph (f) is not available for plan 
administrators or other parties disclosing deferred income stream 
payments under paragraph (e)(2) of the IFR, the Department does not 
believe such relief is necessary or that these parties will be subject 
to the type of litigation and other potential liability risks that may 
exist when estimating a participant's future lifetime income.
    Paragraph (f) also does not apply to any additional illustrations 
as permitted in paragraph (g) of the IFR. Paragraph (g) clarifies that 
plan administrators are not prohibited from including lifetime income 
stream illustrations on or as part of benefit statements in addition to 
the illustrations mandated by the rule. Commenters on the ANPRM and the 
2010 RFI made it very clear that many plans already provide 
illustrations and have done so for decades, including through the use 
of continuous access websites and other similar technologies. Many of 
these illustrations are interactive, stochastic, and tailored to the 
individual plan and plan participant. According to the commenters, 
these highly adaptive, highly personal, sophisticated illustrations 
are, in many respects, superior for financial and retirement planning 
purposes to a one-size-fits-all, deterministic model like that in the 
IFR. The Department does not want to undermine these best practices or 
inhibit innovation in this area. The Department encourages the 
continuation of these practices. At the same time, the Department is 
unable to extend the relief in paragraph (f) of the IFR to all of these 
practices. Comments, however, are solicited on whether the Department, 
either separately or in conjunction with the adoption of a final rule, 
should issue guidance clarifying the circumstances under which the 
provision of additional illustrations described in this paragraph may 
constitute the rendering of ``investment advice'' or may, instead, 
constitute the rendering of ``investment education'' under ERISA. Such 
guidance could assist plan sponsors, service providers, participants, 
and beneficiaries in ensuring that activities designed to educate and 
assist participants and beneficiaries in making informed decisions do 
not cause persons engaged in such activities to become fiduciaries with 
respect to a plan by virtue of providing ``investment advice'' to plan 
participants and beneficiaries for a fee or other compensation.

(7) Interim Final Rule Comments; Dates

(a) Justification for Interim Final Rule; Comments
    The Department is publishing this IFR in response to Congress's 
explicit direction in the SECURE Act, to publish an interim final rule 
within one year, as discussed above in the Background section of this 
preamble. In formulating this IFR, the Department has reviewed the 
extensive public record relating to lifetime income illustrations, 
including hundreds of comments on the 2010 RFI and the ANPRM as well as 
a public hearing on this initiative. In view of the importance of this 
initiative and Congress's explicit direction to publish an IFR within 
one year of the SECURE Act's enactment, the Department is publishing 
this interim final rule. Additionally, the Department for good cause 
finds that the congressional mandate to publish an interim final rule 
within one year, combined with the regulated community's need for 
regulatory guidance and the Department's intention to publish a final 
rule after receiving comments, make pre-IFR notice and public comment 
procedures impracticable, unnecessary, or contrary to the public 
interest in this instance. The Department invites comments from 
interested persons on all aspects of the IFR, in accordance with the 
instructions and timeline for submitting comments described above in 
the Addresses section. The Department's intention is to adopt a final 
rule prior to the effective date after consideration of public comment, 
with an adoption date sufficiently in advance of the effective date in 
order to minimize compliance burdens.
(b) Dates
    Paragraph (i) provides the effective date and applicable date for 
this IFR. ERISA section 105(a)(2)(D)(v), in relevant part, states that 
the requirements of section 105(a)(2)(B)(iii) for individual account 
plans to provide the lifetime income disclosure ``shall apply to 
pension benefit statements furnished more than 12 months after the 
latest of the issuance by the Secretary of'' the interim final rules, 
the model disclosure, or the assumptions

[[Page 59142]]

prescribed by the Secretary. The IFR published today satisfies the 
three requirements of section 105(a)(2)(D)(v) and is effective on 
September 18, 2021 and applies to pension benefit statements furnished 
after such date. Thus, plans are not required to comply with the IFR 
until this date.

C. Regulatory Impact Analysis

    The SECURE Act aims to increase access to workplace retirement 
plans and generally to expand opportunities to save for retirement. As 
discussed above in the Background section of the preamble, section 203 
of the SECURE Act amends section 105(a) of ERISA to require that 
pension plan administrators, at least annually, provide benefit 
statements illustrating participants' accrued benefits as two lifetime 
income stream illustrations: (1) A qualified joint and survivor annuity 
and (2) a single life annuity. The SECURE Act also directs the 
Department to prescribe assumptions and model language for plan 
administrators to use when producing and furnishing these 
illustrations. The SECURE Act provides that no plan fiduciary, plan 
sponsor, or other person shall have any liability under title I of 
ERISA solely by reason of the provision of lifetime income 
illustrations derived in accordance with the IFR's assumptions and 
which use the model language contained in the IFR. The IFR published 
today is consistent with the SECURE Act amendments to ERISA section 105 
and the Department's prior work on issues related to lifetime income 
illustrations in defined contribution plans.
    The Department has examined the effects of the IFR as required by 
Executive Order 12866,\21\ Executive Order 13563,\22\ the Congressional 
Review Act,\23\ Executive Order 13771,\24\ the Paperwork Reduction Act 
of 1995,\25\ the Regulatory Flexibility Act,\26\ section 202 of the 
Unfunded Mandates Reform Act of 1995,\27\ and Executive Order 
13132.\28\
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    \21\ Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).
    \22\ Improving Regulation and Regulatory Review, 76 FR 3821 
(Jan. 18, 2011).
    \23\ 5 U.S.C. 801 et seq.
    \24\ Reducing Regulation and Controlling Regulatory Costs, 82 FR 
9339 (Jan. 30, 2017).
    \25\ 44 U.S.C. 3506(c)(2)(A).
    \26\ 5 U.S.C. 601 et seq.
    \27\ 2 U.S.C. 1501 et seq.
    \28\ Federalism, 64 FR 153 (Aug. 4, 1999).
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(1) Executive Orders 12866 and 13563 and the Congressional Review Act

    Under Executive Order (E.O.) 12866, the Office of Management and 
Budget (OMB)'s Office of Information and Regulatory Affairs (OIRA) 
determines whether a regulatory action is significant and, therefore, 
subject to the requirements of the E.O. and OMB review. Section 3(f) of 
E.O. 12866 defines a ``significant regulatory action'' as an action 
that is likely to result in a rule that (1) has an annual effect on the 
economy of $100 million or more, or adversely affects in a material way 
a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local or tribal 
governments or communities (also referred to as economically 
significant); (2) creates serious inconsistency or otherwise interferes 
with an action taken or planned by another agency; (3) materially 
alters the budgetary impacts of entitlement grants, user fees, or loan 
programs, or the rights and obligations of recipients thereof; or (4) 
raises novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the E.O. The 
Office of Information and Regulatory Affairs has determined that this 
IFR is economically significant under section 3(f)(1) of E.O. 12866. 
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), OIRA 
has designated this rule as a ``major rule,'' as defined by 5 U.S.C. 
804(2).
    E.O. 13563 directs agencies to propose or adopt a regulation only 
upon a reasoned determination that its benefits justify its costs; the 
regulation is tailored to impose the least burden on society, 
consistent with achieving the regulatory objectives; and in choosing 
among alternative regulatory approaches, the agency has selected those 
approaches that maximize net benefits. E.O. 13563 recognizes that some 
benefits are difficult to quantify, and provides that, when appropriate 
and permitted by law, agencies may consider and discuss qualitatively 
values that are difficult or impossible to quantify, including equity, 
human dignity, fairness, and distributive impacts.

(2) Introduction and Need for Regulation

    As discussed above, section 203 of the SECURE Act amends section 
105(a) of ERISA to require, in relevant part, that pension plan 
administrators provide, at least annually, benefit statements 
illustrating participant's accrued benefit as two lifetime income 
stream equivalents. The IFR implements this section of the SECURE Act 
by establishing content, assumptions, and model language for the 
illustrations.
    Workers today are required to take a more active role in managing 
their retirement assets, both while employed and during their 
retirement years. This increased responsibility is primarily a result 
of the general shift from defined benefit pension plans to defined 
contribution plans.\29\ In 1975, defined contribution plan participants 
accounted for 26 percent of pension plan participants. This share 
increased to 75 percent in 2017.\30\ Moreover, in 2017, 84 percent of 
active defined contribution plan participants were participants in 
401(k) plans, and 98 percent of these 401(k) plan participants were 
responsible for directing some or all of their account investments.\31\
---------------------------------------------------------------------------

    \29\ The number of private defined benefit plans fell from more 
than 103,000 in 1975 to fewer than 47,000 in 2017 (a drop of almost 
55 percent in the last 42 years). The number of private defined 
contribution plans grew from just under 208,000 in 1975 to nearly 
633,000 in 2017 (an increase of nearly 205 percent for the same time 
period). See Private Pension Plan Bulletin Historical Tables and 
Graphs 1975-2017, Employee Benefits Security Administration, (Sep. 
2019), at 1, https://www.dol.gov/sites/dolgov/files/ebsa/researchers/statistics/retirement-bulletins/private-pension-plan-bulletin-historical-tables-and-graphs.pdf.
    \30\ Id., at 5.
    \31\ Id., at 9, 25, 32. Please note that the number of active 
participants in 1975 and 2017 are not directly comparable because of 
adjustments in the definition of a participant. This adjustment is 
detailed in the appendices of the cited source.
---------------------------------------------------------------------------

    Employers and unions sponsoring private defined benefit plans make 
contributions to fund promised benefits, and manage plan assets as 
ERISA fiduciaries. In addition, defined benefit plans are generally 
required to make annuities available at retirement, which provides 
protection against longevity risk (outliving one's retirement assets). 
In contrast to defined benefit plan participants, defined contribution 
plan participants bear significantly more investment risk. Employers 
make no promises with respect to the adequacy of a participant's final 
account balance nor the income stream that the balance will generate. 
Generally, defined contribution plans are not required to make 
annuities available to participants at retirement, and typically 
participants must determine the amounts and timing of withdrawals of 
their account balances from such plans. Consequently, defined 
contribution plan participants must ensure that their savings are 
adequate to protect them against longevity risk.
    Evidence suggests that defined contribution plan participants have 
found it difficult to plan for retirement and manage their retirement 
assets.\32\ For example, 80 percent of retirees say they do not have a 
formal retirement

[[Page 59143]]

income plan.\33\ Most investors planning for retirement do not know how 
much they need to save to maintain their current standard of living in 
retirement, or how to calculate that amount.\34\
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    \32\ See Angela Hung, Jeremy Burke, Lauren Mayer, and Noreen 
Clancy, ``Retirement Benefit Statements: Focus Group, Survey, and 
Experimental Evidence,'' RAND Research Report, RR-1072, (Jan. 2015).
    \33\ The Differences They Make, LIMRA (2017).
    \34\ See Julie R. Agnew & Lisa R. Szykman, ``Asset Allocation 
and Information Overload: The Influence of Information Display, 
Asset Choice and Investor Experience,'' The Journal of Behavioral 
Finance, vol. 6, no. 2 (2005), at 57-70.
---------------------------------------------------------------------------

    The replacement rate, the ratio of post-retirement income to pre-
retirement income, is one indicator of retirement income adequacy. A 
replacement rate of 75 percent is often cited as an illustrative 
target. Recent studies indicate that a significant portion of the 
participant population is not meeting this target, and younger 
participants (those more likely to participate in a defined 
contribution plan) are having more trouble meeting it than their older 
counterparts (those more likely to participate in a defined benefit 
plan).
    The Center for Retirement Research at Boston College estimates that 
between 42 and 60 percent of households are at risk of having 
inadequate retirement savings.\35\ A separate study projects that when 
individuals born between 1976 and 1985 reach age 70, 40 percent will be 
unable to replace 75 percent of their pre-retirement earnings.\36\ 
Comparatively, 32 percent of the cohort born between 1936 and 1945, and 
30 percent of the cohort born between 1956 and 1965, are projected to 
fall short of the 75 percent replacement rate at age 70.\37\ Further, a 
study conducted by the National Bureau of Economic Research found that 
while the replacement rate has not worsened over time for households at 
or above median income levels, it has been falling for households with 
below-median income levels.\38\
---------------------------------------------------------------------------

    \35\ See Anqi Chen, Alicia H. Munnell, & Geoffrey T. 
Sanzenbacher, ``How Much Income Do Retirees Actually Have? 
Evaluating the Evidence from Five National Datasets,'' Center for 
Retirement Research at Boston College, working paper 2018-14, (Nov. 
2018).
    \36\ See Richard W. Johnson, Karen E. Smith, Damir Cosic, & 
Claire Xiaozhi Wange, ``Retirement Prospects for the Millennials: 
What is the Early Prognosis?'' Center for Retirement Research at 
Boston College, working paper 2017-17, (Nov. 2017).
    \37\ Id.
    \38\ See John Beshears, James J. Choi, David Laibson, & Shanthi 
Ramnath, ``Trends in Retirement Income Adequacy: Evidence from IRS 
Tax Data,'' presented at 21st Annual Social Security Administration 
Research Consortium Meeting, National Press Club (Aug. 1, 2019).
---------------------------------------------------------------------------

