Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 26727 

two-piece corner reveal in accordance with 

the requirements of paragraph (u) of this AD. 

(i) If any sharp edge is found during any 

inspection required by paragraph (t)(2) of this 

AD, before further flight, rework the corner 

reveal, in accordance with Part 1 of the 

Accomplishment Instructions of Boeing 

Special Attention Service Bulletin 747–53– 

2460, Revision 2, dated December 22, 2010. 

(ii) If any cracking is found during any 

inspection required by paragraph (t)(2) of this 

AD, before further flight, replace the corner 

reveal with a 6061 machined aluminum twopiece corner reveal, in accordance with Part 

3 of the Accomplishment Instructions of 

Boeing Special Attention Service Bulletin 

747–53–2460, Revision 2, dated December 

22, 2010. 

(u) New Terminating Action for Repetitive 

Inspections 

Installation of a 6061 machined aluminum 

two-piece corner reveal in accordance with 

Part 3 of the Accomplishment Instructions of 

Boeing Special Attention Service Bulletin 

747–53–2460, Revision 2, dated December 

22, 2010, terminates the repetitive 

inspections required by paragraphs (r), (s), 

and (t) of this AD. 

(v) Credit for Previous Actions 

This paragraph provides credit for actions 

required by paragraphs (g) through (m) and 

(o) through (q) of this AD, if those actions 

were performed before the effective date of 

this AD using Boeing Special Attention 

Service Bulletin 747–53–2460, Revision 1, 

dated February 13, 2007; or Boeing Service 

Bulletin 747–53A2378, Revision 3, dated 

August 11, 2005; as applicable, which are not 

incorporated by reference in this AD. 

(w) Alternative Methods of Compliance 

(AMOCs) 

(1) The Manager, Seattle Aircraft 

Certification Office (ACO), FAA, has the 

authority to approve AMOCs for this AD, if 

requested using the procedures found in 14 

CFR 39.19. In accordance with 14 CFR 39.19, 

send your request to your principal inspector 

or local Flight Standards District Office, as 

appropriate. If sending information directly 

to the manager of the ACO, send it to the 

attention of the person identified in the 

Related Information section of this AD. 

Information may be emailed to: 9–ANMSeattle-ACO-AMOC-REQUESTS@faa.gov. 

(2) Before using any approved AMOC, 

notify your appropriate principal inspector, 

or lacking a principal inspector, the manager 

of the local flight standards district office/ 

certificate holding district office. 

(3) An AMOC that provides an acceptable 

level of safety may be used for any repair 

required by this AD if it is approved by the 

Boeing Commercial Airplanes Organization 

Designation Authorization (ODA) that has 

been authorized by the Manager, Seattle 

ACO, to make those findings. For a repair 

method to be approved, the repair must meet 

the certification basis of the airplane, and the 

approval must specifically refer to this AD. 

(4) AMOCs previously approved in 

accordance with AD 2008–18–07, 

Amendment 39–15664 (73 FR 56960, October 

1, 2008), are approved as AMOCs for the 

corresponding requirements of this AD for 

Group 2 and Group 3 airplanes identified in 

Boeing Special Attention Service Bulletin 

747–53–2460, Revision 2, dated December 

22, 2010. Previously approved AMOCs for 

Group 1 and Group 4 airplanes identified in 

Boeing Special Attention Service Bulletin 

747–53–2460, Revision 2, dated December 

22, 2010, are not approved for compliance 

with the actions required by this AD. 

(x) Related Information 

(1) For more information about this AD, 

contact Bill Ashforth, Aerospace Engineer, 

Airframe Branch, ANM–120S, FAA, Seattle 

Aircraft Certification Office, 1601 Lind 

Avenue SW., Renton, WA 98057–3356; 

phone: (425) 917–6432; fax: (425) 917–6590; 

email: bill.ashforth@faa.gov. 

(2) For service information identified in 

this AD, contact Boeing Commercial 

Airplanes, Attention: Data & Services 

Management, P. O. Box 3707, MC 2H–65, 

Seattle, Washington 98124–2207; telephone 

206–544–5000, extension 1; fax 206–766– 

5680; Internet https://www.myboeingfleet.

com. You may review copies of the 

referenced service information at the FAA, 

Transport Airplane Directorate, 1601 Lind 

Avenue SW., Renton, Washington. For 

information on the availability of this 

material at the FAA, call 425–227–1221. 

Issued in Renton, Washington, on April 26, 

2013. 

Ali Bahrami, 

Manager, Transport Aircraft Directorate, 

Aircraft Certification Service. 

[FR Doc. 2013–10905 Filed 5–7–13; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2520 

RIN 1210–AB20 

Pension Benefit Statements 

AGENCY: Employee Benefits Security 

Administration, Department of Labor. 

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: The Department of Labor 

(Department) is developing proposed 

regulations regarding the pension 

benefit statement requirements under 

section 105 of the Employee Retirement 

Income Security Act of 1974, as 

amended (ERISA). This advance notice 

of proposed rulemaking (ANPRM) 

describes certain rules the Department 

is considering as part of the proposed 

regulations. The rules being considered 

are limited to the pension benefit 

statements required of defined 

contribution plans. First, the 

Department is considering a rule that 

would require a participant’s accrued 

benefits to be expressed on his pension 

benefit statement as an estimated 

lifetime stream of payments, in addition 

to being presented as an account 

balance. Second, the Department also is 

considering a rule that would require a 

participant’s accrued benefits to be 

projected to his retirement date and 

then converted to and expressed as an 

estimated lifetime stream of payments. 

This ANPRM serves as a request for 

comments on specific language and 

concepts in advance of proposed 

regulations. The Department intends to 

consider all reasonable alternatives to 

direct regulation, including whether 

there is a way short of a regulatory 

mandate that will ensure that 

participants and beneficiaries get 

constructive and helpful lifetime 

income illustrations. 

DATES: Comments are due on or before 

July 8, 2013. 

ADDRESSES: You may submit comments, 

identified by RIN 1210–AB20, by one of 

the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Email: e-ORI@dol.gov. Include RIN 

1210–AB20 in the subject line of the 

message. 

• Mail: Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration, Room N–5655, 

U.S. Department of Labor, 200 

Constitution Avenue NW., Washington, 

DC 20210, Attention: Pension Benefit 

Statements Project. 

Instructions: All submissions received 

must include the agency name and 

Regulation Identifier Number (RIN) for 

this rulemaking. Comments received 

will be posted without change to 

http://www.regulations.gov and http:// 

www.dol.gov/ebsa, and made available 

for public inspection at the Public 

Disclosure Room, N–1513, Employee 

Benefits Security Administration, 200 

Constitution Avenue NW., Washington, 

DC 20210, including any personal 

information provided. Persons 

submitting comments electronically are 

encouraged not to submit paper copies. 

FOR FURTHER INFORMATION CONTACT: 

Suzanne Adelman or Tom Hindmarch at 

(202) 693–8500. This is not a toll free 

number. 

SUPPLEMENTARY INFORMATION: This 

ANPRM has two main sections followed 

by Appendix A. The first section, 

entitled ‘‘Background,’’ contains the 

relevant statutory language on which 

the Department is basing the ANPRM 

and a discussion of the Department’s 

general policy concern underlying the 

ANPRM. The second section, entitled 

‘‘Overview of Intended Regulations,’’ 

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26728 Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 

1The number of private defined benefit plans has 

fallen from just over 103,000 in 1975 to fewer than 

48,000 in 2009 (a drop of over 50 percent in the last 

34 years). The number of private defined 

contribution plans has grown from just over 

207,000 in 1975 to almost 660,000 in 2009 (an 

increase of over 200 percent for the same time 

period). See Employee Benefits Security 

Administration, U.S. Department of Labor, Private 

Pension Plan Bulletin Historical Tables and Graphs 

(Mar. 2012), Table E1: Number of Pension Plans by 

type of Plan, 1975–2009, at http://www.dol.gov/ 

ebsa/pdf/historicaltables.pdf. 

2Some individuals may also want to leave 

bequests to their children and other heirs; however, 

the bequest motive may be less salient in retirement 

savings and spending decisions than other 

priorities. See Jonathan Skinner and Stephen P. 

Zeldes, The Importance of Bequests and Life-Cycle 

Saving in Capital Accumulation: A New Answer, 

American Economic Review 92(2): 274- 279 (May 

2002) and Jeffrey R. Brown, Jeffrey R. Kling, Sendhil 

Mullainathan and Marian V. Wrobel, Why Don’t 

People Insure Late Life Consumption? A Framing 

Explanation of the Under-Annuitization Puzzle, 

American Economic Review 98(2): 304–309 (May 

2008). 

3See comment no. 656 in response to the 

Department’s Request for Information Regarding 

Lifetime Income Options for Participants and 

Beneficiaries in Retirement Plans. Comments are 

available on the Department’s Web site at 

www.dol.gov/ebsa/regs/cmt-1210-AB33.html. 

4See Goda, Gopi Shah, Colleen Flaherty 

Manchester, and Aaron Sojourner, ‘‘What Will My 

Account Really Be Worth? An Experiment on 

Exponential Growth Bias and Retirement Saving,’’ 

NBER Working Paper 17927, March 2012. See also 

ACLI Retirement Choices Study, Greenwald & 

Associates, April 2010 (Study revealed that 60 

percent of respondents say that if the illustration of 

the participants’ lifetime income generated by their 

retirement plan account would not be enough to 

meet their retirement needs, they would ‘‘start 

saving more immediately.’’) 

presents questions, ideas, and potential 

language on certain rules the 

Department is considering as part of 

proposed regulations under section 105 

of ERISA. Each of these sections has 

multiple subsections. Appendix A 

contains an example that demonstrates 

how to calculate a lifetime income 

illustration, using the regulatory 

framework in this ANPRM, for a 

hypothetical male participant, age fortyfive, who has a spouse. In conjunction 

with the publication of this ANPRM, the 

Department also has made available on 

its Web site an interactive calculator 

that calculates lifetime income streams 

in accordance with such regulatory 

framework. This calculator is at 

www.dol.gov/ebsa/regs/ 

lifetimeincomecalculator.html. 

I. Background 

A. Section 105 of ERISA 

Section 105(a) of ERISA, as amended 

by section 508 of the Pension Protection 

Act of 2006 (Pub. L. 109–280), requires 

administrators of defined contribution 

plans to provide periodic pension 

benefit statements to participants and 

certain beneficiaries. 29 U.S.C. 1025(a). 

Benefit statements must be provided at 

least annually. If the plan permits 

participants and beneficiaries to direct 

their own investments, however, benefit 

statements must be provided at least 

quarterly. Section 105(a)(2) of ERISA 

contains the content requirements for 

benefit statements. Section 

105(a)(2)(A)(i)(I) requires a benefit 

statement to indicate the participant’s or 

beneficiary’s ‘‘total benefits accrued.’’ 

