LIDA Update and Closed Plans Relief

Earlier this month, ERIC and two other trade associations delivered a letter to key elected officials on a proposed alternative to the Lifetime Income Disclosure Act (LIDA). As a reminder, the current version of LIDA would mandate that all plan sponsors include on retirement plan statements the annuitized amount of the individuals account balance. Over the years, ERIC has consistently objected to this mandate, which would drive up the cost to operate a retirement plan and cause confusion among plan participants.

Together with the other two trade associations, we provided an alternative approach and will advocate for this approach if the legislation, included in the Retirement Enhancement and Savings Act, proceeds further through the legislative process. ERIC supports passage of the Retirement Enhancement and Savings Act but would like to see the proposed alternative to LIDA included over the original version.

In this proposal, we advocate for additional flexibility to the plan sponsor in determining how to communicate the need to save for a lifetime of needs. We propose the figure included on the retirement statement be one of the following:

(a) a qualified joint and survivor annuity, (b) a single life annuity, (c) an amount equal to a percentage of the total accrued benefit as of the first year of retirement (such percentage being selected by the participant or beneficiary or otherwise reasonably designed to spread payments over the life of the participant or beneficiary), (d) an amount computed based on the remaining life expectancy of the participant or beneficiary (in accordance with the minimum distribution requirements of section 401(a)(9) of the Internal Revenue Code), or (e) an amount based on any other appropriate method of calculation, with the method being reasonably designed to provide retirement income over the life of the participant or beneficiary. Such lifetime income streams shall be based on reasonable assumptions and may have a term certain or other reasonable features.

As an alternative to providing one of the above options, a plan sponsor may satisfy the mandate by providing participants and beneficiaries access to a lifetime income modeling tool made available online, including through the Department of Labor’s website.

This alternative approach would provide the plan sponsor with the flexibility to determine how to best educate plan participants based on the workforce and the funds offered in the retirement plan. Please click here for a link to the letter. Let me know if you have any questions.

Closed Plans

On Friday, the IRS/Treasury Department provided for another year of non-discrimination testing relief to closed plans (for plan years beginning before 2020). Please click here for the notice. The additional year will provide us the opportunity to advocate for passage of legislation that would provide greater flexibility to plan sponsors with closed defined benefit plans to pass non-discrimination testing in future years. Please let me know if you have any questions regarding this notice.

Article by Will Hansen, Senior Vice President of Retirement Policy