That’s why the Department of Labor (DOL) really wants to get it right. In May, the DOL’s Employee Benefits Security Administration (EBSA) issued an advance notice of proposed rulemaking on lifetime income illustrations for defined contribution (DC) plan participants to provide an opportunity for stakeholders to give early input into the development of regulations (see “DOL Seeks Comments About Lifetime Income Data”). The deadline for comments was July 8, but EBSA has now extended the comment period to August 7 (see “DOL Extends Lifetime Income Comment Period”).
Sources say the DOL’s actions are commendable, but they want to make certain income projections are presented in a way most helpful for participants. Many providers already offer lifetime income projections and want to ensure the DOL doesn’t stifle what’s currently in place. “We’re looking to make sure these kinds of guidelines don’t prevent future innovation,” Sri Reddy, head of institutional income and capital markets at Prudential Retirement, told PLANSPONSOR.
The DOL said in its notice that it is important to create projections that are meaningful and not overly burdensome for plan administrators to perform; as well as create a regulatory framework that does not disturb current projection and illustration best practices, or stifle innovation.
Reddy said Prudential is assembling a team to submit comments to the DOL about their thoughts on the advance notice.
Industry leaders have also voiced concerns about possible consequences of the safe harbor the DOL mentions in the advance notice. The DOL is considering a "reasonableness" standard as a general rule combined with a regulatory safe harbor. The general rule would permit a broad array of projection best practices to continue, while the safe harbor would offer certainty for those plan administrators who seek that result or who do not currently provide projections, according to the DOL.
"Plan administrators who follow the deterministic conditions of the safe harbor would have the comfort of knowing they have satisfied the primary elements of the general rule (i.e., those elements of the general rule that otherwise would require discretionary activity of the plan administrator). In this regard, the safe harbor would be an option and not a regulatory requirement," the DOL said in its advance notice.
Charlie Nelson, president at Great-West Retirement Services, said his issue with the safe harbor is that it may lower the standard for lifetime income projections. Many providers are currently using a robust lifetime income projection, and the safe harbor may encourage plan sponsors to choose a bare-bones approach. "We're concerned that it's going to dummy down [projections] and stifle innovation, and I'm sure that's not what the DOL had intended or wants," Nelson said.
Bob Holcomb, executive director, legislative and regulatory affairs at J.P. Morgan, said he also thinks the safe harbor could encourage the adoption of a lower standard. "We are concerned that the safe harbor might crowd out other more robust lifetime income projections that are currently being used," he said, adding that J.P. Morgan is considering sending comments to the DOL.
Overall, sources agree that the DOL's request for comments is a great step in the right direction. "We definitely agree with the DOL that lifetime income projections give participants a better context for measuring their retirement readiness," said David Musto, chief executive officer of J.P. Morgan Retirement Plan Services.
No matter what the DOL decides, it's important for plan sponsors and providers to make it clear that projections are simply projections and not guaranteed values, said Gopi Shah Goda, senior research scholar at the Stanford Institute for Economic Policy Research. Goda recently helped write a brief for the Center for Retirement Research at Boston College titled, "Do Income Projections Affect Retirement Saving?" "In this type of projection, there's no way to get around the fact that it's going to be subject to a lot of assumptions," Goda said, so it's useful to communicate with participants about how the numbers are generated.