DOL Releases Long-Awaited 401(k) Fee Disclosure Rule

The Department also announced that in the near future it intends to publish for public comment a separate proposal that would require service providers, in addition to providing the required fee and investment expense information, to furnish a guide or similar tool to assist plan fiduciaries in identifying and locating the potentially complex information that must be disclosed and which may be located in multiple documents.

EBSA says that the effective date of the final rule works in conjunction with the compliance date of the department’s participant-level disclosure regulation, 404(a)(5), which requires plan administrators to give workers in 401(k)-type plans easy-to-understand information in order to comparison shop among the plan investment options available to them.

From Treasury, Lifetime Income Guidance

On the same day that Labor announced its final 401(k) rules, the Treasury Department issued proposed guidance for employers on how best to integrate so-called “lifetime income” products into 401(k)s and other employer-sponsored retirement plans.

Treasury’s guidance came partly from comments received in response to Treasury and DOL’s joint request for information on the desirability and availability of lifetime income alternatives in retirement plans. The guidance, Treasury says, will help Americans meet their need for income during retirement by:

Encouraging Partial Annuity Options: Treasury’s guidance reports that retirement plan participants are often confronted with a “cash or annuity” decision upon retirement. Given an all-or-nothing choice, many opt for a lump sum and decline the lifetime income stream because they are unaware they have the option to combine approaches. The proposed regulation changes a regulatory requirement to make it simpler for defined-benefit pension plans to offer combinations of lifetime income and a single-sum cash payment. This is designed to encourage more retirees to consider partial annuities, which allow for retirees to receive a steady stream of income for the duration of their lifetimes while also keeping a portion of their savings invested in assets with the flexibility to respond to liquidity needs.

Removing a Key Obstacle to “Longevity” Annuities: Another proposed regulation expands on the combination approach by removing a regulatory impediment to purchasing a deferred “longevity” annuity. This change would make it easier for retirees to use a limited portion of their savings to purchase guaranteed income for life starting at an advanced age. Annuities of this type would provide an efficient way for 65- or 70-year-olds to address the risk of outliving their assets by purchasing a predictable income stream starting at age 80 or 85. Once that risk is addressed, a retiree’s task of generating income from the remaining assets is more manageable because it is limited to a fixed period of time.

Clarifying Rules for Plan Rollovers to Purchase Annuities and Spousal Protection Rules for 401(k) Deferred Annuities: Two revenue rulings issued by Treasury clarify how rules protecting employees and spouses apply when plan sponsors offer lifetime income options under their plans. The first ruling clarifies how the rules apply when employees are given the option to use a single-sum 401(k) payout to obtain a low-cost annuity from their employer’s pension plan. The second ruling clarifies that employers can offer their employees the option to use 401(k) savings to purchase deferred annuities and still satisfy spousal protection rules with minimal administrative burdens. Both of these rulings would facilitate the availability of flexible options for employees so that they can better use their 401(k) savings to achieve financial security in retirement.