The proposed rules being considered by 

the Department are pursuant to this 

section of ERISA, as well as ERISA 

section 505. Section 505, in relevant 

part, provides that the Secretary may 

prescribe such regulations as the 

Secretary finds necessary or appropriate 

to carry out the provisions of title I of 

ERISA. 29 U.S.C. 1135. Collectively, 

these provisions provide the authority 

on which the Department is considering 

a rule that would require a participant’s 

‘‘total benefits accrued’’ to be expressed 

as an estimated lifetime income stream 

of payments, in addition to being 

presented as an account balance. 

B. General Policy Concern Being 

Addressed by This ANPRM 

Workers today face greater 

responsibility for managing their assets 

for retirement, both while employed and 

during their retirement years. This 

greater responsibility is primarily a 

result of the trend away from defined 

benefit plans, where a worker’s 

retirement benefit is typically a 

specified monthly payment for life, and 

toward defined contribution plans, 

where typically contribution, asset 

allocation, and drawdown decisions are 

assigned to the participant.1 Managing 

finances in order to provide income for 

life for oneself and one’s spouse is a 

tremendously difficult but important 

task. The rule under consideration by 

the Department would provide 

participants with information that the 

Department believes will ease the 

burden of this task. 

Research suggests that people want to 

continue their current lifestyle after they 

retire and are concerned about having 

adequate precautionary savings for 

emergencies or illness.2 Individuals may 

not understand, however, what savings, 

asset allocation, and drawdown 

decisions are necessary to achieve both 

of these goals. In particular, participants 

may have difficulty envisioning the 

lifetime monthly income that can be 

generated from an account balance. 

In a comment letter to the 

Department, a national non-profit trade 

association of investment managers, 

consultants, recordkeepers, insurance 

companies, plan sponsors and others 

stated that ‘‘[t]ranslating the amount 

saved into a future income estimate will 

serve to remind participants that their 

DC plan accumulations are needed to 

generate income throughout retirement. 

Additionally, when they see that 

$100,000 may only generate $700 of 

monthly income for life, the participant 

may be incented to save more 

aggressively.’’ 3 The Department 

believes that expressing a participant’s 

current and projected account balances 

as lifetime income streams would allow 

participants to make more informed 

retirement planning decisions. Recent 

research supports the hypothesis that 

providing participants with customized 

information on the decumulation phase 

can influence contribution behavior.4

In view of the importance of this 

issue, the Department and the 

Department of the Treasury, on 

February 2, 2010, published a request 

for information, entitled ‘‘Request for 

Information Regarding Lifetime Income 

Options for Participants and 

Beneficiaries in Retirement Plans’’ (RFI). 

See 75 FR 5253. As stated in the 

summary to the RFI, the Departments 

are reviewing the rules under ERISA 

and the plan qualification rules under 

the Internal Revenue Code of 1986 

(Code) to determine whether, and, if so, 

how, the Departments could or should 

enhance, by regulation or otherwise, the 

retirement security of participants in 

employer-sponsored retirement plans 

and in individual retirement 

arrangements (IRAs) by facilitating 

access to, and use of, lifetime income or 

other arrangements designed to provide 

a lifetime stream of income after 

retirement. The RFI contained 39 

questions on a wide array of subjects. 

The Department received in excess of 

700 comments in response to the RFI. 

The Departments subsequently held a 

joint hearing on lifetime income options 

for retirement plans on September 14 

and 15, 2010, in order to further 

consider several specific issues. 

Comments received in response to the 

RFI, written hearing testimony 

submitted to the Department, and the 

Department’s official hearing transcripts 

are available on the Department’s Web 

site at www.dol.gov/ebsa/regs/cmt-1210- 

AB33.html. 

The RFI contained a section entitled 

‘‘Disclosing the Income Stream That Can 

Be Provided From an Account Balance.’’ 

Within this section, the RFI contained 

the following questions relevant to this 

ANPRM: 

21. Should an individual benefit statement 

present the participant’s accrued benefits as 

a lifetime income stream of payments in 

addition to presenting the benefits as an 

account balance? 

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Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 26729 

5Research also suggests that a small change in 

information presented on the benefit statement can 

have a significant impact on savings behavior. See 

Gopi Shah Goda, Colleen Flaherty Manchester, and 

Aaron Sojourner, What Will My Account Really Be 

Worth? An Experiment on Exponential Growth Bias 

and Retirement Saving, NBER Working Paper No. 

17927 (March 2012) at http://www.nber.org/papers/ 

w17927. 

6The term ‘‘expected mortality’’ here refers to the 

probabilities in a mortality table, as opposed to life 

expectancy which is a single number that can be 

calculated from those probabilities. 

7Lena Larsson, Annika Sunde ́n, & Ole Settergren, 

Pension Information: The Annual Statement at a 

Glance, OECD Journal: General Papers, February 19, 

2008 available at: http://www.oecd.org/dataoecd/ 

38/42/44509412.pdf. 

22. If the answer to question 21 is yes, how 

should a lifetime stream of income payments 

be expressed on the benefit statement? For 

example, should payments be expressed as if 

they are to begin immediately or at specified 

retirement ages? Should benefit amounts be 

projected to a future retirement age based on 

the assumption of continued contributions? 

Should lifetime income payments be 

expressed in the form of monthly or annual 

payments? Should lifetime income payments 

of a married participant be expressed as a 

single-life annuity payable to the participant 

or a joint and survivor-type annuity, or both? 

23. If the answer to question 21 is yes, 

what actuarial or other assumptions (e.g., 

mortality, interest, etc.) would be needed in 

order to state accrued benefits as a lifetime 

stream of payments? If benefit payments are 

to commence at some date in the future, what 

interest rates (e.g., deferred insurance 

annuity rates) and other assumptions should 

be applied? Should an expense load be 

reflected? Are there any authoritative tools or 

sources (online or otherwise) that plans 

should or could use for conversion purposes, 

or would the plan need to hire an actuary? 

Should caveats be required so that 

participants understand that lifetime income 

payments are merely estimates for illustrative 

purposes? Should the assumptions 

underlying the presentation of accrued 

benefits as a lifetime income stream of 

payments be disclosed to participants? 

Should the assumptions used to convert 

accounts into a lifetime stream of income 

payments be dictated by regulation, or 

should the Department issue assumptions 

that plan sponsors could rely upon as safe 

harbors? 

After reviewing the responses to these 

questions, the Department agrees with 

those commenters who see a need to 

change the perception of retirement 

savings from simply a savings account 

to a vehicle for income replacement 

during retirement. Showing a 

participant the monthly retirement 

income he or she will receive from his 

or her retirement plan may help change 

that perception and, perhaps as 

suggested by many commenters, 

motivate workers to increase their 

savings.5 We also understand from the 

commenters that, due to the broadening 

recognition of the importance of 

improving participants’ retirement 

preparedness, a growing number of 

plans already provide a lifetime income 

illustration and often provide access to 

other lifetime income planning tools or 

retirement calculators. 

Therefore, as part of the proposed 

regulations under section 105 of ERISA, 

the Department is considering the 

following ideas: 

• A participant or beneficiary’s 

pension benefit statement would 

contain that individual’s current 

account balance. In addition, the current 

account balance would be converted to 

an estimated lifetime income stream of 

payments. The conversion illustration 

would assume the participant or 

beneficiary had reached normal 

retirement age under the plan as of the 

date of the benefit statement, even if he 

or she is much younger. 

• For participants who have not yet 

reached normal retirement age, the 

pension benefit statement would show 

the projected account balance, as well as 

the lifetime income stream generated by 

it. A participant or beneficiary’s current 

account balance would be projected to 

normal retirement age, based on 

assumed future contribution amounts 

and investment returns. The projected 

account balance would be converted to 

an estimated lifetime income stream of 

payments, assuming that the person 

retires at normal retirement age. 

• Both lifetime income streams (i.e., 

the one based on the current account 

balance and the one based on the 

projected account balance) would be 

presented as estimated monthly 

payments based on the expected 

mortality of the participant or 

beneficiary.6 In addition, if the 

participant or beneficiary has a spouse, 

the lifetime income streams would be 

presented based on the joint lives of the 

participant or beneficiary and his or her 

spouse. 

• Pension benefit statements would 

contain an understandable explanation 

of the assumptions behind the lifetime 

income stream illustrations. In addition, 

pension benefit statements would 

contain a statement that projections and 

lifetime income stream illustrations are 

estimates and not guarantees. 

The Department anticipates that if 

pension benefit statements were to have 

these key features, participants and 

beneficiaries might be in a better 

position to assess their retirement 

readiness and to prepare for their 

retirement.7 An illustration based on a 

person’s current account balance will 

provide an immediate baseline to judge 

their present retirement readiness, i.e., 

‘‘If I were old enough to retire today, 

this would be my monthly payment for 

life.’’ An illustration based on a 

projected account balance will show, 

not what the participant has saved to 

date, but what he or she might 

realistically expect to have at 

retirement, i.e., ‘‘In twenty years, this 

could be my monthly payment for life 

at my current savings rate.’’ 

II. Overview of Intended Regulations 

This Overview section of the ANPRM 

presents questions, ideas, and potential 

language on certain rules the 

Department is considering as part of 

proposed regulations under section 105 

of ERISA. The goal is to provide an early 

opportunity for interested stakeholders 

to provide advice and input into the 

policy development of future proposed 

regulations. This Overview section 

contains multiple subsections 

pertaining to the major issues raised in 

response to the RFI. This Overview 

section is followed by a regulatory 

framework and Appendix A. Appendix 

A provides an example of how to use 

the assumptions in the ANPRM’s 

regulatory framework to calculate a 

projected account balance and convert 

the current and projected account 

balances into lifetime income streams. 

A. Current and Projected Account 

Balances 

Among those responding to the RFI, 

there are competing views as to whether 

a lifetime income illustration should be 

based on a participant’s or beneficiary’s 

current account balance or a projected 

account balance. While many 

commenters believe it is better to 

provide an illustration based on a 

current account balance, approximately 

the same number of commenters 

believes it is better to provide an 

illustration based on a projected account 

balance. A few commenters support 

both approaches. 

Commenters who support using a 

participant’s current account balance 

generally believe it is better and more 

helpful to base an illustration on what 

the participant actually has than on 

what the participant may have at some 

point in the future. They make the 

following observations. First, 

participants and beneficiaries will more 

readily understand illustrations based 

on actuality than on illustrations based 

on projections. Second, and related, a 

person is more likely to take some 

planning action if he understands the 

illustration. Third, because projections 

necessarily will be based on a number 

of assumptions (e.g., future 

contributions and future investment 

returns), such projections are mere 

guesses and therefore likely to be 

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26730 Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 

flawed. Fourth, because lifetime income 

illustrations are educational in nature, a 

static number at a point in time should 

be sufficient to meet that educational 

purpose. Fifth, illustrations based on 

current account balances may motivate 

participants and beneficiaries to save 

more if the monthly payments are small. 

By contrast, those who support the 

use of projected account balances 

believe that an illustration based on a 

projection is actually more relevant and 

meaningful to a participant than an 

illustration based on that participant’s 

current account balance, 

notwithstanding the inherent 

uncertainty in projecting an account 

balance. They make the following 

observations. First, at present it is 

common practice among financial 

planners to use projections when 

providing their clients with financial 

planning advice. Accordingly, if the 

Department’s goal is to have pension 

benefit statements serve as a useful 

planning tool, then illustrations on 

benefit statements similarly should be 

based on projections. Second, 

projections may be based on 

assumptions, but not all assumptions 

are inherently flawed. Several 

commenters believe that the Department 

can establish reasonable parameters for 

assumptions, in order to avoid 

deception or abuse and increase the 

accuracy of projections. Third, there is 

no evidence that participants and 

beneficiaries necessarily will fail to 

comprehend a lifetime income 

illustration, or a projection, merely 

because it is based on assumptions, 

particularly where there are sufficient 

disclosures of the assumptions 

underlying the projections. Fourth, 

showing participants and beneficiaries 

the power of compound earnings may 

be a significant motivator to increase 

savings rates. Fifth, an illustration based 

on current account size simply has no 

relevance to a participant with decades 

to retirement age; and, in fact, such 

incomplete information may very well 

have the unintended consequence of 

discouraging savings and participation. 

Sixth, illustrations based on current 

balances may be considered flawed 

because account balances constantly 

change and, indeed, may change 

dramatically depending on market 

fluctuations. 

The Department acknowledges the 

potential merit in both approaches. An 

illustration based on a participant’s or 

beneficiary’s current account balance 

could serve as an immediate benchmark 

for that participant because it would 

show the size of the monthly payment 

to expect if there were no further 

savings, gains or losses between now 

and retirement. It, in effect, shows 

participants and beneficiaries what they 

actually have, now, in the form of 

monthly payments. Although this type 

of benchmark is simplistic, the 

commenters may be right that it could 

motivate participants and beneficiaries 

to increase their savings rates now, 

especially if the participant or 

beneficiary perceives the monthly 

payment to be small relative to his or 

her current income needs. An 

illustration based on a participant or 

beneficiary’s projected account balance, 

on the other hand, ordinarily will reflect 

larger monthly payments. The 

Department also agrees with those 

commenters who believe this 

methodology of framing benefits (i.e., 

showing larger monthly payments than 

those based on a current account 

balance) may sufficiently motivate 

participants and beneficiaries to stay the 

course or even to increase their savings 

rates in order to increase their monthly 

amounts. Although the addition of 

necessary assumptions under this 

approach may create some additional 

uncertainty, this uncertainty can be 

mitigated somewhat by requiring that 

only reasonable assumptions be used in 

the calculations and appropriate 

cautions be included in the disclosure 

to participants and beneficiaries. 

Accordingly, the Department is 

considering a proposal that generally 

would require pension benefit 

statements for all defined contribution 

plans to include the following 

information: (1) The value of the 

account balance as of the last day of the 

period covered by the statement (i.e., 

‘‘current balance’’), (2) a projected 

account balance, and (3) two lifetime 

income illustrations. The first lifetime 

illustration would be based on the 

participant’s or beneficiary’s current 

account balance, i.e., the ‘‘fair market 

value of the account balance as of the 

last day of the period covered by the 

statement.’’ See ANPRM § 2520.105– 

1(c)(2)(v). The second lifetime income 

illustration would be based on a 

participant’s or beneficiary’s projected 

account balance, i.e., ‘‘the current dollar 

value of the projected balance at normal 

retirement age.’’ See ANPRM 

§ 2520.105(c)(2)(vi). To avoid confusion 

and unnecessary complication, the 

second illustration would not be 

required on any pension benefit 

statement on behalf of a participant who 

has reached normal retirement age 

under the plan as of the date of the 

benefit statement. 

The presentation of this data on a 

participant’s or beneficiary’s benefit 

statement might look something like 

this: 

Current Balance Projected Balance 

$125,000 $557,534 

Monthly Payment Monthly Payment 

$625 $2,788 

This shows both total balances (current 

and projected) and the monthly 

payments generated by each. The 

projected balance ($557,534) and related 

monthly payment ($2,788) would be 

discounted by an inflation factor in 

order to be shown in today’s dollars. 

The reasoning behind this is that by 

removing inflation from the equation it 

will be easier for participants and 

beneficiaries to budget for their 

retirement years, today. For example, 

they can compare their projected 

monthly payments expressed in today’s 

dollars with their current budget needs 

(i.e., current consumption needs) and 

see how close they are to covering those 

needs. If there is an undesirable gap, 

they might increase their contributions. 

The Department invites comments on 

whether the projected balance and 

related monthly payment should be 

discounted for inflation. Many 

commenters on the RFI believe that 

projections should be presented in 

today’s dollars in order to put future 

buying power into a meaningful context. 

Many of the sample benefit statements 

reviewed by the Department show only 

the projected monthly payment 

expressed in today’s dollars (the $2,788 

figure in the example above), and not 

the discounted projected account 

balance (the $557,534 figure in the 

example above). The Department 

welcomes comments on whether it 

makes more sense to show both the 

discounted projected account balance 

($557,534) and the resulting monthly 

payments ($2,788), or whether it is 

enough to show only the resulting 

monthly payments ($2,788). 

All projections and lifetime income 

illustrations under consideration would 

be based on the participant’s ‘‘normal 

retirement age under the plan.’’ See 

ANPRM § 2520.105–1(c)(2)(vi), (d)(1), 

(d)(2)(i) and (e)(4). Section 3(24) defines 

this as ‘‘the earlier of—(A) the time a 

plan participant attains normal 

retirement age under the plan, or (B) the 

later of—(i) the time a plan participant 

attains age 65, or (ii) the 5th anniversary 

of the time a plan participant 

commenced participation in the plan.’’ 

The Department is considering this date 

because it already is a significant date 

for ERISA purposes. However, this date 

could be a number of years before the 

participant or beneficiary is actually 

ready or able to retire from the 

workforce. A number of commenters 

suggested using the social security 

retirement age. Accordingly, the 

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Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 26731 

8The general rule is intended to provide plan 

administrators with flexibility to preserve current 

best practices regarding benefit statements and not 

stifle the development and innovation of 

technological tools in this area. For example, the 

general rule would permit plans that have online 

tools that employ stochastic modeling, such as 

retirement calculators and similar planning devices, 

to use the same technology to project account 

balances on pension benefit statements, provided 

that the projection methodology meets the 

reasonableness requirement in the general rule. A 

stochastic model is a tool for estimating probability 

distributions of potential outcomes by allowing for 

random variation in one or more inputs over time 

usually based on observed historical data for the 

selected inputs. Probability distributions of 

potential outcomes are derived from a large number 

of simulations (stochastic projections) which reflect 

the random variation in the input(s). The 

Department specifically welcomes comments on 

whether the general rule sufficiently facilitates the 

use of stochastic modeling for pension benefit 

statements. The Department also welcomes 

comments on other modeling or projection methods 

that might be appropriate for benefit statements and 

whether the general rule facilitates their use. 

9Two of the five variables (current balance and 

years to retirement) are information known to the 

plan at the time the benefit statement is generated 

and, therefore, the safe harbor would not include 

assumptions pertaining to those variables. 

10The assumed dollar amount (not the 

contribution percentage) would increase by a rate 

of 3% per year. For example, if contributions for 

year one were $10,000, the projected contributions 

would be $10,300 (1.03 × $10,000) for year two, 

$10,609 (1.03 × 10,300) for year three, and so forth. 

11There is a large body of literature on ageearnings profiles which shows that workers’ wages 

tend to increase rapidly when young, but at a rate 

similar to inflation at older ages. See, for example, 

Murphy, Kevin M. and Finis Welch, ‘‘Empirical 

Age-Earnings Profiles,’’ Journal of Labor Economics, 

Vol. 8, No. 2 (Apr. 1990), pp. 202–229. 

Department specifically welcomes 

comments on whether the projection 

and lifetime income illustrations should 

use a date other than the normal 

retirement age, as defined in section 

3(24) of ERISA, and if so what date and 

why. For example, comments could 

address the appropriateness of using age 

65, social security retirement age (e.g., 

currently age 66 or 67 depending upon 

the participant’s birthdate), the 

minimum required distribution date 

(e.g., age 71) or some other age. 

The mechanics involved in projecting 

an account balance are discussed below 

in Section II.B of this document, 

entitled ‘‘Methodology for Projecting an 

Account Balance.’’ The mechanics 

involved in converting account balances 

into lifetime income streams are 

discussed in Section II.C of this 

document, entitled ‘‘Methodology for 

Converting an Account Balance into a 

Lifetime Income Stream.’’ 

B. Methodology for Projecting an 

Account Balance 

As explained above, the Department 

is considering a proposed rule that 

would require a participant’s or 

beneficiary’s current account balance to 

be projected to his or her normal 

retirement age under the plan. This 

section of the ANPRM describes the 

standards, rules and assumptions being 

contemplated that plan administrators 

would have to follow when projecting 

participant and beneficiary account 

balances to retirement. In developing 

these standards, rules and assumptions, 

the Department believes it is important 

that: (1) Projections be meaningful to 

participants and beneficiaries, (2) 

projections not be overly burdensome 

for plan administrators to perform, and 

(3) any regulatory framework does not 

disturb current projection and 

illustration best practices or stifle 

innovation in this area. 

Based on the RFI comments and the 

public hearing record, the Department 

understands the act of calculating a 

participant’s projected account balance 

ordinarily would require consideration 

of the following five variables: (1) The 

participant’s current account balance; 

(2) the number of years until the 

participant retires; (3) future 

contributions to the account (both 

employer and employee); (4) a rate of 

investment return; and (5) an inflation 

adjustment to convert the projected 

amount to today’s dollars. The 

Department specifically requests 

comments on whether these are the 

appropriate variables that should be 

factored into the projections being 

considered by the Department. If not, 

why not, and are there other essential 

variables? 

As explained in more detail below, 

the Department is considering a 

‘‘reasonableness’’ standard as a general 

rule combined with a regulatory ‘‘safe 

harbor.’’ The general rule would permit 

a broad array of projection ‘‘best 

practices’’ to continue (which practices 

we assume meet the ‘‘reasonableness’’ 

standard), while the safe harbor would 

offer certainty for those plan 

administrators who seek that result or 

who do not currently provide 

projections. Plan administrators who 

follow the deterministic conditions of 

the safe harbor would have the comfort 

of knowing they have satisfied the 

primary elements of the general rule 

(i.e., those elements of the general rule 

that otherwise would require 

discretionary activity of the plan 

administrator). In this regard, the safe 

harbor would be an option and not a 

regulatory requirement. 

