Updates: DOL Guidance on Lifetime Income Disclosures; IRS Tax Relief in Disaster Areas

NOVEMBER 2, 2021

The U.S. Department of Labor (DOL) recently issued frequently asked questions (FAQs) to clarify the interim final rule implementing the Lifetime Income Disclosure requirement mandated under the SECURE Act.

Additionally, the IRS issued several announcements providing tax relief for many recent victims in federally declared disaster areas. Following are details on both items.

Lifetime Income Disclosures: FAQs on Timing, Benefit Illustrations and Upcoming Guidance

Certain ERISA-covered defined contribution plans — including profit-sharing plans, 401(k) plans, and 403(b) plans — are now required to provide Lifetime Income Disclosure illustrations to participants at least once every 12 months. The Lifetime Income Disclosures are intended to give participants a realistic picture of what their monthly retirement income would look like based on their current retirement savings or current rate of savings. The rule became effective on September 18, 2021, and applies to benefit statements issued after such date. The FAQs recently issued by the DOL answer questions regarding timing, lifetime benefit illustrations, and upcoming guidance.

The FAQs include the following:

  • Q&A1 clarifies that for participant-directed plans that issue quarterly benefit statements, the lifetime income illustration must be included on just one of the benefit statements provided in a 12-month period. The deadline to issue the first disclosure is within one year of the rule’s effective date of September 18, 2021. Therefore, in order to meet the deadline for the initial disclosure, Lifetime Income Disclosures must be included on any quarterly statement issued after September 18, 2021, but no later than with the benefit statement issued for the second quarter of 2022. In other words, delaying beyond Q2 2022 is not permitted because benefit statements for Q3 2022 would be too late, i.e., they would be issued after one year of the rule’s effective date of September 18, 2021.

  • Q&A2 clarifies that for non-participant-directed plans that issue only one annual benefit statement, the initial Lifetime Income Disclosure must be issued to participants for the first plan year ending on or after September 18, 2021. For calendar year plans, the first disclosure would be due with the benefit statement for the 2021 calendar year.

  • Q&A3 makes clear that lifetime income estimates need only be based on a plan participant’s savings to date. However, the guidance clarifies that the Lifetime Income Disclosures may also provide lifetime income estimates based on projected future contributions or in-plan annuity options.

  • Q&A4 clarifies that the DOL intends to issue final rules as to Lifetime Income Disclosures as soon as possible. The DOL did not commit to providing any further transition relief before the rule is finalized.

These FAQs are characterized as temporary because they are based on an interim final rule. Plan sponsors should be aware that the final rule could contain different and/or additional guidance.

IRS Announces Tax Relief for Taxpayers in FEMA-Declared Disaster Areas

The IRS has issued several announcements providing tax relief for many recent victims located in federally declared disaster areas, as declared by FEMA. This means the IRS has postponed the tax-filing deadlines for taxpayers who reside or have businesses in these areas, which cover many states and disasters, including the California wildfires as well as Hurricanes Ida, Michael, Dorian and Florence.

The affected individuals and businesses with October 15 deadlines to file tax returns will now have until January 3, 2022, to file. A complete list of the recent tax relief announcements can be found on the IRS website at www.irs.gov/newsroom/tax-relief-in-disaster-situations.

If you have any questions or would like additional information, please contact your USI Consulting Group representative, email us at information@usicg.com or visit our website at www.usicg.com.