    Planning for retirement requires investors to determine how much to 
contribute to their plans, which generally entails a basic command of 
financial and investment concepts, such as portfolio allocation and 
risk tolerance. These concepts are complex and many participants do not 
have the financial expertise necessary to make effective investment 
decisions and successfully plan for retirement. A recent survey of 
Americans between the ages of 60 and 75 found that only 26 percent of 
those surveyed were able to pass a retirement literacy test, and only 
41 percent correctly answered questions specifically related to 
maintaining one's lifestyle in retirement.\39\ Only 38 percent knew 
that an individual could only safely withdraw $4,000 each year from a 
$100,000 retirement account according to the ``4 percent rule.'' \40\ 
Additionally, researchers note that common cognitive constraints, such 
as procrastination and inertia, can interfere with proper retirement 
planning.\41\
---------------------------------------------------------------------------

    \39\ See 2017 RICP Retirement Income Survey Report, The American 
College, NY Life Center for Retirement Income, https://retirement.theamericancollege.edu/sites/retirement/files/2017_Retirement_Income_Literacy_Report.pdf.
    \40\ The ``4 percent rule'' is a common retirement planning 
guideline that states a retiree should withdraw no more than 4 
percent of their retirement portfolio on an annual basis to avoid 
the risk of running out of money.
    \41\ See Gopi Shah Goda, Colleen Flaherty Manchester, & Aaron 
Sojourner, ``What Will My Account Really Be Worth? Experimental 
Evidence on How Retirement Income Projections Affect Saving,'' 
Journal of Public Economics, vol. 119(C), (2014), at 80-92.
---------------------------------------------------------------------------

    Most plan participants think about their retirement income goals in 
terms of the monthly income they would need to maintain their current 
standard of living in retirement rather than as a lump sum.\42\ Many 
participants do not know where to find information about lifetime 
income streams, or how to calculate such amounts on their own.\43\ 
While some plans provide retirement income illustrations as part of 
their pension benefit statements, the practice is far from universal.
---------------------------------------------------------------------------

    \42\ See Angela Hung, Jeremy Burke, Lauren Mayer, and Noreen 
Clancy, ``Retirement Benefit Statements: Focus Group, Survey, and 
Experimental Evidence,'' RAND Research Report, RR-;1072, (Jan. 
2015).
    \43\ See ACLI Retirement Choices Study: Online Survey with Near-
Retiree Defined Contribution Plan Participants, Mathew Greenwald & 
Associates, Inc., (Apr. 2010) (written statement for the record, 
U.S. Sen. Special Committee on Aging, Hearing on The Retirement 
Challenge: Making Savings Last a Lifetime, June 16, 2010, 111th 
Cong.).
---------------------------------------------------------------------------

    The SECURE Act directs the Department to take regulatory action to 
provide defined contribution plan participants and beneficiaries with a 
tool that will help them better understand their retirement savings as 
a vehicle for income replacement during retirement: Lifetime income 
illustrations. Many commenters on the ANPRM suggested that such a tool 
could motivate workers who are saving too little to increase their 
contributions.\44\ A survey conducted by the LIMRA Secure Retirement 
Institute found that women and low-income workers were less likely to 
have an estimate of their monthly retirement income than men and high 
earners.\45\ The IFR could improve outcomes for these underserved 
groups.
---------------------------------------------------------------------------

    \44\ Research also suggests that a small change in information 
presented on or as part of the benefit statement can have a 
significant impact on savings behavior. See Goda et al., supra note 
41.
    \45\ See Alison Salka & Cecilia Shiner, ``Quarterly Retirement 
Perspectives 2013: Prospects for Income Projections,'' LIMRA 
Retirement Institute (2013).
---------------------------------------------------------------------------

(3) Affected Entities

    The IFR will affect all ERISA-covered defined contribution plans, 
although the impact on such plans already providing lifetime income 
illustrations in pension statements will be smaller than the impact on 
those that do not. Although plans providing the disclosure currently 
have systems and disclosures in place to produce these illustrations, 
they nonetheless will need to implement changes to ensure that the 
language and assumptions used for the illustrations comply with the 
requirements of the IFR. The Department solicits comments about the 
impact that plans currently providing lifetime income illustrations may 
experience in conforming to the conditions set forth in this IFR.
    Based on Form 5500 data, there were 662,829 defined contribution 
plans and 76.8 million participants with account balances in defined 
contribution plans in 2017, all of whom will be affected by the IFR. 
Using these Form 5500 data and a survey conducted by the Plan Sponsor 
Council of America (PSCA),\46\ the Department estimates that 112,681 
plans already provide lifetime income illustrations, and thus are 
likely to experience a smaller impact than the 550,148 plans that do 
not already provide such illustrations.\47\ Table 1 below shows the 
percentage of plans that have or have not provided projected monthly 
income to educate participants.
---------------------------------------------------------------------------

    \46\ 62th Annual Survey of Profit Sharing and 401(k) Plans, Plan 
Sponsor Council of America (2019). This survey reported on the 2018 
plan year experience of 608 defined contribution plans.
    \47\ The 112,681 and 550,148 figures are calculated by 
multiplying the number of all plans (662,829) by the percentage of 
plans providing lifetime income illustrations (17 percent) and not 
providing lifetime income illustrations (83 percent) respectively.
---------------------------------------------------------------------------

    The Department believes that the PSCA survey results concerning the 
percentage of plans providing projected monthly income are an 
acceptable proxy for the percentage of plans already providing lifetime 
income illustrations in pension benefit statements. The PSCA survey 
asked plan sponsors to select approaches used to achieve defined 
contribution plan education,

[[Page 59144]]

and projected monthly income is one of the education approach options 
listed. Some plan sponsors may provide monthly income projections, but 
may not consider these projections to be education, and thus may have 
responded to the survey accordingly. For this reason, the Department 
notes that the percentages shown in the table below serve as lower-
bound estimates. The Department invites comments on the estimate of 
plan sponsors currently providing lifetime income illustrations and 
solicits feedback on alternative data sources for the number of defined 
contribution plans and recordkeepers currently providing lifetime 
income illustrations.
[GRAPHIC] [TIFF OMITTED] TR18SE20.294

    The IFR also will affect plans offering in-plan annuity products. 
According to two surveys of plan sponsors, nine to 12 percent of plans 
currently offer annuity options.\48\ One large recordkeeper reports 
that about two out of ten plans it services, covering approximately 
eight percent of defined contribution plan participants it services, 
provided participants with a retirement annuity option in 2018.\49\ 
Even when annuity products are offered, however, data suggest a 
relatively small number of participants purchase them. Analyzing data 
from a large plan administrator, one study suggests that approximately 
19 percent of retirees opted for annuitization in 2017, which declined 
from 54 percent in 2000.\50\ The data in that study includes plans with 
highly educated and financially sophisticated participants. Further, 
the plans in that study have had annuity options for a long period of 
time. Therefore, some economists suggest that the annuitization rate is 
even lower for participants with more diverse backgrounds in terms of 
education level or financial literacy.\51\ Since relatively few plans 
offer annuity options and only a small number of participants purchase 
them, the impact of the IFR on these plans and participants is expected 
to be somewhat limited.
---------------------------------------------------------------------------

    \48\ According to a defined contribution plan sponsor survey, 
9.3 percent of plans offered an in-plan annuity option to 
participants. (See PSCA 61st Annual Survey, Reflecting 2017 Plan 
Experience.) Another survey of plans suggests that 12 percent of 
plans offered an in-plan annuity product as an investment option in 
their plans in 2019. (See Deloitte ``The retirement landscape has 
changed-are plan sponsors ready? 2019 Defined contribution 
Benchmarking Survey Report.'')
    \49\ See How America Saves 2019, Vanguard (June 11, 2019), 
https://institutional.vanguard.com/iam/pdf/HAS2019.pdf.
    \50\ Jeffrey Brown, James Peterba, & David Richardson, ``Recent 
Trends in Retirement Income Choices at TIAA: Annuity Demand by 
Defined Contribution Plan Participants,'' National Bureau of 
Economic Research (Sep. 30, 2019).
    \51\ See Alicia Munnell, Gal Wettstein, & Wenliang Hou, ``How 
Best Annuitize Defined Contribution Assets?'' Center for Retirement 
Research (Oct. 2019). See also Richard Johnson, Leonard Burman, & 
Deborah Kobes, ``Annuitized Wealth at Older Ages: Evidence from the 
Health and Retirement Study,'' Urban Institute (May 2004). According 
to this study, approximately 10 percent of adults who left their 
jobs after age 65 annuitized their plan assets in 2000.
---------------------------------------------------------------------------

    As discussed earlier in this preamble, there are different types of 
in-plan annuities. Some plans offer participants the ability to 
purchase DIAs. It is difficult to know how many plans provide a DIA 
purchase option. However, DIAs represent only a small part ($1.7 
billion) of the total $179 billion annuity market in 2017.\52\ QLACs, a 
subset of DIAs, represent $255 million, approximately 15 percent of DIA 
sales in 2017.\53\ Because these data

[[Page 59145]]

cover QLACs sold from both plans and individual retirement accounts 
(IRAs), participants who purchased QLACs through their employer-
sponsored plans would represent an even smaller share of the annuity 
market.
---------------------------------------------------------------------------

    \52\ This includes sales occurred beyond plans and IRA markets. 
See U.S. Annuity Markets 2018: Remaining Well Capitalized and 
Adaptive, Cerulli Report, at 42.
    \53\ This includes sales through qualified plans and IRAs. (See 
Id., at 32.)
---------------------------------------------------------------------------

(4) Benefits

    The Department believes that the benefits of this IFR justify its 
costs, both of which are discussed below. The Department invites 
comments on these benefit and cost estimates, and is especially 
interested in obtaining additional data on the impacts that result from 
providing lifetime income illustrations in pension benefit statements.
    The Department anticipates that the IFR will provide two primary 
benefits to participants: (1) Strengthening retirement security by 
encouraging those currently contributing too little to increase their 
plan contributions, and (2) saving some participants' time in 
understanding how prepared (or unprepared) they are for retirement by 
making lifetime income information readily available. Under certain 
circumstances, however, the Department expects the IFR will lead a 
minority of participants who might have over saved to reduce their 
contributions.\54\ The Department also expects the limitation on 
liability provision will significantly reduce the litigation risk faced 
by plans providing lifetime income illustrations.
---------------------------------------------------------------------------

    \54\ See more discussion in the (6) Uncertainty section.
---------------------------------------------------------------------------

    Increased Contributions: The Department believes that requiring 
benefit statements to contain lifetime income illustrations will 
encourage many participants to increase their plan contributions. One 
commenter on the 2010 RFI stated that translating retirement savings 
into an estimated future income stream will remind participants that 
retirement savings are needed to generate income throughout retirement. 
For example, if a participant sees that their $100,000 account balance 
may only generate $700 of monthly income for life, the participant may 
choose to take measures to increase his or her savings.\55\
---------------------------------------------------------------------------

    \55\ As discussed in more detail in the Uncertainty section of 
the preamble, below, it is difficult to know what percentage of 
increased contributions can be interpreted as benefits (as 
categorized in a regulatory impact analysis, such as this one).
---------------------------------------------------------------------------

    Research supports the hypothesis that providing participants with 
customized information on their lifetime income stream can influence 
contribution behavior.\56\ One study suggests that 40 percent of 
respondents aged 41-60 will increase their 401(k) contributions by four 
percentage points or more after seeing a lifetime income 
illustration.\57\ Another study, involving participants in a University 
of Minnesota defined contribution plan, revealed those who received 
lifetime income illustrations increased their annual contributions by 
an average of $85.\58\ Although this is a modest increase, it is 
significant considering the many barriers that prevent participants 
from increasing contributions, including liquidity constraints. If the 
Department's IFR affects participant behavior in the same manner as the 
University of Minnesota study, it would increase aggregate annual 
contributions by $5.1 billion.\59\ It is unclear, however, whether the 
rule's impact will be similar to that observed in the study. Unlike the 
IFR, in addition to providing lifetime income illustrations, the 
statements in the University of Minnesota study also showed the impact 
of increased savings on participants' account balances and the 
additional annual income the increased savings would generate in 
retirement. The Department invites comments on the applicability of the 
University of Minnesota findings to the Department's rule.
---------------------------------------------------------------------------

