Lifetime Income Illustrations for 403(b) Plans With Annuities

“We are a health care organization that sponsors an ERISA 403(b) plan that is recordkept by an insurance company. Our plan offers both annuities and mutual funds. I read recently that the SECURE Act requires an annual illustration of the annuity that could be purchased from plan assets. Since our recordkeeper already provides customized statements of the monthly benefit that their retirement plan account balance could purchase in the form of an annuity, is there any additional action we would need to take in this regard?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

Since your plan is subject to the Employee Retirement Income Security Act (ERISA), you will need to confirm that your recordkeeper is providing an annuity illustration that conforms to Department of Labor (DOL) guidance on the Setting Every Community Up for Retirement Enhancement (SECURE) Act provision, specifically the Interim Final Rule on Lifetime Income Illustrations.

Given the fact that the new illustration requirements are effective on September 18, 2021, you may also want to take the time prior to the effective date to provide more general information to participants on the annuity benefits your plan offers. In the Experts’ experience, though many participants invest in deferred annuities in their 403(b) plans, relatively few actually choose to annuitize their benefit at retirement, instead choosing a lump-sum distribution or partial payments. Also, you can take the time to inform those participants who are invested in only mutual funds under your plan that, if they wish to annuitize all or some their benefit, they would need to invest in the plan’s annuity contract as well (unless the plan offers a separate in-plan distribution annuity option to mutual fund contact holders, which is unusual in the Experts’ experience).

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.