The general rule being considered by 

the Department is that ‘‘projections shall 

be based on reasonable assumptions 

taking into account generally accepted 

investment theories.’’ See ANPRM 

§ 2520.105–1(d)(1). A projection will not 

be considered reasonable, however, 

‘‘unless it is expressed in current dollars 

and takes into account future 

contributions and investment returns.’’ 

Id. Thus, the general rule being 

considered by the Department does not 

require any single method or single set 

of assumptions for projecting an account 

balance to normal retirement age, 

although it does require overall 

reasonableness in light of generally 

accepted investment theories. Nor does 

the general rule limit the specific factors 

that must be considered, although it 

does require consideration of at least 

future contributions, investment 

returns, and inflation.8

By contrast, the safe harbor being 

considered by the Department is 

narrower and more prescriptive than the 

general rule under consideration. The 

contemplated safe harbor would 

prescribe a specific set of assumptions 

for contributions, returns, and 

inflation.9 The set of assumptions, when 

used together, would be considered per 

se reasonable for purposes of the general 

rule. Thus, by using the safe harbor 

assumptions together, plan 

administrators will be deemed to be in 

compliance with the portion of the 

general rule that requires them to take 

into account contributions, returns, and 

inflation when projecting account 

balances. 

The first assumption is that 

‘‘contributions continue to normal 

retirement age at the current annual 

dollar amount, increased at a rate of 

three percent (3%) per year.’’ 10 See 

ANPRM § 2520.105–1(d)(2)(i). A yearly 

contribution increase is included in this 

safe harbor assumption because many 

workers’ contribution elections are 

expressed as a percentage of wages, and 

wages tend to increase over a worker’s 

career due to raises, promotions, cost-ofliving adjustments, and other factors. 

The Department is considering a whole 

number percentage (3%) in order to 

avoid giving participants and 

beneficiaries the false impression that 

account balance projections are exact. 

The Department considers a 3% per 

year increase in wages to be a 

conservative assumption, and 

intentionally chooses a conservative 

assumption in this instance due to the 

wide variation of wage movement across 

workers. Some workers, particularly 

young workers, can expect their wages 

to rise at a rate higher than 3% per year. 

However, older workers often see wages 

increase no faster than the rate of 

consumer price inflation.11 The 

Department believes that more harm 

would be done by overestimating wage 

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26732 Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 

12See below for a discussion of historical and 

projected consumer price inflation. 

13To be exact, it would correspond with 3.88% 

real returns. 

14These estimates are based on Employee Benefit 

Research Institute/Investment Company Institute 

401(k) plans surveys. 

15Returns are based on Ibbotson data. The 

calculations were performed with the bond share of 

the portfolio being held either all in long-term 

corporate bonds (40 percent of total funds) or half 

in intermediate government bonds (20 percent of 

total funds) and half in long-term corporate bonds 

(20 percent of the total funds). The relative share 

made little difference. However, including riskier 

equities in the portfolio does matter. If 30% of 

assets were in small cap funds, 30% in an equity 

portfolio mirroring the S&P 500, and 40% in bonds, 

the returns would be approximately 1% larger. 

16Sarah Holden, Michael Halladay, and Shaun 

Lutz, The Economics of Providing 401(k) Plans: 

Services, Fees, and Expenses, 2010, ICI Research 

Perspective, Vol. 17, No. 4 (June 2011). 

17Returns are calculated as a geometric return 

g=[(1+r1)(1+r2) . . . (1+rn)](1/n) where rn=returns in 

the nth year. 

18Holden, supra at footnote 16. 

19 Geoffrey C. Friesen and Travis Sapp, Mutual 

Fund Flows and Investor Returns: An Empirical 

Examination of Fund Investor Timing Ability, 31 

Journal of Banking and Finance, 2796 (2007) 

available at SSRN: http://ssrn.com/ 

abstract=957728. According to the article, the 

underperformance of investors due to poor timing 

is over 1.5% compared to what buy-and-hold 

strategies would have generated. The performance 

gap with buy and hold strategies due to poor 

investor timing is twice as large for load funds 

compared to non-load funds. 

20The 8.4% returns are based upon Ibbotson data. 

The hypothetical fund would have 60 percent 

stocks, 20 percent long term corporate bonds and 

20 percent intermediate government bonds. The 

portfolio would be rebalanced each year at no cost. 

See U.S. Department of Labor, Employee Benefits 

Security Administration, Private Pension Plan 

Bulletin Historical Tables and Graphs: 1975–2009, 

Table E21 (March 2012) at http://www.dol.gov/ebsa/ 

publications/ 

form5500dataresearch.html#statisticalsummaries. 

21 Ibbotson data begins in 1926. 

22See http://www.dol.gov/ebsa/regs/ 

peerreview.html#section1. These peer review 

comments were submitted to help inform the 

Department’s Pension Simulation model that is 

used to forecast savings outlook for participants. 

Under the model, a portfolio consisting of 60% 

equity and 40% long-term government bonds would 

generate an approximate 7% nominal return. 

23See Ivo Welch, Views of Financial Economists 

on the Equity Premium and on Professional 

Controversies 73 Journal of Business 501 (2000). See 

also Ivo Welch, The Consensus Estimate for the 

Equity Premium by Academic Financial Economists 

in December 2008, Social Sciences Research 

Network Paper No. 1084918, January 18, 2008 (last 

revised July 22, 2009) at http://ssrn.com/ 

abstract=1084918. 

increases for workers whose wages will 

remain flat than would be done by 

underestimating wage increases for 

workers whose wages are likely to rise 

quickly. The Department welcomes 

comments on this topic.12

The second and third assumptions are 

investment returns of seven percent 

(7%) per year (nominal) and a discount 

rate of three percent (3%) per year for 

establishing the value of the projected 

account balance in today’s dollars. See 

ANPRM § 2520.105–1(d)(2)(ii) and 

(d)(2)(iii). As with the wage increase 

assumption, the Department is 

considering whole number percentages 

(7% and 3%) in order to avoid giving 

participants and beneficiaries the false 

impression that account balance 

projections are exact. 

The 3% discount rate is included in 

the safe harbor to account for consumer 

price inflation (specifically inflation in 

the prices of goods that retirees 

consume). The Department is 

considering 3% because it reflects both 

historical inflation and expectations for 

future inflation. Since 1913, inflation 

has averaged 3.2% according to 

Consumer Price Index data from the 

Bureau of Labor Statistics. Furthermore, 

the trustees of the Social Security Trust 

Fund assume that cost of living 

adjustments (which are determined by 

the CPI–W) will average 2.8% between 

2019 and 2086. Comments are 

specifically requested on these 

assumptions, taking into account the 

purpose for which these assumptions 

are being used. 

Why a 7 percent rate of investment 

return assumption? 

The 7% safe harbor assumption under 

consideration is based on historical 

market returns, actual returns derived 

by participants in 401(k) plans, and 

future return forecasts. The 7% rate is 

a nominal rate of return, which 

corresponds to an approximate 4% real 

return assuming 3% inflation in the 

future.13 Again a round number is being 

considered in order to avoid giving 

participants and beneficiaries the false 

impression that projected future account 

balances are exact. The following 

analysis led the Department to this rate. 

From 1996 to 2009, the share of 401(k) 

assets in equities varied from 56% to 

76%.14 In 2009, this total was 

approximately 60%. If beginning in 

1926, 60% of assets were invested in an 

equity portfolio that mirrored the S&P 

500 and 40% were invested in a bond 

portfolio and the assets were rebalanced 

at the beginning of each year without 

cost to preserve the 60/40 allocation, an 

investor would have averaged a 5.6% 

real return through 2010.15

However, it is unlikely that average 

investors would replicate this rate of 

return and more likely would achieve a 

lower real rate of return due, in part, to 

fees and transaction costs. For example, 

an asset weighted account analysis 

performed by the Investment Company 

Institute (ICI) indicates that 401(k) plan 

expense ratios average approximately 65 

basis points.16 Therefore, expense ratios 

alone would reduce the average real 

return to approximately 5%.17 Average 

real returns also are reduced by 

transaction costs, including costs 

derived from turnover by the fund 

managers. According to ICI, the average 

dollar weighted turnover rate of 401(k) 

mutual fund holders is 43 percent. 

These transaction costs are not included 

in expense ratios.18

Turnover that occurs due to 

participants’ management of their 

accounts also reduces average real 

returns. Some of these transactions 

represent poor timing of the markets, 

leading to further underperformance 

relative to buy-and-hold strategies. 

Academic literature suggests that 

participants often mistime their 

investments by pulling their money out 

of equities before periods of strong 

growth and investing more heavily in 

equities just before a market downturn, 

with load funds experiencing even 

worse mistiming.19

The measured disparity between the 

average annual returns that costless buyand-hold strategies would generate and 

actual participant returns is consistent 

with recent Department statistics. 

Where a dollar invested in a 60/40 

balanced fund with no transaction costs 

would have generated an 8.4% nominal 

return between 1990–2009, Department 

of Labor Form 5500 data indicate that 

large defined contribution plans 

achieved a nominal return of only 7.1% 

during the same period.20

Moreover, past return information, 

such as U.S. equity returns between 

1926 and 2010, does not provide a 

sufficient basis for estimating future 

reasonable expected returns.21 This was 

illustrated when the Department 

solicited peer review comments from 

economists in 2006 on the application 

of its Pension Simulation Model to 

assess the impact of its Qualified 

Default Investment Alternatives rule 

(QDIA) on pension savings. The 

commenters maintained that expected 

future U.S. equity returns are lower 

today than historic returns and will 

remain lower in the future. Based on 

these comments, the Department revised 

its initial real equity return assumption 

used to project future pension savings to 

approximately 4.9%.22 Industry groups 

have reached similar conclusions. For 

example, as a follow up to a 1997 

survey, a 2007 survey asked 400 finance 

professors to forecast what equity 

returns would be over the next 30 years; 

and the estimates were, on average, 

more than one percent below the 1997 

results.23

For the reasons discussed above, 

which take into account historical 

market returns, actual returns derived 

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Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 26733 

24 In this regard, one idea the Department intends 

to explore further is the behavioral effects of this 

assumption and whether the assumption should be 

more conservative. As explained in the text above, 

the 7% expected future investment returns is an 

average. As such, it is neutral, meaning that 

individual participants may realize higher or lower 

returns. In 2010, over 22% of 401(k) participants 

had fewer than 40% of their 401(k) assets invested 

in equity, while 40% had over 80% of assets in 

equity. See Jack Van Derhei, Sarah Holden, Luis 

Alonso, and Steven Bass, 401(k) Plan Asset 

Allocation, Account Balances, and Loan Activity in 

2010, EBRI Issue Brief No. 366 (December 2011), 

Figure 30 at p. 29. Thus, a safe harbor assumption 

that is aimed at the average 401(k) participant 

would be out of line with the asset allocation of a 

majority of 401(k) participants. Participants with 

conservative asset allocations who, in fact, 

consistently generate returns lower than the 7% 

neutral rate assumption will see their projected 

balance decreasing year after year (even though 

contributions remain stable). What impact will a 

declining projected balance have on these 

participants? At least some literature suggests 

people dislike declining sequences. See George F. 