    \56\ See Goda et al., supra note 41. See also ACLI Retirement 
Choices Study: Online Survey with Near-Retiree Defined Contribution 
Plan Participants, Mathew Greenwald & Associates, Inc., (Apr. 2010), 
(written statement for the record, U.S. Sen. Special Committee on 
Aging, Hearing on The Retirement Challenge: Making Savings Last a 
Lifetime, Jun. 16, 2010, 111th Cong.). (Sixty percent of respondents 
reported that if the illustration of the participants' lifetime 
income generated by their retirement plan account would not be 
enough to meet their retirement needs, they would ``start saving 
more immediately,'' and 32 percent indicated that seeing an 
illustration would cause them to reevaluate and change their asset 
allocation.)
    \57\ See Consumer Preferences for Lifetime Income Estimates on 
401(k) Statements, Insured Retirement Institute (Jan. 2015), https://www.myirionline.org/docs/default-source/research/consumer-preferences-for-lifetime-income-estimates-on-401(k)-statements-
web.pdf?sfvrsn=2. (This study asked respondents two questions to 
assess (1) whether they would increase 401(k) contributions after 
seeing retirement income estimates, and (2) by how much. The 
Department assumes those who reported they would increase 
contributions in the first question also responded to the second 
question. Because 50 percent of respondents aged 41-60 answered 
``yes'' to the first question, and 75 percent of these respondents 
stated they would increase the contributions by 4 percentage points 
or more, it is assumed roughly 40 percent (50 percent *75 percent) 
of respondents aged 41-60 would increase their contributions by 4 
percentage points or more.).
    \58\ See Goda et al., supra note 41.
    \59\ The $5.1 billion estimate is calculated by multiplying the 
average savings estimate from the University of Minnesota study ($85 
per participant), the number of defined contribution plan 
participants with account balances (76.8 million, according to the 
2017 Private Pension Plan Bulletin), and the assumed percentage of 
those participants not currently receiving lifetime income 
illustrations (78 percent). The 78 percent assumption comes from 
Table 1, which shows 22 percent of participants receive lifetime 
income illustrations. ($85*76.8 million*0.78 = $5.1 billion). 
Whether the increase in contributions persists is not certain as the 
study's time horizons were between 6 months (e.g. Goda 2014) to 1 
year (e.g. Fajnzylber & Reyes) following the receipt of the 
disclosures.
---------------------------------------------------------------------------

    The Federal Thrift Savings Plan began providing a lifetime income 
illustration as part of participants' benefit statements in 2010. In a 
2013 Thrift Savings Plan Participant Satisfaction Survey, 29 percent of 
active participants reported taking action based on the monthly income 
estimate: 12 percent increased their contributions, 10 percent revised 
their investment allocations, and 7 percent delayed their planned 
retirement dates.\60\
---------------------------------------------------------------------------

    \60\ 2013 Thrift Savings Plan Survey Results, Aon Hewitt, http://www.frtib.gov/ReadingRoom/SurveysPart/TSP-Survey-Results-2013.pdf.
---------------------------------------------------------------------------

    A recent study in Chile suggested that defined contribution plan 
participants were 1.4 percentage points more likely to increase 
voluntary contributions after projections of retirement income were 
included in participants' annual statements.\61\ The increase was 
larger in the 40-50 age group than it was in younger cohorts, 
consistent with myopia or liquidity constraints. The increase for women 
was significantly larger than that for men, likely reflecting a higher 
sense of urgency.\62\
---------------------------------------------------------------------------

    \61\ Eduardo Fajnzylber & Gonzalo Reyes, ``Knowledge, 
Information, and Retirement Saving Decisions: Evidence from a Large-
Scale Intervention in Chile,'' Economia, vol. 15, no. 2 (Spring 
2015), at 83-117.
    \62\ Id.
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    The Department anticipates that if all defined contribution plan 
benefit statements were to contain lifetime income illustrations, many 
participants and beneficiaries would be better positioned to assess 
their retirement readiness and to prepare for retirement.\63\ An 
illustration based on a person's current account balance would provide 
an immediate baseline for the participant to judge expected retirement 
readiness.
---------------------------------------------------------------------------

    \63\ Lena Larsson, Annika Sunde[acute]n, & Ole Settergren, 
``Pension Information: The Annual Statement at a Glance,'' OECD 
Journal: General Papers, vol. 2008, no. 3 (Feb. 23, 2009), https://www.oecd-ilibrary.org/economics/pension-information_gen_papers-v2008-art19-en.
---------------------------------------------------------------------------

    Adding lifetime income illustrations to defined contribution plan 
retirement account statements is supported by virtually all plan 
sponsors (96 percent).\64\ This addition would benefit participants by 
making critical

[[Page 59146]]

retirement information readily available to aid their retirement 
planning. In a survey commissioned by the Insured Retirement Institute, 
over 90 percent of participants reported that they wanted to see some 
form of retirement income estimates on their 401(k) statements, and 
that such estimates would be very, or somewhat, helpful when planning 
for retirement.\65\ In another survey, 75 percent of respondents were 
very, or somewhat, interested in converting some or all of their 
retirement savings to an investment option that would guarantee monthly 
income for life.\66\
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    \64\ Lifetime Income Poll: Perspectives of Defined Contribution 
Plan Sponsors on Regulatory Developments, MetLife (2016), https://www.metlife.com/content/dam/metlifecom/us/homepage/institutionalRetirement/insights/LifetimeIncome/2016-Lifetime-Income-Poll.pdf.
    \65\ See Insured Retirement Institute, supra note 57. While the 
affected industry acknowledges that participants want this 
information and believes it would be helpful and educational, it is 
uncertain that such disclosures necessarily would increase over time 
without this IFR. This, in part, may be due to employers' concerns 
with potential fiduciary liability and litigation for unmet 
expectations, i.e., workers mistakenly believing the lifetime income 
illustrations are promises or guarantees. To the extent that 
lifetime income illustrations would become more common even without 
this IFR, the benefits and costs attributable to the IFR are 
potentially overstated.
    \66\ 2019 Retirement Confidence Summary Report, Employee Benefit 
Research Institute and Greenwald & Associates (Apr. 23, 2019), at 
26, https://www.ebri.org/docs/default-source/rcs/2019-rcs/2019-rcs-short-report.pdf?sfvrsn=85543f2f_4.
---------------------------------------------------------------------------

    Time Savings: Defined contribution plan participants will likely 
benefit from the IFR because it will save many of them time by making 
lifetime income information readily available. Participants can 
calculate lifetime income streams on their own by finding and using 
online interactive tools, applying economic formulas found in books, or 
seeking help from financial advisers. Unfortunately, many participants 
neither know where to find such information, nor possess the financial 
literacy needed to use it. Further, for those who know where to look, 
inertia might prevent them from acting on their knowledge.
    This IFR greatly standardizes lifetime income illustrations across 
defined contribution plans, which will save time by minimizing 
confusion for participants. A standardized illustration would make it 
easy for workers to add together their estimated Social Security and 
ERISA benefits, minimizing some of the complexity of retirement 
planning.\67\ This change will be of particular benefit to participants 
who change jobs or receive statements from multiple defined 
contribution plans, as different benefit statements with few exceptions 
will use the same model language and assumptions, and present the 
information in the same manner. Participants will be able to spend 
their retirement planning time more efficiently, because they will not 
have to devote time, energy, and resources to seeking out lifetime 
income information on their own.
---------------------------------------------------------------------------

    \67\ Unlike the Department's lifetime income illustration, 
estimated Social Security retirement benefits are based on 
projections, such as the amount of continued contributions to the 
Social Security. In addition, Social Security benefits are subject 
to future adjustment for inflation, while the Department's 
illustration is fixed. However, combining the estimates at age 67 
would provide a rough estimate of what a person might receive in the 
first month of retirement.
---------------------------------------------------------------------------

(5) Costs

    Overview of Methodology--Establishing a Baseline: Some plan 
sponsors voluntarily provide lifetime income illustrations, but there 
is little data available on the number of sponsors providing 
illustrations or the type of illustrations they provide. As discussed 
in the Affected Entities section above, the PSCA survey for the 2018 
plan experience suggested that only 17 percent of plan sponsors provide 
lifetime income illustrations. As shown in Table 1, larger plans were 
more likely to provide this information: 30 percent of plans with at 
least 5,000 participants provided such information, while 13 percent of 
plans with fewer than 5,000 participants did the same.\68\ The results 
from the PSCA survey and Form 5500 data suggest that 22 percent of 
defined contribution plan participants received lifetime income 
illustrations. A 2013 survey found that only half of U.S. workers have 
ever seen monthly retirement income projections.\69\ Another survey, 
conducted in 2012, suggested that only one-third of 214 plan sponsors 
provide income projections as part of benefit statements.\70\
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    \68\ Table 1 shows four groups of plans with fewer than 5,000 
participants--plans with (i) 2-49 participants, (ii) 50-199 
participants, (iii) 200-999 participants, and (iv) 1,000-4,999 
participants. The percentages of plans providing projected monthly 
income in these four groups are 12%, 15%, 17%, and 14%, 
respectively. See row [1-1] of Table 1. Therefore, the Department 
estimates that approximately 13 percent, 79,547 plans out of the 
total 634,223 plans in these four groups, provide projected monthly 
incomes. See row [1] of Table 1.
    \69\ Salka & Shiner, supra note 45. (Fifty-one percent of survey 
respondents answered ``yes'' to the following question: ``Have you 
ever seen a projection or estimate of monthly income your savings 
could generate in retirement if you maintain your current saving 
habits?'')
    \70\ Retirement Income Practices Study: Perspectives of Plan 
Sponsors and Recordkeepers for Qualified Plans, MetLife (June 2012), 
https://www.metlife.com/content/dam/metlifecom/us/homepage/institutionalRetirement/insights/LifetimeIncome/2012-Retirement-Income-Practices-Study.pdf. (This survey also posed the same 
question as the Salka/Shiner survey (see previous note) to 12 large 
recordkeepers and found that half already provided income 
projections. In this analysis, a one-third early-adoption rate is 
applied because the Brightscope database of plan sponsors and 
recordkeepers reveals that the largest 214 plan sponsors receive 
services from about 50 large recordkeepers, which covers more 
recordkeepers than the results from 12 recordkeepers. The 
respondents to this survey are mostly large plan sponsors, and the 
sample size of this survey is very small. The Private Pension Plan 
Bulletin and Form 5500 data suggests that there were over 663,000 
defined contribution plans and 1,725 recordkeepers serving defined 
contribution plans in plan year 2017).
---------------------------------------------------------------------------

    The Department estimates one-time and ongoing costs using data from 
the aforementioned PSCA survey. Regarding one-time costs, the 
Department assumes that plans not currently providing lifetime income 
illustrations will incur development costs of setting up a system for 
producing lifetime income illustrations. Plans that currently provide 
such illustrations will not incur development costs but likely will 
incur some transitional costs to comply with the Department's 
assumptions and model language and to integrate the new illustrations 
into existing paper and online benefit statement formats. Using 
available data, it is difficult to predict how small recordkeepers and 
plan sponsors will respond to the rule in terms of development costs. 
Developing an information technology system that generates lifetime 
income illustrations requires a large up-front investment. Therefore, 
it is likely that many recordkeepers will choose instead to purchase 
products or license systems from recordkeepers that have already 
developed them. According to the Form 5500 data, in the 2017 plan year, 
there were 1,725 recordkeepers servicing defined contribution plans. 
The 445 largest recordkeepers (hereafter large recordkeepers) serviced 
plans holding approximately 99 percent of total plan assets, while the 
remaining 1,280 (small recordkeepers) serviced plans holding a mere 1 
percent.\71\ A different report shows a similar picture--a large 
concentration of the market held by a small number of 
recordkeepers.\72\ The small recordkeepers may decline to develop their 
own systems, and instead opt to purchase software or license systems 
developed by other recordkeepers.
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    \71\ The Department considered other thresholds for 
recordkeepers. For example, approximately 95 percent of total plan 
assets are serviced by the largest 119 recordkeepers. The Department 
selected the 99 percent threshold for recordkeepers to include more 
recordkeepers in cost estimates, and thus avoid underestimating 
costs.
    \72\ Special Report: DC Record Keepers, Pensions & Investments 
(Apr. 2, 2018), https://corporate.voya.com/sites/corporate.voya.com/files/PI5797%20Voya-Final.pdf.
---------------------------------------------------------------------------

    Categorizing Major Cost Components: The economic costs associated 
with the IFR fall into two categories of one-time costs and four 
categories of ongoing costs. The two one-time cost categories are (1) 
developing a system to produce

