On May 7th, 2013, the U.S. Department of Labor announced advance notice of proposed rulemaking regarding pension benefit statements required of defined contribution plans. The proposed rules would require a participant’s accrued benefits to be expressed as an estimated lifetime stream of payments, as well as an account balance. This requirement is intended to give participants in defined contribution plans better information so as to create more incentives to save for retirement.

New Rules Regarding Reporting Requirements Under ERISA

Section 105 of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by section 508 of the Pension Protection Act of 2006, requires administrators of defined contribution plans to provide pension benefit statements to participants. A benefit statement must include the participant’s “total benefits accrued.”

The proposed rules would require the benefit statement to include an estimated lifetime stream of payments based on the participant’s current account balance. This estimate would assume the participant had reached the normal retirement age, even if the participant is young.

Additionally, the statement would show the projected account balance, and the lifetime income stream that balance would generate. This projection would be created by taking the current account balance, projecting it to the normal retirement age based on assumption of future contributions and investment returns. The projected account balance would then be converted to an estimated lifetime income stream of payments.

The proposed rules would include a methodology for plan administrators to use in calculating a participant’s projected account balance. The Department of Labor is considering both a reasonableness standard as well as a regulatory “safe harbor” standard. The general rule for calculating projected account balances would not require one specific method. Instead, it would need to be reasonable in light of generally accepted investment theories, and must consider future contributions, returns, and inflation.

The safe harbor would be narrowly defined so as to give plan administrators confidence that their illustrations meet the requirements of the rule. The safe harbor would prescribe a certain set of assumptions regarding contributions, returns, and inflation. The set of assumptions would be considered per se reasonable for these purposes.

Fraser Stryker is a leader in employee benefits law. Attorneys in the Firm’s Employee Benefits & ERISA Practice Group advise individuals, business entities, governments, and nonprofit/tax-exempt organizations on a wide variety of employee benefits matters and transactions. Fraser Stryker works with employers to implement and maintain employee benefit plans that help attract and retain top talent. Fraser Stryker also represents ERISA plan fiduciaries and service providers advising them on their duties and responsibilities. For more information on the proposed pension benefit statement rules, please contact Nicole R. Konen, or Emily Wischnowski.

Formed in 1898, Fraser Stryker has grown to become a nationally recognized law firm that represents local, national, and multinational clients in complex business transactions and litigation matters. Fraser Stryker attorneys participate actively in a wide array of community organizations. Visit our home page for more information about us.

This article is provided by Fraser Stryker for general informational purposes and is not intended to be and should not be construed as legal advice on any specific facts or circumstances.

Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein.