SECURE Act: Lifetime Income Options (Sections 109, 203 and 204)

Employer-based retirement systems have moved away from traditional pension plans that provide a lifetime stream of annual or monthly payments, which has led to concerns that employees approaching retirement may not be adequately prepared to face a lack of consistency in their month-to-month income. To help counteract this trend, the SECURE Act includes several provisions that encourage both employers and participants to take advantage of lifetime income options, including new income portability design features, new participant disclosure requirements, and safe harbor guidelines for the selection of a lifetime income provider.

Effective for plan years beginning after 2019, the SECURE Act provides for an exception to any limit on in-service distribution options if a lifetime income option is no longer available under a plan. In those cases, the plan can allow distributions to another employer retirement plan or individual retirement account, or may allow distributions of a lifetime income investment in the form of a qualified annuity if the distribution is made within the 90-day period following the date the lifetime income investment is no longer an option under the plan.

Upon the issuance of applicable guidance from the Department of Labor, employers must include, in at least one participant benefit statement issued during any 12-month period, a lifetime income disclosure, the purpose of which will be to provide an estimate of what the participant could receive from the plan if their benefits were paid in the form of an annuity.

Lastly, under the rules and regulation of ERISA, plan fiduciaries must prudently select and monitor plan investment options. While existing regulations provide a safe harbor with respect to the selection of an annuity provider, the SECURE Act specifies optional steps that a plan fiduciary may take in selecting an insurer in order to fulfill ERISA requirements. The prudent steps include engaging in an objective search for potential insurers, evaluating the costs of the contract and concluding that the insurer is financially capable of meeting its obligations and that the costs are reasonable. This safe harbor will limit the potential exposure faced by plan fiduciaries when selecting a lifetime income provider.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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