[[Page 59147]]

lifetime income illustrations, and (2) transitioning from existing 
assumptions and language to the required assumptions and language or 
model language and integrating the new illustrations into existing 
paper and online benefit statement formats. The four ongoing cost 
categories include: (1) Answering increased calls from participants, 
(2) printing lifetime income illustrations, (3) converting the account 
balance to annuities based on the DOL-specified assumptions at the 
statement date, and (4) training internal staff about lifetime income 
illustrations and efficient navigation of the system.
    The development cost estimates assume no small recordkeepers would 
develop their own systems because it will likely be more cost effective 
for small recordkeepers to purchase software or license a system than 
to develop their own.
    To gather information needed to convert participants' account 
balances to annuities based on the DOL-specified assumptions at the 
statement date, plan sponsors are likely to rely on their recordkeeper 
to provide the information. Some recordkeepers may have an actuary on 
staff who can calculate the appropriate information as of the benefit 
statement date. Other recordkeepers may need to obtain the appropriate 
information from an external actuary or other source.
    One-time Costs--Development Costs: In order to provide lifetime 
income illustrations in benefit statements, recordkeepers may incur 
costs to develop a system that produces the lifetime income 
illustrations. Part of those costs would include those related to 
incorporating the assumptions mandated by the IFR. According to the 
PSCA survey, 30 percent of plans with 5,000 or more participants 
(hereafter large plans) already provide lifetime income illustrations. 
This 30 percent early-adoption rate serves as a baseline for this 
analysis.
    The Department uses recordkeepers as a unit of analysis in 
estimating development costs. In commenting on the ANPRM, one commenter 
suggested that it would cost approximately $715,000 to develop a system 
to produce lifetime income illustrations and web-based tools.\73\ 
According to this commenter, its system features various 
functionalities such as the ability to incorporate social security 
projections and IRAs; customize assumptions to see the impacts of those 
changes on the projected lifetime income streams; show the integrated 
effects of in-plan annuity investment options combined with other plan 
investments; estimate the gaps between projected monthly incomes at 
retirement and the desired monthly incomes; provide education about how 
to close those gaps, and personalize future draw-down strategies that 
incorporate social security and other retirement assets. Although these 
flexible and customizable features are likely to better engage 
participants, and thus, better prepare them for retirement, a 
recordkeeper can satisfy the conditions set forth in the IFR without 
these flexible and elaborate features. Furthermore, because the 
requirements in the IFR are limited in its scope and the IFR provides 
recordkeepers with model language and assumptions to convert account 
balances to the required lifetime income streams, a recordkeeper can 
develop at much lower costs a system capable of producing illustrations 
that meet the specifications of the IFR. Due to a lack of data, 
however, the Department relies on a unit cost estimate, $715,000, 
provided by the commenter on the ANPRM and adjusts it down by a quarter 
to account for costs incurred to develop features applicable to only a 
small subset of plans or features that are truly optional. The 
Department invites comments about how many recordkeepers would develop 
a new system to provide lifetime income illustrations pursuant to the 
IFR and how much it would cost for them to do so. Applying the 
assumptions and methods discussed above, the Department estimates that 
costs to develop a new system to produce lifetime income illustrations 
meeting the specifications laid out in the IFR will be $185 
million.\74\ This estimate assumes that 70 percent of large 
recordkeepers will develop their own systems, and that none of the 
small recordkeepers will develop their own systems.\75\ As discussed 
above, it is plausible that more recordkeepers already have a 
capability of producing lifetime income illustrations, thus do not need 
to build a new system to comply with the IFR.\76\ Of those 
recordkeepers currently lacking a capability of providing lifetime 
income illustrations, some may elect to use other providers' systems 
instead of developing a new proprietary system. If so, then the 
Department may have overestimated costs to develop a new system. 
However, if more recordkeepers decide to develop a new system, the 
development costs in this analysis may be underestimated.
---------------------------------------------------------------------------

    \73\ See Letter from Great-West Financial to Employee Benefits 
Security Administration, Comment on the Advanced Notice of Proposed 
Rulemaking (Aug. 7, 2013), available at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB20/00095.pdf.
    \74\ The development costs, $185 million is estimated by 
multiplying three-quarters of the unit cost ($715,000) by the 
inflation rate from 2013 to 2020 (11 percent), the number of 
recordkeepers (445 for large recordkeepers), and the percentage of 
recordkeepers developing their own systems (70 percent for large 
recordkeepers). If the full amount, instead of three-quarters, of 
the unit cost, $715,000, is applied, the costs to develop a new 
system will increase from $185 million to $247 million.
    \75\ The assumption of 70 percent comes from Table 1, which 
shows 70 percent of large plans are not providing projected monthly 
income.
    \76\ According to a survey conducted with defined contribution 
plan recordkeepers in 2018, about 80 percent responded that 
projected retirement incomes are automatically displayed on the 
participant's website. See the Cerulli Report, the U.S. Defined 
Contribution Distribution 2018 page 134. Separately, according to 
another survey conducted with defined contribution plan sponsors in 
2019, about 77 percent of plan sponsors provided participants with 
retirement income projection illustrations online, which increased 
from 54 percent in 2015. See Deloitte 2019 Defined Contribution 
Benchmarking Survey Report page 22.
---------------------------------------------------------------------------

    One-time Costs--Transitional Costs: To receive liability relief, 
plan sponsors, plan administrators, and plan recordkeepers currently 
providing lifetime income illustrations must modify their current 
assumptions and language to adopt the assumptions and model language in 
the IFR. They must then integrate the new illustrations into existing 
paper and online benefit statement formats. The Department assumes that 
these modifications and integration will take 20 hours from an attorney 
and 24 hours each from an actuary and a computer system analyst.\77\ 
The Department estimates that transitional costs will be $1.2 million, 
based on the aforementioned assumption and the hourly labor rates for 
attorneys ($138.41), actuaries ($146.39), and computer system analysts 
($118.63).\78\ The Department is soliciting comments on the number of

[[Page 59148]]

hours needed for an attorney, an actuary, and a computer system analyst 
(or other workers) to perform the aforementioned modifications and 
integration.
---------------------------------------------------------------------------

    \77\ These burden hours include time spent to review the IFR and 
current practices, convene meetings to discuss how to respond to the 
IFR and any necessary modifications in current practices and 
disclosures, implement those modifications, and review the revised 
illustrations.
    \78\ Labor Cost Inputs Used in the Employee Benefits Security 
Administration, Office of Policy and Research's Regulatory Impact 
Analyses and Paperwork Reduction Act Burden Calculation, Employee 
Benefits Security Administration (June 2019), https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf. The estimate of $1.2 million is 
calculated by summing up the costs associated with an attorney, an 
actuary, and a computer system analyst. The costs associated with 
each of the three types of professionals are calculated by 
multiplying four numbers: (1) 445 large recordkeepers; (2) the 
percentage of recordkeepers currently providing lifetime income 
illustrations (30 percent); (3) the hourly rate of a professional 
(an attorney, actuary, or a computer system analyst); and (4) number 
of hours (20 hours for an attorney and 24 hours each for an actuary 
and a computer system analyst).
---------------------------------------------------------------------------

    Ongoing Costs--Costs Associated with Increased Calls from 
Participants: Some recordkeepers indicate that they receive more and 
longer phone calls from participants after they provide lifetime income 
illustrations.\79\ One recordkeeper estimated in 2013 that average 
costs associated with calls increased by $0.28 per participant in the 
first year.\80\ The IFR uses current account balances to calculate 
lifetime income. Since current account balances require no assumptions, 
they are more straightforward than projected account balances. The 
Department assumes that average increased call costs related to 
lifetime income illustrations calculated from current account balances 
will be $0.16 per participant, which is half of the inflation-adjusted 
increased call costs calculated for projected account balances.\81\
---------------------------------------------------------------------------

    \79\ See Letter from Great-West Financial to Employee Benefits 
Security Administration, supra note 73.
    \80\ Id.
    \81\ The estimate of $0.16 per participant is calculated by 
multiplying the increased call costs calculated from projected 
account balances in 2013 ($0.28 per participant) by half, and an 
inflation rate of 11 percent from 2013 to 2020. See ``CPI Inflation 
Calculator,'' U.S. Bureau of Labor Statistics (2020), available at 
https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=201308&year2=202002. The start month is 
August 2013 (when the comment letter was written) and the end month 
is February 2020 (when the latest CPI data is available as of March 
25, 2020).
---------------------------------------------------------------------------

    According to the 2017 Private Pension Plan Bulletin, there are 
approximately 76.8 million participants with defined contribution plan 
account balances. For plans currently providing lifetime income 
illustrations, the Department assumes the IFR results in half of the 
increased call costs per participant with account balances in the first 
year (i.e., $0.08 per participant) due to the transition from using 
plans' own language to DOL's assumptions and model language, but this 
transition has no effects on calls after the first year. For plans not 
currently providing monthly income, the Department assumes the same 
increased call costs per participant with account balances in the first 
year (i.e., $0.16 per participant), half of the costs in the second 
year (i.e., $0.08 per participant), and one-third of the costs from the 
third to tenth year (i.e., $0.05 per participant). This decline in 
increased call costs is due to participants' becoming familiar with 
lifetime income illustrations. The Department invites comments on the 
reasonableness of the assumptions on the degree of decline in increased 
call costs over time. The estimated costs from increased calls will be 
$10.6 million in the first year,\82\ $4.8 million in the second 
year,\83\ and $3.0 million from the third to tenth year.\84\
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    \82\ This estimate of $10.6 million is calculated by summing up 
the increased call costs from participants with account balances 
currently receiving lifetime income illustrations (76.8 million*22 
percent*$0.08 per participant) and the costs from those not 
currently receiving these illustrations (76.8 million*78 
percent*0.16 per participant).
    \83\ This estimate of $4.8 million is calculated by multiplying 
the number of participants with account balances (76.8 million) by 
the percentage of participants not currently receiving lifetime 
income illustrations (78 percent) and the average increased call 
costs in the second year ($0.08 per participant).
    \84\ This estimate of $3.0 million is calculated by multiplying 
the number of participants with account balances (76.8 million) by 
the percentage of participants not currently receiving lifetime 
income illustrations (78 percent) and the average increased call 
costs in the third year ($0.05 per participant).
---------------------------------------------------------------------------

    Ongoing Costs--Printing and Processing Costs: Incorporating 
lifetime income illustrations in benefit statements may increase the 
costs associated with printing and processing for plans not currently 
providing lifetime income illustrations. For plans currently providing 
lifetime income illustration, the Department assumes the IFR's 
requirements may not increase the number of pages in their benefit 
statements and therefore may not increase their costs associated with 
printing and processing.\85\ The IFR will require plans to supply 
lifetime income projections to participants at least once a year; 
however, plans can send them more frequently. For the purposes of this 
analysis, the Department assumes that participants with defined 
contribution plan account balances will receive lifetime income 
illustrations on an annual basis. The Department also assumes that some 
plan administrators will rely on the Department's rules concerning 
electronic delivery when furnishing pension benefits statements that 
include the required lifetime income illustrations.\86\ Specifically, 
the Department estimates that in the first year, 92 percent of 
participants will receive their lifetime income illustrations 
electronically, while 8 percent will receive them in print.\87\ A 2013 
comment letter provided data suggesting that the unit cost of printing 
and processing was approximately 2.6 cents per recipient at that 
time.\88\ Applying these assumptions and an inflation rate of 11 
percent from 2013 to 2020, the Department estimates that the printing 
costs will be $0.14 million in the first year.\89\ The Department 
excludes postage costs from this analysis because print illustrations 
will be included with the hard-copy statements that are currently 
mailed. The Department expects printing and processing costs to 
decrease in the second through tenth years.
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    \85\ Plans may elect to voluntarily provide additional 
information, which may increase the number of pages or length of the 
benefit statements and therefore increase the costs associated with 
printing and processing.
    \86\ 85 FR 31884 (May 27, 2020).
    \87\ The 8 percent estimate is calculated by multiplying 18.5 
percent of participants opting out of electronic delivery under the 
Department's 2020 Electronic Disclosure safe harbor by 44 percent of 
participants receiving lifetime income illustrations in print before 
the 2020 Electronic Disclosure safe harbor rule was finalized. The 
92 percent is calculated by deducting the 8 percent from all (100 
percent) participants.
    \88\ https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-comments/1210-AB33/00656.pdf. Based on a comment on the 2013 ANPRM, available on the 
Department's website, https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB20/00095.pdf.
    \89\ The estimate of $0.14 million is calculated by multiplying 
the following five numbers: (1) The unit cost of 2.6 cents, (2) the 
inflation rate of 11 percent from 2013 to 2020, (3) 76.8 million of 
participants with account balances, (4) 78 percent of participants 
with account balances not currently receiving lifetime income 
illustrations, and (5) 8 percent of the participants will receive 
the illustrations in print.
---------------------------------------------------------------------------

    Ongoing Costs--Converting Account Balance to Annuities Using DOL 
Assumptions: The Department assumes only plans not currently providing 
lifetime income illustrations will incur the costs associated with 
balance conversion. The Department understands that plans currently 
providing lifetime income illustrations will likely change their 
current assumptions to be consistent with assumptions set forth in the 
IFR. Once those adjustments are made in their systems, however, ongoing 
costs to convert account balances based on the assumptions set forth in 
the IFR would likely be similar to ongoing costs they already 
voluntarily incur to convert balances based on their own assumptions. 
Therefore, the Department assumes that while assumptions used before 
and after the IFR may differ, plans already providing lifetime income 
illustrations will not likely incur additional costs associated with 
balance conversion compared to their ongoing costs incurred before the 
IFR.
    Actuaries or someone with similar abilities will be required to 
gather the information needed to convert individual account balances to 
annuities based on the applicable assumptions as of the statement date. 
Although some recordkeepers may have actuaries in-house, the Department 
assumes that

