401(k) and 403(b) Plans Proposed to Show “Stream of Income Payments” to Employees

The Department of Labor has Published an Advance Notice of Proposed Rulemaking. This Rulemaking Focuses on “Lifetime Income Illustrations in Periodic Pension Benefit Statements of Defined Contribution Pension Plans, Such as 401(k) and 403(b) plans”.

The Department of Labor Through the Employee Benefits Security Administration is Proposing to Show Account Balances of Defined Benefit Plans as an Estimated Stream of Payments in Addition to Being Presented as an Account Balance.

“A participant’s pension benefit statement would show his or her current account balance and an estimated lifetime income stream of payments based on such balance. The lifetime income illustration would assume the participant had reached normal retirement age as of the date of the benefit statement, even if he or she is much younger.”

For a participant who has not yet reached normal retirement age, his or her pension benefit statement also would show a projected account balance and the estimated lifetime income stream based on such balance. A participant’s current account balance would be projected to normal retirement age based on assumed future contributions and investment returns. The projected account balance would be converted to an estimated lifetime income stream of payments, assuming that the person retires at normal retirement age. This account balance and the related lifetime income payment would be expressed in current dollars.

Both lifetime income streams (i.e., the one based on the current account balance and the one based on the projected account balance) would be presented as estimated monthly payments based on the expected mortality of the participant. In addition, if the participant has a spouse, the lifetime income streams would be based on the joint lives of the participant and spouse.

Pension benefit statements would contain an understandable explanation of the assumptions behind the lifetime income stream illustrations. Pension benefit statements also would contain a statement that projections and lifetime income stream illustrations are estimates and not guarantees.”

You can see the full fact sheet at http://www.dol.gov/ebsa/newsroom/fsanprm.html

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