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Regulation and Compliance > Federal Regulation

5 Things to Know About the New 401(k) Plan Illustration Regs, for Agents

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The Employee Benefits Security Administration (EBSA), an arm of the U.S. Department of Labor, is about to enter a world next to your world.

EBSA is about to require sponsors of 401(k) plans and other retirement plans to give the participants statements illustrating how the plan accounts are likely to perform.

The statements will show the participants how their plan assets may translate into a monthly stream of income at retirement.

In other words: The United States has life insurance policy performance illustration rules, and annuity contract performance illustration rules. And now it’s going to have retirement plan income illustration rules.

The agency today unveiled “Pension Benefits Statements — Lifetime Income Illustrations,” an interim final rule implementing the annual plan statement requirements.


EBSA developed the regulations to implement a provision in the recently passed Setting Every Community Up for Retirement Enhancement Act of 2019 (Secure Act).

The Secure Act provision changed part of the Employee Retirement Income Security Act of 1974 (ERISA). ERISA Section 105 now requires the administrators of 401(k) plans to send out plan retirement income forecast statements at least once a year.

The Insured Retirement Institute, the American Council of Life Insurers and other industry groups have been lobbying for an annual statement provision for years, and the provision has had bipartisan support. Advocates have seen the provision as a way to get plan participants to think about the future, in a way that conservative Republicans, progressive Democrats, and lawmakers in the middle can all support.

EBSA notes in the preamble, or official introduction, to the interim final regulations that it proposed annual retirement plan income statement regulations back in 2013. That proposal came out under the administration of former President Barack Obama.

Because the income illustration statement concept has had bipartisan support, the current regulatory project might continue to move forward regardless of the outcome of the upcoming general elections.

EBSA has posted an informal version of the new interim regulations on its own website. The regulation is set to take effect one year after the regulation is published in the Federal Register. EBSA expects the Federal Register to publish the regulations soon but is not sure when.

In theory, getting the statements could push some workers to ask financial professionals for retirement planning advice. Financial professionals could market their services by offering to talk to consumers about their plan income illustrations.

Here are five other things to know about the annual statement program, as described in the new

1. The Format

A statement will have to show the participant’s current account balance, both as a single life annuity and a qualified joint and survivor annuity income stream.

The two illustrations must appear on the same statement, and they will show how the account balance might translate into a lifetime stream of income at retirement.

2. The Regulations and Life Insurers

EBSA officials show in the preamble to the regulations that they now are keenly interested in how life insurance companies illustrate the performance of annuities.

EBSA officials use words such as “insurer” and “insurance” about 40 times in the 112-page regulatory packet.

EBSA officials refer directly to the Insured Retirement Institute,  the American College and the New York Life Center for Retirement Income. They also cite papers prepared by academic researchers familiar to the life insurance community, such as Alicia Munnell and Jeffrey Brown.

3. Inflation-Adjusted Immediate Annuities

The new regulations could get regulators, plan administrators, plan sponsors, insurers and, possibly, workers more interested in inflation-adjusted immediate annuities.

That’s because EBSA is thinking of basing the monthly income payment amounts in the illustrations on the benefits that would be available to purchasers of inflation-adjusted deferred income annuities

Officials ask whether that’s a good approach.

“The [Labor] 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,” officials write. “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.”

If EBSA and its parent do continue to base the income illustrations on the performance of inflation-adjusted income annuities, players in the market may suddenly have more interest in those types of annuities, and the continued existence of those types of annuities.

4. Drafters try to ease assumption the statement senders’ assumption burdens.

EBSA officials say, for example, that the interest rate used in the illustrations should be based on a rate that will be tied to the performance of U.S. Treasury securities, as of a specified date.

The plan will base the participant’s life expectancy using mortality assumptions established by the Internal Revenue Service.

5. People and Comments

EBSA lists Rebecca Davis and Kristen Zarenko as the contact people for the regulations.

EBSA has asked many questions about how it could improve the interim final regulations. Responses to those questions and other comments will be due 60 days after the regulations’ official Federal Register publication date.

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© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.