[[Page 59149]]

recordkeepers will consult with outside actuaries. In the first year, 
the Department assumes that an actuary will spend six hours per 
recordkeeper gathering information to convert account balances to 
annuities based on the Department-specified assumptions. The six hours 
consist of three components: (1) 2 hours to set up a spreadsheet or 
other computer program to calculate conversion factors for the ages and 
payment forms required initially, (2) 15 minutes per month to update 
the interest rate in the spreadsheet or computer program,\90\ and (3) 1 
hour per year to update the mortality rates in the program. The 
Department estimates that the hourly rate of an actuary is $146.39.\91\ 
According to Form 5500 data in the 2017 plan year, 1,725 recordkeepers 
serviced defined contribution plans. Therefore, the Department 
estimates the first-year costs will be $1.3 million.\92\
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    \90\ A recordkeeper administers multiple plans whose benefit 
statement dates may fall in all of the 12 months. Therefore, a 
recordkeeper may need to update the interest rate every month.
    \91\ See Labor Cost Inputs, supra note 78.
    \92\ $1.3 million is calculated by multiplying the hourly rate 
of an actuary ($146.39) by 6 hours, by 1,725 recordkeepers, and by 
83 percent of recordkeepers not currently providing lifetime income 
illustrations.
---------------------------------------------------------------------------

    The Department estimates costs associated with gathering 
information to convert account balances to annuities based on the 
Department-specified assumptions will decrease in the second year, and 
remain flat over the third through tenth years. This is because the 
Department assumes actuaries will generally maintain conversion 
spreadsheets, and need only to update the interest rate monthly and 
mortality rate annually. Therefore, the Department estimates the second 
year costs will be $0.8 million, and will remain at that level in 
subsequent years.
    Ongoing Costs--Training Costs: To implement lifetime income 
illustrations, recordkeepers that do not currently provide these 
illustrations may need to train their staff to properly navigate the 
system. The Department assumes recordkeepers that currently provide 
these illustrations will not incur additional training costs because 
they provided training before the IFR. In the first year, the 
Department estimates that the training costs will be $1.7 million.\93\ 
In subsequent years, the Department anticipates these training costs 
will decrease as staff members become more familiar with lifetime 
income illustrations. Therefore, the Department estimates that the 
training costs will be $0.8 million for the second year, and remain at 
that level in the third through tenth years.\94\
---------------------------------------------------------------------------

    \93\ The estimate of $1.7 million assumes that (1) all 
recordkeepers not currently providing lifetime income illustrations 
(83 percent of 1,725 recordkeepers) need to train their staff 
members, (2) there are 10 computer system analysts per recordkeeper, 
and (3) 1 hour of training is needed in the first year for each 
computer system analyst. The hourly rate is assumed to be $118.63, 
which is the hourly labor cost for a computer system analyst (see 
Labor Cost Inputs, supra note 78).
    \94\ For the second year, the training time is reduced to 30 
minutes per computer system analyst.
---------------------------------------------------------------------------

    The Department invites comments about how much it would cost for a 
recordkeeper to operate and maintain a system that produces lifetime 
income illustrations and whether the unit-cost assumptions made to 
estimate ongoing costs as well as development costs are reasonable.
    Summary. The Department estimates that in the first year, total 
costs will be $201 million. In subsequent years, the Department expects 
costs to be substantially lower because development costs are one-time 
costs and comprise a substantial share of the total costs. In the 
second year, the Department estimates that total costs will be $6.6 
million. The third year costs are expected to be even lower, as 
recordkeepers, plan sponsors, and participants become more familiar 
with lifetime income illustrations. The Department estimates that third 
year total costs will be $4.8 million. The Department expects total 
costs to continue to decrease slightly in subsequent years due to the 
minor decline in printing and processing costs.\95\ In the tenth year, 
the Department estimates that total costs will be $4.7 million. Using a 
three percent discount rate, the Department estimates that total costs 
over 10 years will be $240 million. Using a seven percent discount 
rate, the Department estimates that total costs over 10 years will be 
$233 million. Using a perpetual time horizon, the annualized costs in 
2016 dollars are $12 million at a 7 percent discount rate.
---------------------------------------------------------------------------

    \95\ The minor decline comes from the Department's assumption 
about the number of participants who will opt out of electronic 
delivery in plans that rely on the Department's electronic delivery 
safe harbor.

                                                                           Table 2--Summary Table of Costs for 10 Year
                                                                                           [$ Million]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  Years
                                                             -------------------------------------------------------------------------------------------------------------- Total \1\  Total \2\
                                                                  1          2          3          4          5          6          7          8          9          10
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Panel A: One-Time Costs:
    Development costs.......................................       $185  .........  .........  .........  .........  .........  .........  .........  .........  .........       $185       $185
    Transitional costs......................................        1.2  .........  .........  .........  .........  .........  .........  .........  .........  .........        1.2        1.2
Panel B: Ongoing Costs:
    Costs associated with calls.............................       10.9        4.8        3.0        3.0        3.0        3.0        3.0        3.0        3.0        3.0       36.0       32.1
    Printing costs..........................................       0.14       0.13       0.11       0.10       0.09       0.08       0.08       0.07       0.06       0.06       0.84       0.74
    Cost associated with balance conversion.................        1.3        0.8        0.8        0.8        0.8        0.8        0.8        0.8        0.8        0.8        7.8        6.7
    Training costs..........................................        1.7        0.8        0.8        0.8        0.8        0.8        0.8        0.8        0.8        0.8        8.3        7.2
                                                             -----------------------------------------------------------------------------------------------------------------------------------
        Total...............................................        201        6.6        4.8        4.8        4.8        4.8        4.8        4.8        4.7        4.7        240        233
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: The Department's calculations.
\1\ A 3 percent discount rate is applied to total costs.
\2\ A 7 percent discount rate is applied to total costs.

(6) Uncertainty

    Although the literature is limited, the Department has carefully 
assessed the benefits and quantified the costs associated with 
providing lifetime income illustrations. However, these estimates 
contain uncertainty based on several factors that are discussed below.
    Potential overestimation of contribution increases. The Benefits 
section of this preamble discusses the possibility that lifetime income 
illustrations may motivate participants to increase contributions and 
suggests that these aggregated increased contributions could total $5.1 
billion. This estimate is based on the empirical results of an 
experimental research study.\96\ However, the Department urges caution 
in applying the study cited to

[[Page 59150]]

the broader population of defined contribution plan participants.
---------------------------------------------------------------------------

    \96\ See Goda et al., supra note 41.
---------------------------------------------------------------------------

    First, the lifetime income illustrations under the IFR differ from 
the illustrations used in the study cited. The illustrations in that 
study were presented in a separate, colorful brochure containing 
supplemental information on how participants can make changes to their 
contributions. Moreover, those lifetime income illustrations were 
framed as providing additional savings at retirement and increased 
annual income during retirement. This influential value of presentation 
or framing effects has been well documented in retirement savings 
literature.\97\ The lifetime income illustrations required under this 
IFR will not include the same information received by the participants 
in the study. Consequently, there is some uncertainty that the IFR 
illustrations will motivate participants in the same way and to the 
same extent as those in the research study.
---------------------------------------------------------------------------

    \97\ See Jeffrey R. Brown, Arie Kapteyn, & Olivia S. Mitchell, 
``Framing and Claiming: How Information-Framing Affects Expected 
Social Security Claiming Behavior?'' Journal of Risk and Insurance, 
vol. 83, no. 1 (Mar. 1, 2016), at 139-162; see also Jeffrey R. 
Brown, Jeffrey R. Kling, Sendhil Mullainathan and Marian V. Wrobel, 
``Framing Lifetime Income,'' Journal of Retirement, vol. 1, no. 1 
(summer 2013), at 27-37.
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    Second, increases in contributions may not be beneficial for some 
participants.\98\ If lifetime income illustrations help participants 
make optimal choices between their current consumption and future 
consumption, by enhancing their understanding of the relationship 
between saving and future income, the impact would clearly be 
beneficial. However, research on optimal savings levels and how much 
participants should increase contributions is inconclusive. Increased 
contributions that are due to improved understanding of optimal choices 
between current consumption and future consumption would be beneficial 
for a participant. However, without a clear understanding about optimal 
savings levels, it is difficult to know what percent of increased 
contributions can be interpreted as beneficial.\99\
---------------------------------------------------------------------------

    \98\ For example, according to the Bureau of Consumer Financial 
Protection, in 2018, approximately two-thirds of 235 million adults 
held at least one credit card account. In the same year, the 
consumer credit card debt was almost $900 billion. The average 
balance for consumers with at least one general credit card was 
$5,700 as of the end of 2018 and the average annual percentage rate 
(APR) for general purpose credit cards was 20.3 percent. (See 
Consumer Credit Card Market Report, Aug. 2019, the Bureau of 
Consumer Financial Protection.) For at least some of those who carry 
high credit card debt, it may be better to pay off credit card debt 
rather than increase contributions to their retirement plans.
    \99\ The lifetime income illustrations may persuade some 
participants to reduce their contributions. Decreasing contributions 
may be beneficial to find the optimal balance of present versus 
future consumption.
---------------------------------------------------------------------------

    Potential underestimation of development costs. The Costs section 
of this preamble assumes only large recordkeepers that do not currently 
provide lifetime income illustrations will incur costs to develop a 
system producing these illustrations, whereas none of the small 
recordkeepers will develop their own systems. Based on this assumption, 
the estimated development costs will be $185 million, resulting in 
estimated total costs of $240 million at a 3 percent discount rate over 
the 10-year period. However, the development costs may be 
underestimated if some small recordkeepers develop their own systems. 
It is difficult to know what percentage of small recordkeepers might 
choose to develop their own systems; therefore, the Department 
estimates the upper-bound development costs, where all recordkeepers 
not currently providing lifetime income illustrations develop their own 
systems to be $852 million.\100\ This results in estimated upper-bound 
total costs of $906 million at a three percent discount rate over the 
10-year period.
---------------------------------------------------------------------------

    \100\ The estimate of $852 million is calculated by multiplying 
three-quarters of the unit costs ($715,000*0.75) by the inflation 
rate from 2013 to 2020 (11 percent), the number of all recordkeepers 
(1,725), and the percentage of recordkeepers developing their own 
systems (83 percent). The assumption of 83 percent comes from Table 
1, which shows 83 percent of plans are not providing projected 
monthly income.
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    Alternatively, small recordkeepers may purchase software or 
licenses with added features for lifetime income illustrations, if they 
find it less costly than developing their own systems. The Department 
invites comments about costs of purchasing licenses or software that 
illustrate lifetime income streams.

(7) Alternatives

    The Department considered alternative assumptions for plan 
administrators to rely on when converting a participant's account 
balance into a lifetime income stream. This section provides the 
Department's economic reasoning in weighing these alternative 
assumptions and augments the discussion on alternatives considered in 
section B(2)(a) of this preamble. The Department invites comments 
regarding these requirement assumptions.
(a) Commencement Date and Age
    Paragraph (c)(1) of the IFR establishes an assumed annuity 
commencement date and age that plan administrators must use to prepare 
the required illustrations. The Department considered a number of 
alternatives to age 67. For example, the Department considered a plan's 
``normal retirement age,'' as defined in ERISA section 3(34). One of 
reasons the Department decided against using the plan's ``normal 
retirement age'' is because some commenters on the ANPRM suggested that 
many recordkeepers do not maintain this information. If the Department 
requires plan administrators to use the plan's ``normal retirement 
age,'' recordkeepers would need to collect this information from each 
plan and customize their systems accordingly, which probably would 
result in a higher burden on recordkeepers and plans. This potential 
burden increase likely would outweigh any potential benefits, because 
participants are more likely to choose when to retire based on their 
individual circumstances than based on a plan's ``normal retirement 
age.'' Selecting a different, but uniform, commencement age (e.g., 65 
or 70), however, would not be expected to result in a burden increase.
    The Department also considered requiring lifetime income 
illustrations with multiple commencement ages (e.g., ages 62, 67, and 
72), which would benefit participants to the extent they are able to 
understand the effects of different retirement ages and, thus, make 
choices that better fit their personal circumstances and retirement 
goals. On the other hand, more is not always better, and the existence 
of multiple illustrations has some potential to overwhelm or confuse 
participants. With each additional age, for example, would come an 
additional illustration with a different set of monthly payments and 
corresponding explanations. This could be challenging to plan 
administrators who have the ultimate responsibility to ensure 
readability and understandability. Further, requiring multiple 
illustrations based on different ages may increase the burden on plan 
administrators and recordkeepers.
(b) Marital Status
    The IFR requires plan administrators to assume, for purposes of 
calculating the lifetime income stream from a qualified joint and 100% 
survivor annuity, that the participant has a spouse who is the same age 
as the participant (regardless of whether the

