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Lifetime Income Illustrations in the SECURE Act



Here they come. If your plan provider wasn't already doing this, they will be providing lifetime income illustrations beginning after September 18th. Most providers will start this with the December 31st statements. The illustration must show the value of the participant's balance as of the last day of the statement period. That balance must be expressed as a lifetime income stream commencing on the last day of the statement period as both a single life annuity as well as a joint and survivor annuity.


The DOL (Department of Labor) guidance stipulates the interest rate, life expectancy and other assumptions that need to be used for these illustrations to meet the safe harbor. For Plan Administrators, the issue is going to be one of communication. Currently not a lot of participants take their assets at retirement and annuitize those in retirement. These illustrations are assuming that a participant does that with all of their assets. For very conservative investors, the transfer of risk to an insurance company to provide income in retirement could be worth the downsides of purchasing an annuity (limited flexibility, loss of market upside, etc.). For those who haven't saved enough, the annuity projections could be deflating. It is key for those folks to remember that the illustrations are not customized and that their retirement date, outside assets, part time income and social security strategy will all determine their success in retirement. As we enter into this new requirement there will likely be a handful of participants that have questions. In this case, an ounce of preparation can save you some headaches down the road.

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