The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 had a substantial effect on retirement plans and retirement planning in general. Clients soon will see one of those changes incorporated into the retirement statements they receive. The Department of Labor unveiled an interim final rule (IFR), which implements provisions of the SECURE Act (Section 203). The provision requires plan administrators to illustrate a lifetime income stream of payments. The IFR is the Lifetime Income Disclosure Rule, and it became effective on September 18, 2021. Here are some insights and how it may help clients plan for retirement.
You may be asking, is the incorporation of the lifetime income illustration mandatory for all plans by the 2021 year-end statements because the rule became effective September 18, 2021? Not quite. Per Section 203 of the SECURE Act, the lifetime income disclosure needs to be on one statement in a 12-month period. Participants should expect the illustrations in 2022. however, some may see them by the 2021 year-end statement.
Under the IFR, the illustration should show how a participant’s defined contribution balance will convert into monthly annuity payments. The administrator must illustrate both a single-life income stream as well as joint-life and survivor-life income streams at least once a year on the benefit statements:
Other kinds of annuities such as fixed, indexed, and deferred income annuities were not addressed here, but also are being strategically used in clients’ retirement plans. They’re worth evaluating as a complement to your clients’ portfolios.
So, this Thanksgiving if this fits your clients needs, think about reaching out to clients with an annuity strategy that could help them enjoy this special time in their lives and reduce their worries about running out of income. They likely will be extremely thankful for your wise guidance.
The beauty of this rule is that it makes it easier for financial professionals to have the protected retirement income discussion with clients. Requiring the plan administrators to show lifetime income on worker statements becomes the icebreaker for the conversation. Before the SECURE Act, clients might see what they feel is a large dollar amount and think it’s plenty for retirement. The incorporation of the new illustration in their statements will put into perspective exactly what the lump sum will produce in monthly income and may help clients consider different strategies for retirement.
The SECURE Act, when implemented, created some disarray for qualified plans and retirement strategies. However, it also introduced transparency, clarity, and education to enhance retirement planning for workers by adding the provision of lifetime income estimates on statements.
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