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Understanding the SECURE Act’s Lifetime Income Provisions

SECURE Act

The SECURE Act included three provisions that seek to foster greater adoption of guaranteed lifetime income products by DC plans and participants. But will they be enough? 

According to a recent webcast by the Groom Law Group, only time will tell. In the hour-long session, the firm’s Michael Kreps, Anthony Onuoha, Tom Roberts and Steve Saxon reviewed and offered observations for each of the three provisions, which include:  

  • the delivery of lifetime income illustrations to plan participants; 
  • the fiduciary safe harbor for the prudent selection of lifetime income providers; and 
  • allowing for the portability of "in-plan" lifetime income benefits in connection with a change in providers. 

Noting that the three provisions were a decade in the making, each provision seeks to address a perceived shortcoming that was believed to inhibit the broader adoption of lifetime income products by plan sponsors, as well as a lack of awareness by participants about how their account balances would translate into retirement income.  

Lifetime Income Illustrations

The primary intent behind this provision, according to Roberts, is to get plan participants to “start thinking about their account balances,” not only as a cumulative lump sum but also as a stream of income. “One might foresee increased demand at the participant level for lifetime income products inside the plan and, if that happens, the fiduciary safe harbor and portability provisions are going to become all the more important,” Roberts emphasized.  

The SECURE Act added the new “lifetime income disclosure” requirements to ERISA’s benefit statement rules. It applies to individual account plan benefit statements and the lifetime income disclosure must be provided in one benefit statement during each 12-month period, Roberts explained.

As to what must be provided, the new law requires that the participant’s total accrued benefit be expressed as a “lifetime income stream” in the form of a single life annuity and a qualified joint and survivor annuity, assuming the participant has a spouse of equal age. The assumptions for these disclosures will be provided later by the DOL. 

Roberts further observed that the new requirement does not apply until the Department of Labor (DOL) issues interim final rules that include lifetime income conversion assumptions and model lifetime income disclosures. The DOL has been given a statutory deadline to issue these items by Dec. 20, 2020. Kreps believes the DOL will work toward meeting this deadline, but added that, if they do not, there’s not necessarily an immediate consequence. The Groom attorneys also pointed out that under the SECURE Act, the DOL will be expected to produce a lot of guidance by the end of the year and there are a limited number of people at the agency who can “push this guidance out the door.”  

Importantly, this provision addresses earlier concerns by the plan sponsor community by providing fiduciary liability relief. Roberts explained that, in the runup to enacting this provision, plan sponsors had been worried about potential liability for shortfalls in the illustrations provided to participants. Under the legislation, plan fiduciaries, sponsors and related persons are relieved from any liability under Title I of ERISA, as long as the disclosures comply with the assumptions and rules to be specified by the DOL. 

Fiduciary Safe Harbor

In reviewing the history of the fiduciary safe harbor for the selection of a lifetime income provider, Saxon explained that many plan fiduciaries had expressed concern that several of the conditions in the 2008 safe harbor were “vague and subjectively worded.” As such, he noted that some of the terminology made it problematic for fiduciaries to prove prudence under the safe harbor, which essentially forced them to shy away from offering a lifetime income product within their DC plans. 


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Saxon noted that the SECURE Act seeks to clear up these issues by modifying or eliminating several of the subjective conditions of the 2008 safe harbor. Observing that the industry offerings are likely to evolve, the Groom attorneys further explained that the safe harbor provides a more encompassing definition of what lifetime options can be included within a plan. 

To that end, it specifies that the safe harbor covers the selection of “guaranteed retirement investment contracts,” which includes an annuity contract for a fixed term or a contract which provides guaranteed benefits annually (or more frequently) for at least the remainder of the life of the participant or the joint lives of the participant and beneficiary. 

The legislation also “gives fiduciaries responsible for selecting a product a pretty firm basis that they participated in a prudent process,” the Groom attorneys noted. Both Roberts and Saxon further emphasized that the safe harbor has the potential to make a big difference and is difficult to underestimate because it really gives the plan sponsor a straightforward path.   

Portability of ‘In-plan’ Benefits

Finally, the Groom attorneys explained how the SECURE Act added a “nifty fix” to what had been a difficult issue by adding a new lifetime income portability provision to Code Sections 401(a), 401(k), 403(b)(11) and 457(d)(i). Roberts explained how lifetime income products may only be supported by a single recordkeeper and it can become a “big problem” if a plan wanted to switch recordkeepers.  

Prior to the SECURE Act, plans wishing to move to a new recordkeeping platform faced the dilemma of either surrendering the lifetime product in order to transition to the new platform or “leaving behind” its lifetime income product with the original recordkeeper, resulting in a plan having two recordkeepers. 

The SECURE Act created a solution, however, by permitting both in-service trustee-to-trustee transfers of participants’ lifetime income product interests to other eligible plans, including IRAs, and the purchase of distributed annuities for purposes of preserving a participant’s accumulated benefit, during the 90-day period preceding the plan’s discontinuance of the product.

One thing to watch out for on these portability provisions is language giving Treasury and IRS some leeway in promulgating the regulations, the attorneys warned. 

A more in-depth summary of these lifetime income provisions by Groom can be found here.  

SECURE Act Sessions at Summit

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