DOL moves forward on lifetime income illustration

On May 8, the Department of Labor (DOL) published proposed rules for modifying DC plan participants’ annual benefit statements. In addition to showing benefit accruals, the rule could require an estimate of the “lifetime stream of payments” in retirement. The proposed rule and related information are at www.dol.gov/ebsa.

The Department of Labor’s Lifetime Income Calculator.

DOL is going down this road because it believes “participants may have difficulty envisioning the lifetime monthly income that can be generated from an account balance.” The best way to understand EBSA’s methodology is to test its calculator.

EBSA assumes (for now) that the participant’s wages will increase by 3 percent per year, and the DC plan will average a 7 percent nominal annual investment return, and inflation will average 3 percent annually. For calculating the income stream, EBSA annuitizes the inflation-adjusted retirement-age balance using the 10-year constant maturity Treasury interest rate.