Loewenstein and Drazen Prelec, Preferences for 

Sequences of Outcomes, 100 Psychological Review 

91 (1993). Would a more conservative safe harbor 

assumption (e.g., risk-free return rate, which 

typically averages about 5% nominal (2% real) 

returns) have a more positive long-term effect than 

a neutral assumption on how participants and 

beneficiaries would view the lifetime income 

stream illustration and ultimately use it to aid their 

retirement planning? 

25 In March 2012, the SEC approved new FINRA 

rules governing communications with the public 

that will replace NASD Rule 2210. Under the new 

rules, which took effect in February 2013, a 

modified version of this provision will be found in 

FINRA Rule 2210(d)(1)(F). See FINRA Regulatory 

Notice 12–29 (June 2012) (announcing SEC 

approval of new FINRA communications rules). 

26See FINRA Regulatory Notice 12–02 (January 

2012) (providing guidance on application of 

communications rules to disclosures required by 29 

CFR 2550.404a–5). See also SEC Staff No Action 

Letter (October 26, 2011) (agreeing to treat 

information provided by a plan administrator to 

participants required by and complying with 

disclosure requirements of section 404 of ERISA as 

if it were a communication that satisfies 

requirements of Rule 482 under the Securities Act 

of 1933). 

27A projected account balance would not be 

required if the participant has reached normal 

retirement age under the plan. See ANPRM 

§ 2520.105–1(c)(2)(vi). 

by 401(k) plan participants, and future 

return forecasts, the Department 

believes that a 7% nominal return 

assumption (approximately 4% real 

return and 3% future inflation) is a 

reasonable rate of return assumption for 

plan administrators to use when 

calculating a future account balance at 

normal retirement age. However, the 

Department specifically is requesting 

comments on the appropriateness of this 

7% investment return assumption.24

Are there other valid approaches or data 

sources EBSA should consider in 

constructing a prospective safe harbor? 

Commenters are encouraged to keep in 

mind the Department’s stated objectives 

(above) behind a projection 

requirement. Commenters not in favor 

of this safe harbor assumption are 

encouraged to provide empirical data 

supportive of alternative approaches. 

Projections and Rules of the Financial 

Industry Regulatory Authority 

National Association of Securities 

Dealers (NASD) Rule 2210(d)(1)(D), in 

relevant part, provides that 

‘‘[c]ommunications with the public may 

not predict or project performance, 

imply that past performance will recur 

or make any exaggerated or unwarranted 

claim, opinion or forecast’’.25 In 

response to questions regarding the 

relationship, if any, between the 

projection requirement under 

consideration by the Department and 

NASD Rule 2210(d)(1)(D) of the 

Financial Industry Regulatory Authority 

(FINRA), the Department and FINRA 

staff intend to work together and, if 

necessary, provide guidance, which may 

be similar to the guidance provided in 

connection with the Department’s 

recently finalized participant-level fee 

disclosure regulation under 29 CFR 

2550.404a–5.26 The Department, 

therefore, is requesting comments on 

whether, and to what extent, such 

guidance is needed and why. 

C. Methodology for Converting an 

Account Balance Into a Lifetime Income 

Stream 

As explained above, in addition to a 

participant’s or beneficiary’s current 

and projected account balance, the 

Department is considering a 

requirement that each balance be 

expressed as a lifetime stream of 

income. Thus, each benefit statement 

ordinarily would contain two monthly 

estimated payment illustrations, one 

based on the current balance and a 

second based on a projected account 

balance.27

The commenters on the RFI identified 

two methods to convert an account 

balance to a stream of income in 

retirement. The first method was 

described as a ‘‘draw down’’ or 

‘‘systematic withdrawal’’ approach. This 

method assumes the participant will 

withdraw each year a fixed dollar 

amount or a fixed percentage (e.g., 4%) 

of the account until the account is gone. 

The commenters suggested that three, 

four or five percent per year might be 

reliable withdrawal rates for a 

participant who starts drawing down his 

account at age 65. The income stream 

illustrated under this approach would 

be the fixed dollar amount or fixed 

percentage, and could be shown as 

either monthly or annual payments. The 

second method is the annuitization 

approach. This approach, for example, 

expresses the benefit as a lifetime 

monthly payment to the participant 

similar in form to a pension payment 

made from a traditional defined benefit 

plan. This approach also is the method 

that insurance companies use to 

determine payment amounts with their 

annuity products. 

The proposal the Department is 

considering would use the second 

method of conversion because, of the 

two approaches, the second method 

reflects ‘‘lifetime’’ income whereas the 

first method reflects an income stream 

that may or may not be payable for the 

life of the participant (e.g., in the case 

of a participant who retires at age 65 

and dies at age 94, a 4% draw down, 

assuming a constant zero rate of return, 

would exhaust the account in 25 years 

instead of life). The second method 

reflects one of the Department’s primary 

goals in encouraging meaningful benefit 

statements—that plan participants and 

beneficiaries are informed of their 

financial readiness for the entirety of 

their retired lives, not just a portion of 

it. 

According to the RFI commenters and 

others, there are five relevant factors 

that must be considered when 

illustrating or converting an account 

balance (whether current or projected) 

to a lifetime income stream. The first is 

the date the payments would start, often 

referred to as the ‘‘annuity start date’’ 

(ASD). The second is the age of the 

participant or beneficiary at the ASD. 

The third is the form of payment (e.g., 

single life annuity). The fourth is the 

expected mortality of the participant or 

beneficiary and any spouse. The fifth is 

the interest rate for the applicable 

mortality period. The Department 

specifically requests comments on 

whether these are the appropriate 

variables for illustrating an account 

balance as a lifetime income stream. If 

not, why not, and are there other 

essential variables? 

Each of the foregoing factors is 

addressed in ANPRM § 2520.105–1(e). 

For example, with respect to the form of 

payment, lifetime income illustrations 

would be based on level payments for 

the life of the participant or beneficiary. 

See ANPRM § 2520.105–1(e)(1)(i). If the 

participant or beneficiary is married, 

however, a second illustration would be 

required. This second illustration would 

be a level payment for the life of the 

participant based on the joint lives of 

the participant/beneficiary and spouse, 

with a fifty percent survivor’s benefit to 

the surviving spouse. See ANPRM 

§ 2520.105–1(e)(1)(ii). For this purpose, 

the plan may assume the spouse is the 

same age as the participant. Id. 

The lifetime income illustrations 

being contemplated would assume that 

payments begin immediately and that 

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26734 Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 

28 If the participant has reached normal 

retirement age under the plan, the only illustration 

that would be required for this participant is the 

illustration based on his or her current account 

balance. An illustration based on a projected 

account balance would not be required in these 

circumstances. See ANPRM § 2520.105–1(c)(2)(vi). 

29 In 2010, 18 percent of private industry workers 

participated in a defined contribution retirement 

plan providing an option to take an annuity form 

of distribution at retirement. See Table 21a of U.S. 

Department of Labor, Bureau of Labor Statistics, 

‘‘National Compensation Survey: Health and 

Retirement Plan Provisions in Private Industry in 

the United States, 2010,’’ Bulletin 2770, August 

2011. Available at: http://www.bls.gov/ncs/ebs/ 

detailedprovisions/2010/ownership/private/ 

table21a.pdf 

30See www.federalreserve.gov/releases/h15/ 

data.htm. 

31The Department recognizes that there is no 

single interest rate assumption that would be 

perfect for all participants. Those who will retire 

tomorrow and plan to purchase lifetime income 

will face pricing that reflects current interest rates. 

It is clear that for these participants, using an 

interest rate assumption based on current rates is 

appropriate. However, participants who are a 

substantial number of years away from retirement 

will be faced with annuity pricing that reflects 

future interest rates that are unknown. An 

appropriate way to project these future interest rates 

may be to use a long-term average of historical 

interest rates, with the belief that interest rates tend 

to revert to the mean. A third group of participants, 

those who will retire in a short number of years, 

are unique still from the other two groups. An 

example of an appropriate projection of interest 

rates at the time of retirement for these participants 

may be some combination of current and historical 

interest rates. In choosing a safe harbor assumption, 

the Department must consider all of these groups 

of participants and how their projections would be 

affected. For example, if the Department ultimately 

uses current interest rates as the safe harbor, 

movement in interest rates would be an additional 

source of variation in benefits statement projections 

year over year for participants who are a substantial 

number of years away from retirement. 

32See 29 CFR 4044, Appendix B. See also 

www.pbgc.gov/prac/interest/monthly.html. 

33The Department welcomes comments on the 

use of this month to determine the mortality, or 

whether it would be more appropriate to use the 

mortality table in effect for the month containing 

the assumed commencement date as defined in 

ANPRM § 2520.105–1(e)(4). 

34Currently, the applicable mortality table is 

based on the Society of Actuaries, RP 2000 

Mortality Tables Report at http://www.soa.org/ccm/ 

content/research-publications/experience-studiestools/the-rp-2000-mortality-tables, with a fixed 

blend of 50% of the static male combined mortality 

rates and 50% of the static female combined 

mortality rates promulgated under 26 CFR 

1.430(h)(3)–1(c). See IRS Notice 2008–85, IRB 

2008–42 which published unisex mortality tables 

for purposes of Code section 417(e)(3)(B) through 

2013. 

the participant or beneficiary generally 

is normal retirement age under the plan 

(e.g., 65 years old) even if the 

participant or beneficiary is much 

younger. For example, for a participant 

age 25 in a plan with a normal 

retirement age of 65, the assumed 

commencement date in a quarterly 

benefit statement that covered the 

period October 1, 2015 through 

December 31, 2015 would be January 1, 

2016. See ANPRM § 2520.105–1(e)(4). In 

addition, the 25-year-old participant is 

assumed to be age 65 (i.e., normal 

retirement age) on January 1, 2016. 

However, if the participant is older than 

normal retirement age, the plan 

administrator is required to use the 

participant’s actual age.28

With respect to mortality and interest 

rate assumptions, many RFI commenters 

and others suggested that when a plan 

offers an annuity form of distribution, 

the actual mortality and interest rate 

provisions contained in the plan’s 

annuity contract should be reflected in 

the lifetime income illustrations.29 The 

Department agrees and intends to 

include this concept as part of the 

proposed regulation. See ANPRM 

§ 2520.105–1(e)(3). However, for plans 

that do not offer annuity forms of 

distribution, the Department is 

considering a safe harbor approach for 

mortality and interest rate assumptions 

(similar to the safe harbor for the 

projection requirement set forth in 

ANPRM § 2520.105–1(d)). Specifically, 

the proposal would start with a general 

requirement that illustrations must be 

based on ‘‘reasonable’’ mortality and 

interest rate assumptions ‘‘taking into 

account generally accepted actuarial 

principles.’’ See ANPRM § 2520.105– 

1(e)(2)(i). This standard is intended to 

be flexible and to preserve current best 

practices, on the one hand, but 

protective on the other hand in that it 

would prohibit the use of assumptions 

that do not comport with generally 

accepted actuarial principles. Many 

commenters on the RFI requested some 

degree of flexibility in this area in order 

to match illustrations on benefit 

statements with illustrations provided 

through online tools. At the same time, 

however, other RFI commenters 

expressed concern with potential ERISA 

liability in connection with picking 

mortality and interest rate assumptions 

for lifetime income illustrations and 

strongly encouraged the Department to 

adopt safe harbor assumptions. 