[[Page 59151]]

participant actually has a spouse). This assumption may diminish the 
value of the illustrations to some participants (e.g., a participant 
with a much younger or older spouse or a participant who is not 
married), because the illustrations reflect hypothetical scenarios and 
not the participants' actual personal circumstances. However, as 
compared to requiring illustrations based on the actual marital status 
of the participant, including the actual age of the participant's 
spouse, the approach in the IFR is less burdensome for recordkeepers 
and plan administrators. According to some commenters, recordkeepers 
often do not know (or have reason to know) if a participant has a 
spouse or the age of the spouse. Personalized QJSA illustrations would 
be more costly as some percentage of plans and their recordkeepers 
would need to establish new procedures to collect and update the 
information needed to make QJSA illustrations.
(c) Interest Rate
    The IFR contains the interest rate assumption that plan 
administrators must use to prepare the two illustrations required by 
the IFR. Specifically, plan administrators must assume a rate of 
interest equal to the 10-year constant maturity Treasury (CMT) 
securities yield rate for the first business day of the last month of 
the period to which the benefit statement relates. The Department 
considered using the Code section 417(e)(3)(C) rates. However, the 
Department has reservations about using the Code section 417(e)(3)(C) 
rates partially because, according to commenters, those rates may not 
be suitable for preparing lifetime income illustrations.\101\ Further, 
the Code section 417(e)(3)(C) rates contain three segment rates, the 
use of which would add more administrative complexity and costs to the 
process of converting account balances to monthly payments than using 
the 10-year CMT rate.
---------------------------------------------------------------------------

    \101\ The Code section 417(e)(3)(C) rates are often used to 
convert a defined benefit amount to a lump sum amount for 
distribution.
---------------------------------------------------------------------------

    The Department recognizes that there is no single interest rate 
assumption that would be perfect for all participants. Those who will 
retire tomorrow and plan to purchase lifetime income will encounter 
pricing that reflects current interest rates. It is clear that for 
these participants, using an interest rate assumption based on current 
rates, such as the 10-year CMT, is appropriate. However, participants 
who are a substantial number of years away from retirement will 
encounter annuity pricing that reflects future interest rates that 
currently are unknown. One way to project these future interest rates 
may be to use a long-term average of historical interest rates, with 
the belief that interest rates tend to regress to the mean. A third 
group of participants, those who will retire in a short number of 
years, are unique still from the other two groups. An example of an 
appropriate projection of interest rates at the time of retirement for 
these participants may be some combination of current and historical 
interest rates. Given that no single interest rate assumption would be 
perfect for all participants, the Department rejected the latter two 
approaches for the sake of regulatory uniformity and simplicity, and to 
reduce burdens on plan administrators.
(d) Mortality
    The IFR requires that plan administrators convert participants' 
account balances assuming gender neutral mortality as reflected in the 
applicable mortality table under Code section 417(e)(3)(B), which is a 
unisex table. The Department also considered gender-specific mortality, 
which could produce more accurate (and, therefore, more useful) 
illustrations. Since the female mortality tables show a longer life 
expectancy and the male mortality tables show a shorter life 
expectancy, in each case compared to a unisex table, the dollar amount 
of a male participant's monthly payment would be higher, and a female 
participant's monthly payment would be lower, in an illustration using 
gender-based tables. However, the Department decided against gender-
based tables, because plan administrators, recordkeepers, and third-
party administrators do not always have records of participants' 
gender, according to commenters. Thus, requiring gender-specific 
assumption in the IFR would likely increase burden as plans would need 
to consistently collect such information. In addition, the use of 
gender-specific mortality for illustrations would not align with 
pricing for plans that contain in-plan annuities.
(e) Inflation
    The IFR does not include an assumed adjustment to the required 
lifetime monthly payment illustrations for post-retirement inflation. 
Consequently, the IFR requires a fixed-nominal, annuitized income 
stream. The Department understands that, even with a low inflation 
rate, the purchasing power of a fixed-nominal income stream can be 
reduced significantly over the lifespan of the typical retiree. For the 
reasons explained earlier in section B(2)(d) of this preamble, the 
Department considered, but declined to adopt, alternatives involving an 
inflation adjustment, but the IFR does require an explanation that 
monthly payments in the illustrations are fixed and do not increase for 
inflation. One concern of commenters was a potential negative impact on 
plan participants caused by a relatively lower monthly payment amount 
that occurs if reduced to reflect the cost of an inflation-adjusted 
annuity. Another potential concern is the complexity of the methodology 
and explanatory language that would be required for inflation-indexed 
annuity income streams, which increase with age, and may raise 
additional questions from participants. Commenters, nevertheless, are 
invited to address whether, in lieu of a fixed nominal annuitized 
income stream, the final rule should require an illustration of monthly 
payments that increase with inflation.
(f) Immediate Versus Deferred Annuities
    The Department adopts an immediate annuity approach in the IFR. 
Under an immediate annuity approach, a participant's account balance is 
converted to single life and QJSA payments as if the account balance 
were used to buy these two forms of lifetime income with payments 
commencing on the last day of the statement period, and assumes that 
the participant is age 67 on that date (regardless of a participant's 
actual age, unless older than age 67). Thus, for a participant aged 40, 
for example, the illustrations under the IFR effectively assume a 
static account balance for the period between ages 40 and 67. This type 
of illustration serves as an immediate benchmark for participants, 
because it shows the size of monthly payments to expect if there were 
no further savings, gains or losses between the statement date and 
retirement. Also, a participant could create his or her own projection 
of a different account balance, by dividing the projected estimated 
account balance by the current account balance, and then multiply the 
result by the monthly payment amount on the statement. The result would 
be the estimated monthly amount of an annuity that could be purchased 
with the projected estimated account balance (assuming annuity market 
conditions at retirement are the same as the current market).
    The Department could have instead chosen a deferred annuity 
approach for the illustrations. A deferred annuity approach generally 
would result in larger monthly payments, because such annuities would 
contain a growth feature for the deferral period, i.e., the

[[Page 59152]]

period between the statement date and the actual annuity commencement 
date. The Department decided against this approach because of its 
increased complexity and potential for participant confusion, since the 
annuity amount either would be in future dollars, or would be 
discounted with an inflation rate to current dollars. In addition, the 
participant could not use the deferred annuity amount to convert his or 
her own projected estimate of the account balance to an annuity at 
retirement. Finally, because of the growth feature during the deferral 
period, the deferred annuity approach does not align as well with the 
SECURE Act's ``current account balance'' directive as does the 
immediate annuity approach.

(8) Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department conducts a preclearance consultation program to 
allow the general public and Federal agencies to comment on proposed 
and continuing collections of information in accordance with the 
Paperwork Reduction Act of 1995 (PRA).\102\ This helps to ensure that 
the public understands the Department's collection instructions, 
respondents can provide the requested data in the desired format, 
reporting burden (time and financial resources) is minimized, 
collection instruments are clearly understood, and the Department can 
properly assess the impact of collection requirements on respondents.
---------------------------------------------------------------------------

    \102\ 44 U.S.C. 3506(c)(2)(A) (1995).
---------------------------------------------------------------------------

    Currently, the Department is soliciting comments concerning the 
information collection request (ICR) included in the Pension Benefit 
Statement information collection. To obtain a copy of the ICR, contact 
the PRA addressee shown below or go to http://www.RegInfo.gov.
    The Department has submitted a copy of the rule to the Office of 
Management and Budget (OMB) in accordance with 44 U.S.C. 3507(d) for 
review of its information collections. The Department and OMB are 
particularly interested in comments that:
     Evaluate whether the collection of information is 
necessary for the functions of the agency, including whether the 
information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology (e.g., permitting 
electronically delivered responses).
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503 and marked ``Attention: Desk 
Officer for the Employee Benefits Security Administration.'' Comments 
can also be submitted by Fax: 202-395-5806 (this is not a toll-free 
number), or by email: [email protected]. OMB requests that 
comments be received within 30 days of publication of the ICR to ensure 
their consideration.
    PRA Addressee: Address requests for copies of the ICR to G. 
Christopher Cosby, Office of Policy and Research, U.S. Department of 
Labor, Employee Benefits Security Administration, 200 Constitution 
Avenue NW, Room N-5718, Washington, DC 20210. The PRA Addressee may be 
reached by telephone at (202) 693-8425 or by fax at (202) 219-5333. 
(These are not toll-free numbers.) ICRs also are available at http://www.RegInfo.gov (http://www.reginfo.gov/public/do/PRAMain).
    The SECURE Act amends section 105(a) of ERISA to require the 
provision of two sets of lifetime income stream illustrations as part 
of at least one pension benefit statement furnished to participants 
during a 12-month period. These two lifetime income stream 
illustrations include a single life annuity illustration and a 
qualified joint and survivor lifetime income steam illustration. The 
IFR provides direction on assumptions plan administrators use when 
converting total accrued benefits into lifetime income stream 
illustrations. The IFR also provides model language to use when 
producing these illustrations.
    ERISA section 105 requires pension benefit statements to be sent at 
least once each quarter, in the case of a defined contribution plan 
that permits participants to direct their investments; at least once 
each year, in the case of a defined contribution plan that does not 
permit participants to direct their investments; and at least once 
every three years or upon request in the case of defined benefit plans. 
ERISA section 105(a)(3)(A) permits plan administrators of defined 
benefit plans to fulfill the requirements of Section 105(a)(1)(B) by 
providing defined benefit plan participants with a notice of statement 
availability on an annual basis. The Department currently does not have 
an OMB approved information collection for the pension benefit 
statement requirement. Therefore, this PRA analysis establishes a 
baseline hour and cost burden for participant benefit statements that 
are issued by all plans covered by ERISA section 105. It then adds the 
hour and cost burden associated with the IFR, which adds content 
requirements to the pension benefit statements provided to defined 
contribution plan participants by requiring a lifetime income 
illustration to be included with the statement at least annually.
    Baseline Cost of Preparing and Delivering Pension Benefit 
Statement. Based on discussions with the regulated community, the 
Department believes the all-inclusive cost to produce pension benefit 
statements for defined contribution plan participants is approximately 
$1.50 per paper ($0.70 per electronic) statement,\103\ while the all-
inclusive cost to produce pension benefit statements for defined 
benefit plan participants is approximately $15.00 per paper ($14.40 per 
electronic) statement.\104\ The Department believes that plan 
administrators of frozen defined benefit plans will provide the notice 
of statement availability, as described in section 105(a)(3)(A), to 
frozen defined benefit plan participants in lieu of a pension benefit 
statement, at an all-inclusive cost of approximately $0.75 per paper 
($0.15 per electronic) notice.\105\
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    \103\ A paper statement for a defined contribution plan 
participant typically has five pages with printing cost of $0.05 per 
page. An electronic statement cost of $0.70 is calculated by 
subtracting printing cost of $0.25 and postage cost of $0.55 from 
the paper statement cost of $1.50.
    \104\ A paper statement for a defined benefit plan participant 
typically has one page with printing cost of $0.05 per page. An 
electronic statement cost of $14.40 is calculated by subtracting 
printing cost of $0.05 and postage cost of $0.55 from the paper 
statement cost of $15.
    \105\ A paper notice for a frozen defined benefit plan 
participant typically has one page with printing cost of $0.05 per 
page. An electronic notice cost of $0.15 is calculated by 
subtracting printing cost of $0.05 and postage cost of $0.55 from 
the paper notice cost of $0.75.
---------------------------------------------------------------------------

    According to 2017 Form 5500 data, defined contribution plans that 
allow participants to direct investments cover 94.6 million 
participants. These plans must provide quarterly statements to 
participants. Plans produce the quarterly statement at an estimated 
cost of $1.50 ($0.70) per paper (electronic) statement and a resultant 
cost burden of $289.5 million in the first year, $287.1 million in the 
second year, and $285 million in the third year. Defined contribution 
plans that do not allow

[[Page 59153]]

participants to direct investments cover 7.9 million participants. 
These plans are required to furnish annual statements.\106\ Plans 
produce the annual statement at an estimated cost of $1.50 ($0.70) per 
paper (electronic) statement and a cost burden of $6.0 million in the 
first year, $6.0 million in the second year, and $5.9 million in the 
third year. Defined benefit plans that are not frozen cover 28.1 
million participants. These plans are only required to provide benefit 
statements every three years. Plans produce the statement at an 
estimated cost of $15.00 ($14.40) per paper (electronic) statement and 
a cost burden of $135.3 million each year. Frozen defined benefit plans 
cover 6.8 million participants and may furnish an annual notice of 
statement availability in lieu of a statement. At an estimated cost of 
$0.75 ($0.15) per paper (electronic) notice, this results in a cost 
burden of $0.5 million in the first year, $0.4 million in the second 
year, and $0.4 million in the third year. As a baseline, under the 
current rules, the Department estimates that producing and distributing 
pension benefit statements costs plans a total of $431.4 million in the 
first year, $428.9 million in the second year, and $426.6 million in 
the third year.\107\
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    \106\ Section 105(a)(3)(A) of ERISA permits all DB plans, 
whether or not frozen, to provide an annual notice of availability 
of the pension benefit statement in lieu of a triennial statement. 
For purposes of this analysis, the Department assumes that all DB 
plans furnish the triennial statement. The Department welcomes 
comments regarding this assumption. The analysis does not take into 
account the requirement in Section 105(b) of ERISA to provide a 
benefit statement upon request subject to a limitation of one 
request every 12 months.
    \107\ The $431.4 million estimate is the sum of the four 
estimated costs incurred by defined contribution plans allowing and 
not allowing participants to direct investments and frozen and non-
frozen defined benefit plans. The $428.9 and $426.6 million 
estimates are calculated by the same method.
---------------------------------------------------------------------------

