Pension Benefit Statements-Lifetime Income Illustrations

Citation85 FR 59132
Published date18 September 2020
Record Number2020-17476
SectionRules and Regulations
CourtEmployee Benefits Security Administration
Federal Register, Volume 85 Issue 182 (Friday, September 18, 2020)
[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)
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                $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.
                [[Page 59134]]
                 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.
                ---------------------------------------------------------------------------
                 \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\
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                (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\
                ---------------------------------------------------------------------------
                 \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.
                ---------------------------------------------------------------------------
                 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\
                ---------------------------------------------------------------------------
                 \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\
                ---------------------------------------------------------------------------
                 \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.
                ---------------------------------------------------------------------------
                 \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\
                ---------------------------------------------------------------------------
                 \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.
                ---------------------------------------------------------------------------
                 \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\
                ---------------------------------------------------------------------------
                 \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.
                ---------------------------------------------------------------------------
                 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.
                ---------------------------------------------------------------------------
                 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\
                ---------------------------------------------------------------------------
                 \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\
                ---------------------------------------------------------------------------
                 \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\
                ---------------------------------------------------------------------------
                 \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]]
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                 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
                

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