Accordingly, the Department is 

considering the following safe harbor 

assumptions, each of which, when used 

together, would be deemed reasonable 

under the general requirements in 

ANPRM § 2520.105–1(e)(2)(i). 

The safe harbor rate of interest under 

consideration is a ‘‘rate of interest equal 

to the 10-year constant maturity 

Treasury securities rate, for the first 

business day of the last month of the 

period to which the statement relates.’’ 

See paragraph (e)(2)(ii)(A). One 

commenter with members representing 

more than 90% of the assets and 

premiums in the U.S. life insurance and 

annuity industry stated that its members 

believe that the 10-year constant 

maturity Treasury rate best represents 

the interest rates that are reflected in 

actual annuity pricing. In addition, the 

10-year constant maturity Treasury rate 

is published daily to the public and 

widely recognized.30 The Department 

agrees that it may be helpful to 

participants to use a market rate that 

approximates what it actually would 

cost them to buy a lifetime income 

stream on the open market. In this 

regard, an illustration based on a current 

market rate would be especially 

beneficial for those participants or 

beneficiaries who are close to 

retirement, and less so for those farther 

from normal retirement age.31

The Department, however, is 

specifically requesting comments on 

whether the 10-year constant maturity 

Treasury rate assumption is the best 

interest rate assumption to use in this 

context, or whether there is a different 

interest rate or combination of rates that 

should be used, and why. For example, 

other RFI commenters mentioned that 

the Department might give some 

consideration to using the Pension 

Benefit Guaranty Corporation (PBGC) 

select and ultimate rates used to 

determine liabilities of terminated 

single-employer plans under section 

4044 of ERISA which are published 

monthly by the PBGC32 or the 

‘‘applicable interest rate’’ under section 

417(e)(3)(C) of the Code, although these 

commenters did not provide reasoning 

behind their suggestions. The 

commenter in favor of the 10-year 

constant maturity Treasury rate is 

concerned that the PBGC rates may not 

be sufficiently current for this type of 

illustration; or that such rates are not 

appropriate for pay out annuities. This 

commenter, in addition, is concerned 

that the Code section 417(e)(3)(C) rates, 

which it states are used for converting 

defined benefit amounts to a lump sum 

for distribution, do not approximate 

current annuity prices. 

The safe harbor mortality assumption 

under consideration is ‘‘the applicable 

mortality table under section 

417(e)(3)(B) of the Code, in effect for the 

month that contains the last day of the 

period to which the statement relates.’’ 

See ANPRM § 2520.105–1(e)(2)(ii)(B).33

The section 417(e)(3)(B) applicable 

mortality table is a unisex table created 

and published by the Treasury 

Department.34 The same commenter 

that suggested using the 10-year 

constant maturity Treasury rate also 

suggested using the section 417(e)(3)(B) 

applicable mortality table. Other 

commenters suggested the mortality 

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35See 29 CFR part 4044, Appendix A. 36The 417(e)(3)(B) mortality table is derived from 

the mortality tables prescribed under the funding 

rules of Code section 430(h)(3)(A) which states that 

the mortality tables prescribed by the Treasury 

Department ‘‘shall be based on the actual 

experience of pension plans and projected trends in 

such experience . . . taking into account results of 

available independent studies of mortality of 

individuals covered by pension plans.’’ 

37To the extent an individual account plan offers 

an annuity option, the mortality factors have to be 

the same for males and females to comply with 

Arizona Governing Committee v. Norris, 436 U.S. 

1073 (1983). 

38Since the female mortality tables show a longer 

life expectancy and the male mortality tables show 

a shorter life expectancy than a unisex table, the 

dollar amount of a male participant’s monthly 

payment would be higher and a female participant’s 

monthly payment would be lower in an illustration 

using gender based tables. 39See 29 CFR part 4044, Appendix C. 

table used by the PBGC to determine the 

liabilities of terminated single-employer 

plans under section 4044 of ERISA.35

The Department selected the section 

417(e)(3)(B) applicable mortality table 

for the following three reasons. First, the 

Treasury Department periodically 

updates the mortality table.36 Second, 

unlike the PBGC mortality tables, the 

section 417(e)(3)(B) applicable mortality 

table is unisex.37 Third, the table is 

publicly available and widely known to 

employee benefit plan service providers. 

The Department, however, is 

specifically requesting comments on 

whether the section 417(e)(3)(B) 

mortality table is the best mortality 

assumption to use in this context, or 

whether there is a different mortality 

assumption that should be used, and 

why. For example, one commenter 

suggested that if the plan did not 

provide an annuity option, the plan 

should be permitted to use gender based 

mortality tables in order to illustrate the 

dollar amount of a lifetime income 

stream which the participant or 

beneficiary could achieve if his or her 

account was rolled over into an 

individual retirement account and used 

to purchase a commercial annuity 

contract using gender based mortality.38

The rules and assumptions for 

converting current and projected 

account balances into lifetime income 

streams, discussed above and set forth 

in ANPRM § 2520.105–1(e), do not 

include an ‘‘insurance load.’’ In this 

context, the term ‘‘insurance load’’ is 

intended to describe the difference 

between the market price of lifetime 

income and the price of actuarially fair 

lifetime income. The insurance load 

may include insurance company profits, 

costs of insuring against systemic 

mortality risk, costs of holding cash 

reserves, advertising costs, the cost of 

selection (if not accounted for in the 

mortality table), and other operating 

costs. The Department specifically is 

requesting comments on whether a 

proposed rule should contain provisions 

requiring that such loads be factored 

into lifetime income streams and, if so, 

how should or could the rules and 

assumptions in ANPRM § 2520.105– 

1(e), including the safe harbor 

assumptions in ANPRM § 2520.105– 

1(e)(2)(ii), be modified to reflect such a 

requirement. For example, should the 

Department consider using a load 

assumption similar to the one used by 

the PBGC to determine the value of 

benefits for a single employer plan that 

has been involuntarily terminated and 

placed in trusteeship by the PBGC? 39

D. Disclosure of Assumptions 

Most of the commenters on the RFI 

indicated that the assumptions 

underlying any illustration should be 

disclosed to participants and 

beneficiaries. The Department agrees 

that clear disclosure of assumptions is 

needed for multiple reasons, but 

primarily in order to make it clear to 

participants and beneficiaries that 

projected amounts are not guarantees. 

The proposal under consideration, 

therefore, would require disclosure of 

any assumptions used in the benefit 

statement with regard to the projected 

account balance and the illustration of 

the lifetime income streams. See 

ANPRM § 2520.105–1(c)(6)(i) and (ii). In 

addition, the proposal would require 

that the pension benefit statement 

include a statement that the lifetime 

income stream is only an illustration 

and that actual periodic payments that 

may be purchased at retirement will 

depend on numerous factors and may 

vary substantially from the lifetime 

income stream illustration in the benefit 

statement. See ANPRM § 2520.105– 

1(c)(6)(iii). The Department is interested 

in comments on whether it would be 

helpful to participants and beneficiaries 

if their benefit statements explained that 

a consequence of purchasing an annuity 

outside of their pension plan is that 

gender-based mortality tables may be 

used and, if so, men will receive higher 

monthly payments and woman will 

receive lower monthly payments. 

It is essential that assumption 

disclosures be written in manner 

calculated to be understood by the 

average plan participant. The 

Department, therefore, is interested in 

comments and suggestions on how best 

to achieve this result. For example, is 

there model language within the 

financial community or elsewhere that 

plan administrators could use to plainly 

explain or describe this information so 

as to increase its readability and 

understandability? Are there other 

formatting or presentation techniques 

relevant to this inquiry? 

E. In-Plan Annuities 

In addition to traditional distribution 

annuities, the Department is aware of 

the marketing and presence of in-plan 

annuity arrangements as investment 

options, sometimes generically referred 

to as ‘‘incremental’’ or ‘‘accumulating’’ 

annuities. According to the RFI 

commenters, these are arrangements 

that permit participants to make 

ongoing contributions toward the 

current purchase of a future stream of 

retirement income payments, which are 

guaranteed by an insurance company. 

Thus, conceptually, each contribution 

buys a small annuity. In this fashion, a 

participant has the ability to accumulate 

multiple small annuities over a career 

which, in the aggregate, could provide 

significant lifetime income. 

More specifically, the RFI 

commenters explained that under these 

arrangements, typically, the ongoing 

participant contributions actually 

accumulate ownership units, that each 

such unit has a current market value, 

and that each unit will pay a fixed 

amount (usually per month) for the life 

of the owner commencing at retirement. 

For example, assume the current 

purchase price of a unit is $500 and 

each unit purchased will pay $15 per 

month, for life, commencing at 

retirement. A participant who has 

accumulated 100 units over his career 

will receive payments of $1,500 per 

month, for life, commencing at 

retirement. The RFI commenters further 

explain that although the current price 

of a unit ($500 in this example) 

fluctuates depending on a number of 

factors, such as the interest rate 

environment and the employee’s age 

when the unit is purchased, the 

guaranteed monthly payment of each 

unit purchased (e.g., $15 in this 

example) is fixed. RFI commenters also 

indicate that some products allow the 

participant to transfer out of the 

incremental annuity investment option 

and into another of the plan’s 

designated investment alternatives, such 

as a mutual fund or other similar plan 

investment option, prior to normal 

retirement age or some other date (e.g., 

the date distributions commence). The 

price per unit or pay out rate of an inplan annuity with this transferability 

feature may differ from one without this 

feature. 

The Department is soliciting 

comments on how best to factor 

investments of this type into lifetime 

income illustrations. For instance, one 

approach is that the current market 

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40For example, assume a participant has 

$100,000 invested in certain of the plan’s 

designated investment alternatives. Also assume 

that in addition to those investments, the 

participant also has 10 in-plan annuity units and 

that the current market value of a unit is $500. 

Under this approach, the participant’s total account 

balance under ANPRM § 2520.105–1(c)(2)(v) would 

be $105,000, and the lifetime income illustrations 

would be based on this amount. 

41For example, assume a participant has 

accumulated 100 units of an in-plan annuity and 

that each unit accumulated will pay $15 per month, 

for life, commencing at retirement. Thus, this 

participant will receive payments of $1,500 per 

month, for life, commencing at retirement based on 

these 100 units. Also assume this participant has a 

projected monthly payment of $2,500 based on 

investments in other designated investment 

alternatives under the plan (e.g., mutual funds) 

using the safe harbor assumptions. Under this 

approach, the guaranteed monthly payment of the 

in-plan annuity ($1,500) could be added to the 

estimated monthly payment of $2,500, totaling 

$4,000 per month, for life. 