    Lifetime Income Illustrations. For each of the 76.8 million defined 
contribution plan participants with account balances whose statements 
will include a lifetime income illustration, the Department estimates 
that the IFR will increase the cost of producing and distributing 
statements by $2.6 per participant in the first year, $0.09 in the 
second year, and $0.06 in the third year.\108\ This results in a cost 
of $201 million in the first year, $6.6 million in the second year, and 
$4.8 million in the third year.
---------------------------------------------------------------------------

    \108\ The estimate of $2.6 is calculated by dividing the first-
year total costs of producing lifetime income illustrations (shown 
in Table 2) by the number of defined contribution participants with 
account balances (76.8 million). The estimates of $0.09 and $0.06 
are calculated by the same method, but the numerator is the second- 
and third-year total costs of producing lifetime income 
illustrations, respectively.
---------------------------------------------------------------------------

    In total, the Department estimates that producing pension benefit 
statements and providing lifetime income illustrations for participants 
with account balances in defined contribution plans will cost 
altogether approximately $632 million in the first year, $435.5 million 
in the second year, and $431.4 million in the third year.\109\
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    \109\ The estimate of $632 million is the sum of the first-year 
total costs of producing lifetime income illustrations and the 
baseline cost of preparing and delivering pension benefit statement 
($431.4 million). The estimates of $435.5 million and $431.4 million 
are calculated by the same method, but the first-year total costs of 
producing lifetime income illustrations are replaced by the second- 
and third-year total costs, respectively.
---------------------------------------------------------------------------

    A summary of paperwork burden estimates follows:
    Title: Pension Benefit Statement.
    OMB Control Number: 1210-NEW.
    Affected Public: Private Sector-business or other for-profit and 
not-for-profit institutions.
    Respondents: 709,527.
    Responses: 397,933,333 annually.
    Frequency of Response: Quarterly, Annually, Triennially.
    Estimated Total Annual Burden Hours: 19,253 (3-year average); 
31,986 during the first year; 12,886 during the second year; 12,886 
during the third year.
    Estimated Total Annual Burden Cost: $497,108,843 (3-year average); 
$627,847,556 during the first year; $433,770,504 during the second 
year; and $429,708,470 during the third year.

(9) Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are (1) 
required to be published as a notice of proposed rulemaking subject to 
the notice and comment requirements of the Administrative Procedure Act 
(5 U.S.C. 553(b)) and (2) likely to have a significant economic impact 
on a substantial number of small entities. As stated above, section 203 
of the SECURE Act added ERISA section 105(a)(2)(D)(iii) which includes 
a mandatory directive requiring the Secretary to issue an interim final 
rule (IFR) within 12 months of the date of enactment.
    This IFR is exempt from the RFA, because the Department was not 
required to publish a notice of proposed rulemaking. Therefore, the RFA 
does not apply and the Department is not required to either certify 
that the IFR would not have a significant economic impact on a 
substantial number of small entities or conduct a regulatory 
flexibility analysis. Nevertheless, the Department carefully considered 
the likely impact of the IFR rule on small entities in connection with 
its assessment of the IFR's cost and benefits under Executive Order 
12866. Consistent with the policy of the RFA, the Department encourages 
the public to submit comments regarding the IFR's impact on small 
entities.

(10) Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires each federal agency to prepare a written statement assessing 
the effects of any federal mandate in a proposed agency rule, or a 
finalization of such a proposal, that may result in an expenditure of 
$100 million or more (adjusted annually for inflation with the base 
year 1995) in any one year by State, local, and tribal governments, in 
the aggregate, or by the private sector.\110\ However, Section 202 of 
UMRA does not apply to interim final rules or non-notice rules issued 
under the `good cause' exemption in 5 U.S.C. 553(b)(B).\111\ For 
purposes of the Unfunded Mandates Reform Act, this rule does not 
include any federal mandate that the Department expects to result in 
such expenditures by State, local, or tribal governments. This IFR 
provides guidance for ERISA-covered defined contribution pension plans 
on providing lifetime income illustrations.
---------------------------------------------------------------------------

    \110\ 2 U.S.C. 1501 et seq. (1995).
    \111\ See OMB, Memorandum for the Heads of Executive Departments 
and Agencies, M-95-09, ``Guidance for Implementing Title II of 
S.1,'' 1995, available at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/1995-1998/m95-09.pdf.
---------------------------------------------------------------------------

(11) Federalism Statement

    Executive Order 13132 outlines fundamental principles of 
federalism, and requires the adherence to specific criteria by federal 
agencies in the process of their formulation and implementation of 
policies that have ``substantial direct effects'' on the States, the 
relationship between the national government and States, or on the 
distribution of power and responsibilities among the various levels of 
government.\112\ Federal agencies promulgating regulations that have 
federalism implications must consult with State and local officials and 
describe the extent of their consultation and the nature of the 
concerns of State and local officials in the preamble to the final 
rule.
---------------------------------------------------------------------------

    \112\ 64 FR 43255 (Aug. 4, 1999).
---------------------------------------------------------------------------

    In the Department's view, these regulations will not have 
federalism implications because they will not have

[[Page 59154]]

direct effects on the States, on the relationship between the national 
government and the States, nor on the distribution of power and 
responsibilities among various levels of government. Section 514 of 
ERISA provides, with certain exceptions specifically enumerated, that 
the provisions of Titles I and IV of ERISA supersede any and all laws 
of the States as they relate to any employee benefit plan covered under 
ERISA. The requirements implemented in these rules do not alter the 
fundamental provisions of the statute with respect to employee benefit 
plans, and as such will have no implications for the States or the 
relationship or distribution of power between the national government 
and the States.
    The Department welcomes input from affected States regarding this 
assessment.

List of Subjects in 29 CFR Part 2520

    Annuity, Defined contribution plans, Disclosure, Employee benefit 
plans, Employee Retirement Income Security Act, Fiduciaries, Lifetime 
income, Pensions, Pension benefit statements, Plan administrators, 
Recordkeepers, Third party administrators.

    For the reasons set forth in the preamble, the Department of Labor 
is amending 29 CFR part 2520 as follows:

PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE

0
1. The authority citation for part 2520 continues to read as follows:

    Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and 
1135; and Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 
2012). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183, 
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3, 
2520.104b-1 and 2520.104b-3 also issued under 29 U.S.C. 1003, 1181-
1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1 
and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788. 
Sec. 2520.101-5 also issued under sec. 501 of Pub. L. 109-280, 120 
Stat. 780, and sec. 105(a), Pub. L. 110-458, 122 Stat. 5092.


 Sec. Sec.  2520.105-1 and 2520.105-2   [Reserved]

0
2. Add and reserve Sec. Sec.  2520.105-1 and 2520.105-2 to subpart F.

0
3. Add Sec.  2520.105-3 to subpart F to read as follows:


Sec.  2520.105-3   Lifetime Income Disclosure for Individual Account 
Plans.

    (a) Content requirements. At least annually, the administrator of 
an individual account plan must furnish a benefit statement pursuant to 
section 105(a) of the Employee Retirement Income Security Act of 1974 
(Act) that is written in a manner calculated to be understood by the 
average plan participant and that contains the information required by 
this section, based on the latest information available to the plan.
    (b) Total benefits accrued; lifetime income disclosure. A benefit 
statement described in paragraph (a) of this section must include:
    (1) The beginning and ending dates of the statement period;
    (2) The value of the account balance as of the last day of the 
statement period, excluding the value of any deferred income annuity 
described in paragraph (e)(2) of this section;
    (3) The amount specified in paragraph (b)(2) of this section 
expressed as an equivalent lifetime income stream payable in equal 
monthly payments for the life of the participant (single life annuity), 
determined in accordance with paragraph (c) or (e)(1) of this section; 
and
    (4) The amount specified in paragraph (b)(2) of this section 
expressed as an equivalent lifetime income stream payable in equal 
monthly payments for the joint lives of the participant and spouse 
(qualified joint and survivor annuity), determined in accordance with 
paragraph (c) or (e)(1) of this section.
    (c) Assumptions for converting an account balance into lifetime 
income streams. The account balance specified in paragraph (b)(2) of 
this section shall be converted to the lifetime income streams 
described in paragraphs (b)(3) and (4) of this section using the 
following assumptions:
    (1) Commencement date and age. (i) The first payment is made on the 
last day of the statement period (the commencement date); and
    (ii) The participant is age 67 on the commencement date, unless the 
participant is older than age 67, in which case the participant's 
actual age must be used for the conversions under this section.
    (2) Marital status. For purposes of paragraph (b)(4) of this 
section (relating to qualified joint and survivor annuity 
illustrations):
    (i) The participant has a spouse that is the same age as the 
participant; and
    (ii) The survivor annuity percentage is equal to 100% of the 
monthly payment that is payable during the joint lives of the 
participant and spouse.
    (3) Interest rate and mortality. (i) A rate of interest equal to 
the 10-year constant maturity Treasury securities yield rate for the 
first business day of the last month of the period to which the benefit 
statement relates; and
    (ii) Mortality as reflected in the applicable mortality table under 
section 417(e)(3)(B) of the Internal Revenue Code in effect for the 
calendar year which contains the last day of the statement period.
    (4) Plan loans. The account balance includes the outstanding 
balance of any participant loan, unless the participant is in default 
of repayment on such loan.
    (d) Explanation of lifetime income streams. Except as provided in 
paragraph (e) of this section, a benefit statement described in 
paragraph (a) of this section must include:
    (1)(i) An explanation of the commencement date and age assumptions 
in paragraph (c)(1) of this section.
    (ii) For purposes of paragraph (d)(1)(i) of this section, the plan 
administrator may use the following model language: ``The estimated 
monthly payments in this statement assume that payments begin [insert 
the last day of the statement period] and that you are [insert 67 or 
current age if older] on this date. Monthly payments beginning at a 
younger age would be lower than shown since payments would be made over 
more years. Monthly payments beginning at an older age would be higher 
than shown since they would be made over fewer years.''
    (2)(i) An explanation of a single life annuity.
    (ii) For purposes of paragraph (d)(2)(i) of this section, the plan 
administrator may use the following model language: ``A single life 
annuity is an arrangement that pays you a fixed amount of money each 
month for the rest of your life. Following your death, no further 
payments would be made to your spouse or heirs.''
    (3)(i) An explanation of a qualified joint and 100% survivor 
annuity, the availability of other survivor percentage annuities, and 
the impact of choosing a lower survivor percentage.
    (ii) For purposes of paragraph (d)(3)(i) of this section, the plan 
administrator may use the following model language: ``A qualified joint 
and 100% survivor annuity is an arrangement that pays you and your 
spouse a fixed monthly payment for the rest of your joint lives. In 
addition, after your death, this type of annuity would continue to 
provide the same fixed monthly payment to your surviving spouse for 
their life. An annuity with a lower survivor percentage may be 
available, and reducing the survivor percentage (below 100%) would 
increase monthly payments during your lifetime, but would decrease what 
your surviving spouse would receive after your death.''

