Compliance August 18, 2020

DOL Releases Interim Final Rule on Lifetime Income Illustrations

The interim final rule includes assumptions plan administrators must use to calculate estimated lifetime benefit payments to be included on retirement plan participant statements.

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The U.S. Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) released an interim final rule implementing Section 203 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which requires that a retirement plan participant’s accrued benefits be included on his benefit statement as a current account balance and as an estimated lifetime stream of payments.

Using assumptions set forth in the rule, plan administrators will show participants equivalents of their retirement savings as monthly income under two potential scenarios—first, as a single life income stream, and second, as an income stream that factors in a survivor benefit.

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Under the interim final rule, retirement plan statements would include lifetime income illustrations using prescribed assumptions designed to give savers a realistic illustration of how much monthly retirement income they could expect to purchase with their account balance. The statements also will provide explanations about what the lifetime income illustrations mean and the assumptions used to calculate the illustrations. 

To help ease the administrative burdens on plan administrators, the interim final rule includes model language that may be used for these explanations. Plan fiduciaries that use the regulatory assumptions and the model language prescribed by the rule will qualify for liability relief and will not be held liable in the event participants are unable to purchase equivalent monthly payments.

The interim final rule will be effective 12 months after the date of its publication in the Federal Register. There is a 60-day comment period, and the DOL says it will use comments to improve the rule before its effective date.

Details of the Assumptions

According to a fact sheet provided by the EBSA, plan administrators must calculate monthly payment illustrations as if the payments begin on the last day of the benefit statement period. They must assume that a participant is age 67 on the assumed commencement, which is the Social Security full retirement age for most workers, or use the participant’s actual age, if older than 67.

Plan administrators must use the 10-year constant maturity Treasury rate (10-year CMT) as of the first business day of the last month of the statement period to calculate the monthly payments. The 10-year CMT approximates the rate used by the insurance industry to price immediate annuities. They must use the gender-neutral mortality table in Section 417(e)(3)(B) of the Internal Revenue Code—the mortality table generally used to determine lump-sum cash-outs from defined benefit (DB) plans.

The fact sheet also includes assumptions for spousal and survivor benefits and an example using the regulatory assumptions.

“Our goal is to help workers and retirees understand how savings translate to retirement income,” said Acting Assistant Secretary of Labor for the EBSA Jeanne Klinefelter Wilson in a DOL announcement. “Defined contribution [DC] plan savings are meant to stretch across the years of retirement. When workers are reminded of what their balances could mean in terms of an estimated monthly dollar amount, they can use this information to plan both savings and spending.”

Compliance August 18, 2020

Retirees Sue Liberty Mutual for Retirement Health Coverage

The plaintiffs in a new ERISA lawsuit say Liberty Mutual is not meeting the terms of summary plan descriptions sent to certain employees after the company’s 2008 Safeco acquisition.

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A proposed class of plaintiffs has filed a new Employee Retirement Income Security Act (ERISA) lawsuit against Liberty Mutual Insurance Co. and its retirement and health care plans.

The lawsuit, filed in the U.S. District Court for the District of Massachusetts, accuses Liberty Mutual of failing to provide to certain former employees “a valuable set” of allegedly promised medical benefits, including post-retirement health care coverage benefits under the Liberty Mutual Health Plan.

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Plaintiffs say the summary plan descriptions (SPDs) that regularly went to employees describing the health care plan, and additional statements by Liberty personnel, all promised these valuable post-retirement medical benefits “commensurate with their years of service,” or “consistent with their hire date.”

“The more tenure an employee had, the greater their benefits under the plan,” the complaint states. “Importantly, Liberty Mutual and the plan promised [plaintiff] and his colleagues that prior years of service with companies Liberty Mutual had acquired, like Safeco Insurance in the case of [plaintiff], would all be counted toward the ‘years of service’ component when calculating Liberty Mutual retirement benefits. The hire date used for calculating retirement benefits, in other words, would be the original hire date at the acquired company.”

The lawsuit states that the lead plaintiff and “hundreds of his colleagues” were part of Safeco when Liberty Mutual acquired that company in about 2008. According to the complaint, when the lead plaintiff retired in 2019, he had worked for 38 years for Safeco/Liberty Mutual.

“Thus, Liberty Mutual had originally promised, in short, to credit [him] with his 38-plus years of total service for purposes of calculating his retirement medical benefits,” the complaint states. “Liberty Mutual made the same promise to everyone who came over from Safeco in the acquisition. However, once it was time for [the plaintiff] and others to retire or apply for their promised benefits, Liberty Mutual reneged. Liberty now takes the position that the prior years of service with Safeco should never have been counted and that they will not be counted.”

The complaint suggests that Liberty Mutual has cut back in this way on promised benefits going to about 700 of its current and former employees. According to the complaint, the lead plaintiff appealed the decision directly to Liberty Mutual and its retirement/health plan committees, but was not successful. The suit states that the plaintiff has exhausted all his administrative remedies to no avail. 

“Liberty Mutual even refused to fairly respond to inquiries and requests for plan information even though it, as a fiduciary, had an obligation to comply,” the complaint states.

Much of the text of the complaint is dedicated to an explanation of what language is and is not allegedly contained in the SPDs at the center of the lawsuit. Additionally, the complaint states that defendants never provided anything in writing clearly indicating that the years of service at Safeco would be excluded for the purpose of calculating benefits.

“The SPDs expressly referred to former employees of Safeco as being ‘grandfathered’ into Liberty Mutual and its retirement plan/benefits,” the complaint states. “The SPDs continued to do so for about 10 years and never suggested that Safeco time would somehow be excluded from the calculation of retirement benefits until [the lead plaintiff in this case] first claimed benefits or objected to not receiving his credit for his Safeco years, and until after [this individual] had many calls with Liberty Mutual and sent correspondence to Liberty Mutual pointing out that the plan and the SPDs promised credit for the Safeco years. Only in 2019, after [plaintiff] reminded Liberty Mutual of its prior promises, did Liberty attempt to modify its SPDs to, now, purportedly exclude Safeco time from prior service credit.”

Liberty Mutual has not yet responded to a request for comment about the lawsuit.

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