42For example, assume a participant had 

accumulated 100 in-plan annuity units that each 

pay $15 per month, for life, commencing at 

retirement (totaling $1,500 per month). Also assume 

the participant had another $100,000 invested in 

other designated investment alternatives under the 

plan (such as mutual funds) and that the purchase 

price of a unit on the last day of the statement 

period is $500. Under this approach, the lifetime 

income illustration could be as if the participant 

had accumulated an additional 200 units with the 

$100,000 ($100,000/$500 = 200), totaling $3,000 per 

month in retirement income. Thus, the total 

estimated monthly payment under this approach 

would be $4,500 ($3,000 + $1,500) per month, for 

life. 

43Paragraph (e)(3) provides that ‘‘[i]f the plan 

offers an annuity form of distribution pursuant to 

a contract with an issuer licensed under applicable 

state insurance law, the plan shall substitute actual 

plan terms for the [safe harbor mortality and 

interest] assumptions set forth in paragraphs 

(e)(2)(ii)(A) and (B) of this section.’’ 

44 In one survey of large U.S. plan sponsors, 33% 

of respondents indicated that they provide 

retirement income projections to participants on 

benefit statements. See MetLife, ‘‘Retirement 

Income Practices Study,’’ June 2012 Located at: 

https://www.metlife.com/retirementincomestudy. 

45For example, such a table would be based on 

the interest, mortality, and other assumptions 

selected by the Department and would contain 

factors for calculating a single life annuity and a 

joint and 50 percent survivor annuity. The relevant 

factor multiplied by the number of $1,000 

increments comprising the participant’s or 

beneficiary’s total account balance would equal the 

monthly lifetime income stream. Assume, for 

example, that the participant has an account 

balance of $100,000 and the factor for single life 

annuity commencing at age 65 is 5.00 per thousand 

dollars. The $100,000 account balance would 

equate to a lifetime income stream of $500 per 

month ([$100,000 ÷ 1,000] × 5.00). 

value of all in-plan annuity units 

accumulated by a participant could be 

added to the rest of that participant’s 

account balance under ANPRM 

§ 2520.105–1(c)(2)(v), before 

determining the projected account 

balance under ANPRM § 2520.105– 

1(c)(2)(vi).40 A second approach is to 

add the total guaranteed monthly 

payment amount derived from all of a 

participant’s in-plan annuity units to 

the estimated monthly payment amount 

of the non-annuity portion of the 

participant’s account, if any, determined 

under ANPRM § 2520.105–1(c)(2)(vii) 

and (viii).41 A third approach is to 

convert the participant’s entire account 

balance, even any part that is not 

allocated to an in-plan annuity option, 

to a lifetime income stream using the 

current unit price of the in-plan annuity 

option.42

These three approaches are not 

necessarily the only options for 

incorporating the in-plan annuity values 

in lifetime income illustrations and the 

Department welcomes suggestions on 

other approaches. In this regard, 

commenters are encouraged to address 

whether, and to what extent, the 

language in ANPRM § 2520.105–1(e)(3) 

would need to be modified.43 In 

addition, the Department welcomes the 

submission of actual benefit statements 

or similar documents showing how 

plans or insurance companies currently 

disclose in-plan annuity unit prices and 

monthly payment guarantees. Finally, 

given the wide array of ERISA plans and 

investment products, the Department 

also is soliciting comments on whether 

there are any foreseeable productspecific problems for products similar to 

in-plan annuities. 

F. Miscellaneous 

Many RFI commenters, hearing 

witnesses, and others who support 

lifetime income illustrations believe that 

the Department should take steps to 

encourage, rather than require, such 

illustrations on pension benefit 

statements. According to these 

individuals, mandating lifetime income 

illustrations would be expensive and 

may expose plan fiduciaries to litigation 

from plan participants and beneficiaries 

for a variety of reasons. The most 

commonly cited reason for potential 

lawsuits is unmet expectations. For 

example, if participants and 

beneficiaries during their working years 

mistakenly believe that the lifetime 

income illustrations on their pension 

benefit statements are promises or 

guarantees of a specific income stream, 

the participants and beneficiaries might 

sue if their actual account balances at 

retirement do not generate an income 

stream equal to or greater than the 

stream depicted in the illustrations in 

prior pension benefit statements. 

The Department believes both 

concerns may be overstated. As to costs, 

first, some plans already provide 

lifetime income illustrations on pension 

benefit statements.44 Thus, for these 

plans, there may be little if any 

additional cost associated with the 

ANPRM’s regulatory framework. 

Second, pursuant to section 105 of 

ERISA, pension benefit statements 

already are required to include certain 

participant account information. Thus, 

for plans not already providing lifetime 

income illustrations on pension benefit 

statements, the Department does not 

believe that adding the lifetime income 

illustrations described above to these 

statements should significantly increase 

the cost of pension benefit statements. 

The Department, however, 

specifically requests comments on the 

costs (and benefits) of including the 

illustration described herein in pension 

benefit statements. In this regard, the 

Department welcomes ideas on how the 

cost of the contemplated lifetime 

income illustrations might be reduced 

without compromising the anticipated 

benefits. For example, would there be 

substantial cost savings if illustrations 

were required only annually rather than 

quarterly? If yes, please explain why 

and quantify if possible. In addition, 

would there be substantial cost savings 

if the Department published (and 

periodically updated) a table of 

conversion factors based on the safe 

harbor assumptions contemplated in 

paragraph (e) of the ANPRM’s regulatory 

framework? Such a table would make it 

possible to produce projections that 

satisfy the safe harbor with simple 

calculations and without the need to 

reference Treasury rates, mortality 

tables and other actuarial 

assumptions.45 If yes, please explain 

why and quantify if possible. In 

addition, would there be substantial 

cost savings if all benefit statements 

were required to contain joint and 

survivor illustrations of the type 

described in ANPRM § 2520.105– 

1(e)(1)(ii), as opposed to including such 

illustrations only in benefit statements 

of married participants and 

beneficiaries? In other words, would 

there be cost savings in not having to 

track and determine marital status 

solely for pension benefit statement 

requirements? If yes, please explain why 

and quantify if possible. 

As to the concern about potential 

lawsuits based on unrealized 

expectations, the Department believes 

this issue might be addressed in two 

ways. First, benefit statements could 

include a clear and definitive statement 

that the lifetime income illustration is 

an estimate, based on specific 

assumptions, and not a guarantee. The 

Department believes this disclosure 

would serve to put participants and 

beneficiaries on notice that the 

illustration is only an estimate and, 

thereby, minimize the likelihood that 

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they would believe the illustration is a 

promise or guarantee. The Department 

specifically requests comments on the 

extent to which the language in ANPRM 

§ 2520.105–1(c)(6) would accomplish 

this result. Second, the Department is 

considering establishing a regulatory 

safe harbor under section 105 of ERISA 

for plan administrators to rely on when 

developing lifetime income illustrations 

for pension benefit statements. By 

specifying the precise standards and 

assumptions a plan administrator would 

use to make a lifetime income 

illustration on a pension benefit 

statement, a regulatory safe harbor 

would substantially reduce the 

likelihood of lawsuits against that 

administrator based on an imprudent or 

improper calculation of lifetime income. 

See ANPRM § 2520.105–1(d)(2) and 

(e)(2)(ii). The Department specifically 

requests comments on the extent to 

which the regulatory safe harbor being 

considered would help address 

concerns about such potential lawsuits. 

Furthermore, the Department has not 

concluded that the ANPRM’s regulatory 

framework is the only or best approach. 

The Department intends to consider all 

reasonable alternatives to direct 

regulation, including whether there is a 

way short of a regulatory mandate to get 

plan administrators voluntarily to 

provide their participants and 

beneficiaries with constructive and 

helpful lifetime income illustrations. In 

developing the framework, the 

Department was mindful of the fact that 

administrators of defined contribution 

plans have been free to provide lifetime 

income illustrations to participants and 

beneficiaries for nearly 40 years since 

the enactment of ERISA, yet few 

actually have done so despite the 

apparent support for them evidenced by 

the vast majority of responsive RFI 

commenters and hearing witnesses who 

supported the concept. This ANPRM, 

nonetheless, solicits comments on all 

reasonable ideas, either in lieu of or in 

conjunction with a direct regulation, to 

address this very important issue. 

Commenters are encouraged to be 

specific with the responses and include 

data if possible to support their 

positions. The Department also 

welcomes the submission of sample 

benefit statements or similar documents 

currently being provided to participants 

and beneficiaries that include lifetime 

income illustrations. 

List of Subjects in 29 CFR Part 2520 

Annuity, Defined contribution plans, 

Disclosure, Employee benefit plans, 

Employee Retirement Income Security 

Act, Fiduciaries, Lifetime income, 

Pensions, Pension benefit statements, 

Plan administrators, Recordkeepers, 

Third party administrators. 

For the reasons set forth in the 

preamble, the Department of Labor 

proposes to amend 29 CFR part 2520 as 

follows: 

PART 2520—RULES AND 

REGULATIONS FOR REPORTING AND 

DISCLOSURE 

■ 1. The authority citation for part 2520 

is revised to read as follows: 

Authority: 29 U.S.C. 1021–1025, 1027, 

1029–31, 1059, 1134 and 1135; and Secretary 

of Labor’s Order 1–2011, 77 FR 1088 (Jan. 9, 

2012). Sec. 2520.101–2 also issued under 29 

U.S.C. 1132, 1181–1183, 1181 note, 1185, 

1185a–b, 1191, and 1191a–c. Sec. 2520.101– 

4 also issued under 29 U.S.C. 1021(f). Sec. 

2520.101–6 also issued under 29 U.S.C. 

1021(k) and Pub. L.109–280, § 502(a)(3), 120 

Stat. 780, 940 (2006). Secs. 2520.102–3, 

2520.104b–1 and 2520.104b–3 also issued 

under 29 U.S.C. 1003,1181–1183, 1181 note, 

1185, 1185a–b, 1191, and 1191a–c. Secs. 

2520.104b–1 and 2520.107 also issued under 

26 U.S.C. 401 note, 111 Stat. 788. Sec. 

2520.105–1 also issued under sec. 508(a) of 

Pub. L. 109–280, 120 Stat. 780. 

2. Add § 2520.105–1 to subpart F to 

read as follows: 

§ 2520.105–1 Periodic Pension Benefit 

Statements—Individual Account Plans. 

(a) [Reserved] 

(b) [Reserved] 

(c) Content requirements. A benefit 

statement furnished under this section 

shall prominently display the beginning 

and ending dates of the period covered 

by the statement and contain the 

following information, based on the 

latest information available to the plan: 

(1) [Reserved] 

(2) Total benefits accrued. 