[[Page 59155]]

    (4)(i) An explanation of the marital status assumptions in 
paragraph (c)(2) of this section.
    (ii) For purposes of paragraph (d)(4)(i) of this section, the plan 
administrator may use the following model language: ``The estimated 
monthly payments for a qualified joint and 100% survivor annuity in 
this statement assume that you are married with a spouse who is the 
same age as you (even if you do not currently have a spouse, or if you 
have a spouse who is a different age). If your spouse is younger, 
monthly payments would be lower than shown since they would be expected 
to be paid over more years. If your spouse is older, monthly payments 
would be higher than shown since they would be expected to be paid over 
fewer years.''
    (5)(i) An explanation of the interest rate assumptions in paragraph 
(c)(3) of this section.
    (ii) For purposes of paragraph (d)(5)(i) of this section, the plan 
administrator may use the following model language: ``The estimated 
monthly payments in this statement are based on an interest rate of 
[insert rate], which is the 10-year constant maturity U.S. Treasury 
securities yield rate as of [insert date], as required by federal 
regulations. This rate fluctuates based on market conditions. The lower 
the interest rate, the smaller your monthly payment will be, and the 
higher the interest rate, the larger your monthly payment will be.''
    (6)(i) An explanation of the mortality assumptions in paragraph 
(c)(3) of this section.
    (ii) For purposes of paragraph (d)(6)(i) of this section, the plan 
administrator may use the following model language: ``The estimated 
monthly payments in this statement are based on how long you and a 
spouse who is assumed to be your age are expected to live. For this 
purpose, federal regulations require that your life expectancy be 
estimated using gender neutral mortality assumptions established by the 
Internal Revenue Service.''
    (7)(i) An explanation that the monthly payment amounts required 
under paragraphs (b)(3) and (4) of this section are illustrations only.
    (ii) For purposes of paragraph (d)(7)(i) of this section, the plan 
administrator may use the following model language: ``The estimated 
monthly payments in this statement are for illustrative purposes only; 
they are not a guarantee.''
    (8)(i) An explanation that the actual monthly payments that may be 
purchased with the amount specified in paragraph (b)(2) of this section 
will depend on numerous factors and may vary substantially from the 
illustrations under this section.
    (ii) For purposes of paragraph (d)(8)(i) of this section, the plan 
administrator may use the following model language: ``The estimated 
monthly payments in this statement are based on prevailing market 
conditions and other assumptions required under federal regulations. If 
you decide to purchase an annuity, the actual payments you receive will 
depend on a number of factors and may vary substantially from the 
estimated monthly payments in this statement. For example, your actual 
age at retirement, your actual account balance (reflecting future 
investment gains and losses, contributions, distributions, and fees), 
and the market conditions at the time of purchase will affect your 
actual payment amounts. The estimated monthly payments in this 
statement are the same whether you are male or female. This is required 
for annuities payable from an employer's plan. However, the same amount 
paid for an annuity available outside of an employer's plan may provide 
a larger monthly payment for males than for females since females are 
expected to live longer.''
    (9)(i) An explanation that the monthly payment amounts required 
under paragraphs (b)(3) and (4) of this section are fixed amounts that 
would not increase for inflation.
    (ii) For purposes of paragraph (d)(9)(i) of this section, the plan 
administrator may use the following model language: ``Unlike Social 
Security payments, the estimated monthly payments in this statement do 
not increase each year with a cost-of-living adjustment. Therefore, as 
prices increase over time, the fixed monthly payments will buy fewer 
goods and services.''
    (10)(i) An explanation that the monthly payment amounts required 
under paragraphs (b)(3) and (4) of this section are based on total 
benefits accrued, regardless of whether such benefits are 
nonforfeitable.
    (ii) For purposes of paragraph (d)(10)(i) of this section, the plan 
administrator may use the following model language: ``The estimated 
monthly payment amounts in this statement assume that your account 
balance is 100% vested.''
    (11)(i) An explanation that the account balance includes the 
outstanding balance of any participant loan, unless the participant is 
in default of repayment on such loan.
    (ii) For purposes of paragraph (d)(11)(i) of this section, the plan 
administrator may use the following model language: ``If you have taken 
a loan from the plan and are not in default on the loan, the estimated 
monthly payments in this statement assume that the loan has been fully 
repaid.''
    (e) Special rules for in-plan annuities.--(1) Plans that offer 
distribution annuities. (i) If the plan offers single life and 
qualified joint and survivor annuities as distribution options pursuant 
to a contract with an issuer licensed under applicable state insurance 
law, the plan administrator may, but is not required to, use the 
contract terms to calculate the monthly payment amounts in paragraphs 
(b)(3) and (4) of this section instead of the assumptions in paragraph 
(c) of this section, except for the assumptions in paragraphs (c)(1) 
(relating to assumed commencement date and age) and (c)(2)(i) (relating 
to assumed marital status and age of spouse) of this section.
    (ii) Plan administrators that elect to use the contract terms, as 
permitted in paragraph (e)(1)(i) of this section, must, in lieu of the 
explanations required in paragraph (d) of this section, provide the 
explanations set forth in paragraph (e)(1)(iii) of this section. To 
obtain the limitation on liability provided in paragraph (f) of this 
section, such plan administrators also must use either the model 
language for each such explanation in paragraph (e)(1)(iii) of this 
section or the Model Benefit Statement Supplement set forth in Appendix 
B to this subpart.
    (iii) The benefit statement must include the following:
    (A)(1) An explanation of the commencement date and age assumptions 
in paragraph (c)(1) of this section.
    (2) For purposes of paragraph (e)(1)(iii)(A)(1) of this section, 
the plan administrator may use the following model language: ``The 
estimated monthly payments in this statement assume that payments begin 
[insert the last day of statement period] and that you are [insert 67 
or current age if older] on this date. Monthly payments beginning at a 
younger age would be lower than shown since payments would be made over 
more years. Monthly payments beginning at an older age would be higher 
than shown since they would be made over fewer years.''
    (B)(1) An explanation of a single life annuity.
    (2) For purposes of paragraph (e)(1)(iii)(B)(1) of this section, 
the plan administrator may use the following model language: ``A single 
life annuity is an arrangement that pays you a specified amount of 
money each month for the rest of your life. Following your death, no 
further payments would be made to your spouse or heirs.''

[[Page 59156]]

    (C)(1) An explanation of a qualified joint and survivor annuity and 
the survivor annuity percentage.
    (2) For purposes of paragraph (e)(1)(iii)(C)(1) of this section, 
the plan administrator may use the following model language: ``A 
qualified joint and survivor annuity is an arrangement that pays you 
and your spouse a specified monthly payment for the rest of your joint 
lives. When one spouse dies, the monthly payments continue to the 
surviving spouse for their life. If you die first, your spouse will 
receive [insert X %] of the monthly payment payable during your life. 
If your spouse dies first, you will receive [insert Y %] of the monthly 
payment.''
    (D)(1) An explanation of the marital status assumptions in 
paragraph (c)(2) of this section.
    (2) For purposes of paragraph (e)(1)(iii)(D)(1) of this section, 
the plan administrator may use the following model language: ``The 
estimated monthly payments for a qualified joint and survivor annuity 
in this statement assume that you are married with a spouse who is the 
same age as you (even if you do not currently have a spouse, or if you 
have a spouse who is a different age). If your spouse is younger, 
monthly payments would be lower than shown since they would be expected 
to be paid over more years. If your spouse is older, monthly payments 
would be higher than shown since they would be expected to be paid over 
fewer years.''
    (E)(1) An explanation of the contract's interest rate assumptions.
    (2) For purposes of paragraph (e)(1)(iii)(E)(1) of this section, 
the plan administrator may use the following model language: ``The 
estimated monthly payments in this statement are based on an interest 
rate offered by [insert name of insurer] under a contract with the 
plan. This rate may fluctuate. The lower the interest rate, the smaller 
your monthly payments will be, and the higher the interest rate, the 
larger your monthly payments will be.''
    (F)(1) An explanation of the contract's mortality assumptions.
    (2) For purposes of paragraph (e)(1)(iii)(F)(1) of this section, 
the plan administrator may use the following model language: ``The 
estimated monthly payments in this statement are based on how long you 
and a spouse who is assumed to be your age are expected to live. Life 
expectancy is estimated by using mortality assumptions adopted by 
[enter name of insurance company].''
    (G)(1) An explanation that the monthly payment amounts required 
under paragraphs (b)(3) and (4) of this section are illustrations only.
    (2) For purposes of paragraph (e)(1)(iii)(G)(1) of this section, 
the plan administrator may use the following model language: ``The 
estimated monthly payments in this statement are for illustrative 
purposes only; they are not a guarantee.''
    (H)(1) An explanation that the actual monthly payments that may be 
purchased with the amount specified in paragraph (b)(2) of this section 
will depend on numerous factors and may vary substantially from the 
illustrations under this section.
    (2) For purposes of paragraph (e)(1)(iii)(H)(1) of this section, 
the plan administrator may use the following model language: ``The 
estimated monthly payments in this statement are based on prevailing 
market conditions and other assumptions. If you decide to purchase an 
annuity, the actual payments you receive will depend on a number of 
factors and may vary substantially from the estimated monthly payments 
in this statement. For example, your actual age at retirement, your 
actual account balance (reflecting future investment gains and losses, 
contributions, distributions, and fees), and the market conditions at 
the time of purchase will affect your actual payment amounts. The 
estimated monthly payments in this statement are the same whether you 
are male or female. This is required for annuities payable from an 
employer's plan. However, the same amount paid for an annuity available 
outside of an employer's plan may provide a larger monthly payment for 
males than for females since females are expected to live longer.''
    (I)(1) An explanation as to whether the monthly payment amounts 
required under paragraphs (b)(3) and (4) of this section are fixed or 
may change over time, and how adjustments, if any, are determined.
    (2) For purposes of paragraph (e)(1)(iii)(H)(1) of this section, 
the plan administrator may use the following model language, as 
applicable: ``Unlike Social Security payments, the estimated monthly 
payment amounts in this statement do not increase each year with a 
cost-of-living adjustment. Therefore, as prices increase over time, the 
fixed monthly payments will buy fewer goods and services.''; OR ``The 
amounts shown in this statement will increase over time based on 
[insert general explanation of how any adjustment is determined, e.g., 
to reflect inflation, a cost-of-living adjustment, etc.]''
    (J)(1) An explanation that the monthly payment amounts required 
under paragraphs (b)(3) and (4) of this section are based on total 
benefits accrued, regardless of whether such benefits are 
nonforfeitable.
    (2) For purposes of paragraph (e)(1)(iii)(J)(1) of this section, 
the plan administrator may use the following model language: ``The 
estimated monthly payment amounts in this statement assume that your 
account balance is 100% vested.''
    (K)(1) An explanation that the account balance includes the 
outstanding balance of any participant loan, unless the participant is 
in default of repayment on such loan.
    (2) For purposes of paragraph (e)(1)(iii)(K)(1) of this section, 
the plan administrator may use the following model language: ``If you 
have taken a loan from the plan and are not in default on the loan, the 
estimated monthly payments in this statement assume that the loan is 
fully repaid.''
    (2) Participants that purchased deferred annuities. (i) If any 
portion of a participant's accrued benefit currently includes a 
deferred lifetime income stream purchased by the participant in the 
form of a single life annuity or a qualified joint and survivor annuity 
pursuant to a contract with an issuer licensed under applicable state 
insurance law, such as a deferred income annuity contract or a 
qualifying longevity annuity contract, the amounts payable under this 
contract with respect to this portion shall be disclosed on the 
participant's benefit statement in accordance with paragraph (e)(2)(ii) 
of this section, instead of in accordance with paragraphs (c) and (d) 
of this section.
    (ii) With respect to the portion of a participant's accrued benefit 
described in paragraph (e)(2)(i) of this section, the following 
information must be disclosed about such lifetime income payments:
    (A) The date payments are scheduled to commence and the age of the 
participant on such date;
    (B) The frequency and the amount of such payments payable as of the 
commencement date in paragraph (e)(2)(ii)(A) of this section, as 
determined under the terms of the contract, expressed in current 
dollars;
    (C) A description of any survivor benefit, period certain 
commitment, or similar feature; and
    (D) A statement whether such payments are fixed, adjust with 
inflation during retirement, or adjust in some other way, and a general 
explanation of how any such adjustment is determined.
    (iii) The portion of the participant's accrued benefit that was not 
used to purchase a deferred lifetime income stream described in 
paragraph (e)(2)(i) of this section, however, must be

[[Page 59157]]

converted to the lifetime income stream equivalents in accordance with 
paragraphs (c) and (d), or paragraph (e)(1), of this section.
    (f) Limitation on liability. No plan fiduciary, plan sponsor, or 
other person shall have any liability under Title I of the Act solely 
by reason of providing the lifetime income stream equivalents described 
in paragraphs (b)(3) and (4) of this section, provided that:
    (1) Such equivalents are derived in accordance with the assumptions 
in paragraph (c) or (e)(1)(i) of this section; and
    (2) The benefit statement includes language substantially similar 
in all material respects to:
    (i) Either the model language in paragraphs (d)(1)(ii) through 
(d)(11)(ii) of this section or the Model Benefit Statement Supplement 
set forth in Appendix A to this subpart; or,
    (ii) If applicable, either the model language in paragraphs 
(e)(1)(iii)(A)(2) through (e)(1)(iii)(K)(2) of this section or the 
Model Benefit Statement Supplement set forth in Appendix B to this 
subpart.
    (g) Additional lifetime income illustrations. Nothing in this 
section precludes a plan administrator from including lifetime income 
stream illustrations on the benefit statement in addition to the 
illustrations described in paragraphs (b)(3) and (4) of this section, 
as long as such additional illustrations are clearly explained, 
presented in a manner that is designed to avoid confusing or misleading 
participants, and based on reasonable assumptions.
    (h) Definitions. For purposes of this section:
    Participant. The term participant includes an individual 
beneficiary who has his or her own individual account under the plan, 
such as an alternate payee for example.
    (i) Dates. This section shall be effective on the date that is one 
year after the date of publication of the interim final rule, and shall 
be applicable to pension benefit statements furnished after such date.

0
4. Add appendices A and B to Subpart F to read as follows.

[[Page 59158]]

[GRAPHIC] [TIFF OMITTED] TR18SE20.295


[[Page 59159]]


[GRAPHIC] [TIFF OMITTED] TR18SE20.296


[[Page 59160]]


[GRAPHIC] [TIFF OMITTED] TR18SE20.297


[[Page 59161]]


[GRAPHIC] [TIFF OMITTED] TR18SE20.298


    Signed at Washington, DC, this 5th day of August 2020.
Jeanne Klinefelter Wilson,
Acting Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 2020-17476 Filed 9-17-20; 8:45 am]
BILLING CODE 4510-29-P