The U.S. Department of Labor released today an interim rule that will require ERISA-governed retirement plans to annually illustrate participants’ savings balances as monthly income at retirement.

The new rule requires defined contribution retirement plans to provide monthly 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,” DOL said in a statement.

"Our goal is to help workers and retirees understand how savings translate to retirement income," Jeanne Klinefelter Wilson, acting assistant secretary of labor for the Employee Benefits Security Administration (EBSA), said in a release. "Defined contribution 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."

The regulation will mandate that the once-per-year participant statements show what a participant’s account balance would be worth if converted into a monthly income amount, both on a single life and qualified joint and survivor account (QJSA) basis.

The rule will impact the 660,000 defined contribution plans covered by ERISA that the DOL oversees as well as approximately 102 million workers who participate in such plans.

While the rule requires plan sponsors to show the impact of annuitization on each participant’s balance, the DOL said the rule does not require plans to offer an annuity distribution option.

That did not stop the annuities industry from celebrating the fact that not only does the SECURE Act allow plans to offer annuities for the first time, the DOL is now mandating disclosure of monthly annuitization.

“This is a critical provision of the SECURE Act that IRI [the Insured Retirement Institute] fought hard to include,” said Jason Berkowitz, Chief Legal and Regulatory Affairs Officer for the insurance industry trade group. “An illustration that translates retirement account balances into monthly income helps consumers to think of retirement savings more like a paycheck than a lump sum. The rule also should encourage workers to save more for retirement.”

According to IRI, the trade group’s research shows that workers want monthly income estimates and would actively save more for retirement if lifetime income estimates are provided on statements.

Ninety percent of workers said they want these estimates on their plan statements and find them useful, and 75% of workers said they would increase their retirement plan contributions after seeing the estimates, a recent IRI survey found.

To create the illustrations and monthly payout at retirement, plan sponsors or their advisors will be required to use participants’ account balances as well as three other assumptions the DOL proscribes in the rule: the age of the participant and the date payments are to begin, the assumed interest rate (the 10-year constant maturity Treasury (CMT) rate-currently 1.83%) and an assumed mortality or end date for payments.

Using the DOL’s assumptions for Participant X, who is 40, has an account balance of $150,000 and a planned retirement date of Dec. 31, 2022, their benefit statement would show that the participant would receive $645 per month in a single life annuity and $533 per month in a joint annuity, using the 10-year CMT rate of 1.83% per annum, if she or he were to retire December 31, 2022.

A factsheet on the new lifetime income rule is available here.

The requirements go into effect one year after publication in the Federal Register and will have a 60-day comment period, DOL said.