The Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”) has added new lifetime income disclosure requirements to benefit statement rules under ERISA. The law requires that a participant’s total accrued benefit be expressed as a lifetime income stream in the form of a single life annuity. If the participant has a same-age spouse, the total accrued benefit must be expressed as a qualified joint and survivor annuity. These lifetime income stream disclosures must be provided in one benefit statement during each 12-month plan period.
This new requirement does not apply until the Department of Labor issues interim final rules to include several assumptions, including lifetime income conversion and model lifetime income disclosures. The statutory deadline to issue these interim final rules is December 20, 2020.
Fiduciary Safe Harbor
The SECURE Act provides a new, optional safe harbor for plans offering a lifetime income option. Employers that had been reluctant to offer lifetime income options over liability concerns that an insurer may be unable to fulfill its payment obligations now enjoy a safe harbor to alleviate these concerns as long as they fulfill their fiduciary duties by:
- Engaging in a thorough, objective, and analytical search to identify insurers from which to purchase an annuity;
- Considering the financial capability of each insurer chosen to fulfill its obligations under the contract and weighing the cost of the annuity contract against its features, benefits and administrative services provided; and
- Concluding that the chosen insurer is financially capable of meeting its obligations at a reasonable cost at the time of selection.
In addition, an insurer may provide plan providers with a disclosure that satisfies the requirement of showing that the insurer can meet its financial obligations. This disclosure does not relieve an employer from its responsibility to thoroughly vet the financial stability of an insurer and take cost into consideration prior to making a choice of provider.
Having satisfied these requirements, a fiduciary is relieved of liability for any losses that may result from an insurer’s failure to satisfy its financial obligations under the contract.
Lifetime Income Option Portability
Once a plan participant has chosen a lifetime income option, the annuity can be transferred in a direct trustee-to-trustee transfer between qualified plans, including IRAs, if the lifetime income option is removed from the original plan’s investment options. The transfer must be made within a 90-day period that ends on the date when the lifetime income investment is no longer an option under the plan.
We help organizations set up the benefits plans that are right for their members, put processes in place to ensure regulatory compliance, and keep those benefit plans updated based on changes in laws and regulations. To learn more about the services we offer at Hall Benefits Law, call 678-439-6236 today.
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