Lifetime Income Requirements: The New Frontier in Defined Contribution Plans?


During the past couple of years, lifetime income disclosure and distribution requirements have been a subject of interest in Congress as well as at the Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”). Lawmakers and regulators have expressed concern that few defined contribution (“DC”) plan participants think of their account balances in terms of the annual income the account balance will generate throughout retirement, leading them to save too little while they are working and spend the account balance too quickly in retirement. The recent activity in Congress and at the IRS and DOL suggests that some sort of lifetime income requirement will materialize in the next few years.

Activity at the IRS and DOL

In February 2010, the IRS and DOL released a Request for Information (“RFI”) announcing plans to review ERISA and the Internal Revenue Code to determine whether and how the retirement security of DC plan participants could be enhanced by improved access to arrangements that provide a stream of income after retirement. The RFI included detailed questions on a range of topics, including participant education, lifetime income disclosures in individual benefit statements, qualified joint and survivor annuity (“QJSA”) rules, selection of annuity providers and ERISA section 404(c) relief. The two agencies held a joint hearing in September 2010 to address the issues raised by the nearly 800 comments they received in response to the RFI....

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