(i)—(iv) [Reserved] 

(v) The fair market value of the 

account balance as of the last day of the 

period covered by the statement; 

(vi) If the participant has not reached 

normal retirement age as defined under 

the plan, the current dollar value of the 

projected account balance at normal 

retirement age determined in 

accordance with paragraph (d) of this 

section; 

(vii) The amount specified in 

paragraph (c)(2)(v) of this section 

expressed as a lifetime income stream in 

accordance with paragraph (e) of this 

section; and 

(viii) The amount specified in 

paragraph (c)(2)(vi) of this section 

expressed as a lifetime income stream in 

accordance with paragraph (e) of this 

section. 

(3)–(5) [Reserved] 

(6) Explanation of lifetime income 

stream illustration. 

(i) Disclosure of the assumptions used 

pursuant to paragraph (d) of this section 

to establish the present value of the 

projected account balance required by 

paragraph (c)(2)(vi); 

(ii) Disclosure of the assumptions 

used pursuant to paragraph (e) of this 

section to establish the lifetime income 

stream illustration required by 

paragraphs (c)(2)(vii) and (c)(2)(viii) of 

this section; and 

(iii) A statement that the lifetime 

income stream illustrations required 

under paragraphs (c)(2)(vii) and 

(c)(2)(viii) of this section are 

illustrations only and that actual 

monthly payments that may be received 

at normal retirement age will depend on 

numerous factors and may vary from the 

illustrations in the benefit statement. 

(d) Rules and assumptions for 

projecting an account balance to normal 

retirement age. 

(1) General. For purposes of 

paragraph (c)(2)(vi) of this section 

(which sets forth the requirement to 

project a current account balance to 

normal retirement age under the plan), 

projections shall be based on reasonable 

assumptions taking into account 

generally accepted investment theories. 

A projection is not reasonable unless it 

is expressed in current dollars and takes 

into account future contributions and 

investment returns. 

(2) Safe harbor. The following set of 

assumptions, when used together, are 

deemed reasonable for purposes of 

paragraph (d)(1) of this section: 

(i) Contributions continue to normal 

retirement age at the current annual 

dollar amount, increased at a rate of 

three percent (3%) per year; 

(ii) Investment returns are seven 

percent (7%) per year (nominal); and 

(iii) A discount rate of three percent 

(3%) per year (for establishing the value 

of the projected account balance in 

current dollars). 

(e) Rules and assumptions for 

converting current and projected 

account balances into lifetime income 

streams. For purposes of paragraphs 

(c)(2)(vii) and (c)(2)(viii) of this 

section— 

(1) Measuring lives. A lifetime income 

stream shall— 

(i) Be expressed as a level monthly 

payment, payable for the life of the 

participant beginning on the assumed 

commencement date, as defined in 

paragraph (e)(4) of this section; 

(ii) If the participant is married, also 

be expressed as a level monthly 

payment, payable for the life of the 

participant beginning on the assumed 

commencement date, as defined in 

paragraph (e)(4) of this section, with a 

survivor’s benefit, which is equal to fifty 

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26738 Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 

percent (50%) of the monthly payment 

payable to the participant, payable for 

the life of the surviving spouse. For this 

purpose, it is permissible to assume the 

spouse is the same age as the 

participant; and 

(iii) Be based on the assumptions set 

forth in paragraph (e)(2) of this section 

subject to the requirements in paragraph 

(e)(3) of this section. 

(2) Assumptions. 

(i) General. The interest and mortality 

assumptions behind a lifetime income 

stream shall each be reasonable taking 

into account generally accepted 

actuarial principles. 

(ii) Safe harbor. The following 

assumptions are deemed reasonable for 

purposes of paragraph (e)(2)(i) of this 

section: 

(A) A rate of interest equal to the 10- 

year constant maturity Treasury 

securities rate, for the first business day 

of the last month of the period to which 

the statement relates; and 

(B) Mortality as reflected in the 

applicable mortality table under section 

417(e)(3)(B) of the Internal Revenue 

Code, in effect for the month that 

contains the last day of the period to 

which the statement relates. 

(3) Plan terms. If the plan offers an 

annuity form of distribution pursuant to 

a contract with an issuer licensed under 

applicable state insurance law, the plan 

shall substitute actual plan terms for the 

assumptions set forth in paragraphs 

(e)(2)(ii)(A) and (B) of this section. 

(4) Assumed commencement date. 

For purposes of paragraph (e) of this 

section, the assumed commencement 

date shall be the first day following the 

period to which the statement relates, 

and the participant shall be assumed to 

be normal retirement age (as defined in 

section 3(24) of the Act) on this date 

(unless the participant is older than 

normal retirement age, in which case 

the participant’s actual age should be 

used). 

(f) [Reserved] 

Note: The following appendix will not 

appear in the Federal Regulations. 

Appendix A 

Lifetime Income Illustration 

(a) Purpose. This Appendix A contains an 

example that illustrates the application of the 

safe harbor provisions set forth in ANPRM 

§ 2520.105–1(d) and (e). The example is 

intended to aid the reader in understanding 

how the two safe harbors operate, 

independently and together, when 

calculating lifetime income streams based on 

current and projected account balances. The 

example is not intended as a model format 

or to provide model content for pension 

benefit statements, including the explanation 

for participants and beneficiaries required by 

ANPRM § 2520.105–1(c)(6). 

(b) Example: Facts. Plan A is an individual 

account plan described in section 3(34) of the 

Act. Since the plan does not provide for the 

allocation of investment responsibilities to 

participants and beneficiaries, the plan is 

required to provide a benefit statement at 

least once each calendar year. The statement 

period and the plan year are the 2012 

calendar year. Normal retirement age under 

the Plan is age 65. Participant P is age 45. His 

birth date is June 30, 1967. He is married. His 

account balance on December 31, 2012, the 

last day of the statement period, was 

$125,000. His contributions (employee and 

employer) for 2012 were $9,709. His 

contributions for 2013 are assumed to be 

$10,000 ($9,709 × 1.03). Contributions are 

assumed to be made on January 1 each year. 

(c) Safe harbor for projecting an account 

balance to normal retirement age. Based on 

the safe harbor assumptions in ANPRM 

§ 2520.105–1(d)(2) (as reflected in Table 1), 

the present value of the current balance 

($125,000) projected to normal retirement 

age, as required by ANPRM § 2520.105– 

1(c)(2)(vi), is $557,534. P’s December 31, 

2012 account balance of $125,000 is 

projected to be $467,621 assuming a 7% 

return, compounded annually. Future 

contributions increasing at 3%, compounded 

annually with earnings at 7%, compounded 

annually, are projected to be $524,575 on 

June 30, 2032. P’s aggregate projected 

account balance on June 30, 2032 is $992,196 

($467,621 + $524,575). The projected account 

balance of $992,196 discounted to December 

31, 2012 at 3%, compounded annually, is 

$557,534. 

TABLE 1 

Normal Retirement Date ........................................................................... June 30, 2032. 

Number of years in projection .................................................................. 19.5 (January 1, 2013 through June 30, 2032). 

Number of contributions ........................................................................... 19 ($10,000 per year adjusted by contribution increase rate) + 1 (final 

contribution of $5,000 in 2032, adjusted by contribution increase 

rate). 

Paragraph (d)(2)(i) safe harbor—contribution increase rate .................... 3% compounded annually. 

Paragraph (d)(2)(ii) safe harbor—rate of return applied to current account balance of $125,000 and post 2012 projected contributions.7% compounded annually. 

Paragraph (d)(2)(iii) safe harbor-discount rate used to determine 

present value of the projected account balance.

3% compounded annually. 

(d) Safe harbor for converting current and 

projected account balances into lifetime 

income streams. Based on the safe harbor 

assumptions in ANPRM § 2520.105– 

1(e)(2)(ii) (as reflected in Table 2), the 

lifetime income stream illustrations of the 

current and projected balances required by 

ANPRM § 2520.105–1(c)(2)(vii) and 

(c)(2)(viii), respectively, are set forth below. 

Using the assumptions in Table 2, the factor 

for converting a single sum into a level 

monthly payment for the life of P only 

(Single Life Form) is $5.00 per $1,000 of 

account balance. The factor for converting a 

single sum into a level monthly payment for 

the life of P with a 50% survivor benefit 

payable to P’s spouse following his death 

(Joint and 50% Survivor Form) is $4.51 per 

$1,000 of account balance. 

TABLE 2 

Paragraph (e)(2)(ii)(A) safe harbor—10 year constant maturity Treasury 

rate on December 3, 2012: 

1.63%, compounded annually. 

Paragraph (e)(2)(ii)(B) safe harbor—Code section 417(e)(3)(B) applicable mortality table: Unisex mortality table published in IRS Notice 2008–85. 

Assumed commencement date ................................................................ January 1, 2013. 

Assumed Age of P on the assumed commencement date ..................... 65. 

Assumed Age of P’s spouse on the assumed commencement date ...... 65 (i.e., same as P). 

mstockstill on DSK4VPTVN1PROD with PROPOSALS

Federal Register / Vol. 78, No. 89 / Wednesday, May 8, 2013 / Proposed Rules 26739 

Applying the factors described above to the 

December 31, 2012 current and projected 

account balances, the pension benefit 

statement would show the following lifetime 

income streams: 

Account balance on last day of statement period (12/31/12) 

Single life form 

(monthly payment 

for P’s life with no 

survivor benefit) 

Joint and 50% survivor form 

Monthly payment 

during P’s life 

Monthly payment 

after P’s death to 

surviving spouse 

Current—$125,000 .................................................................................................... $625 $564 $282 

Projected—$557,534 ................................................................................................. 2,788 2,514 1,257 

Signed at Washington, DC, this 17th day of 

April, 2013. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2013–10636 Filed 5–7–13; 8:45 am] 

BILLING CODE 4510–29–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 63 

[EPA–HQ–OAR–2013–0358; FRL–9809–8] 

Notice of Final Action on Petition From 

Earthjustice To List Coal Mines as a 

Source Category and To Regulate Air 

Emissions From Coal Mines 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Denial of petition for 

rulemaking. 

SUMMARY: This action provides notice 

that on April 30, 2013, the Acting EPA 

Administrator, Bob Perciasepe, signed a 

letter denying a petition to add coal 

mines to the Clean Air Act (CAA) 

section 111 list of stationary source 

categories. The agency denied the 

petition because the EPA must prioritize 

its actions in light of limited resources 

and ongoing budget uncertainties, and 

at this time, cannot commit to 

conducting the process to determine 

whether coal mines should be added to 

the list of categories under CAA 

111(b)(1)(A). The letter explains in 

detail the EPA’s reasons for the denial. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Allison Mayer, Sector Policies and 

Programs Division (E143–03), Office of 

Air Quality Planning and Standards, 

Environmental Protection Agency, 

Research Triangle Park, North Carolina 

27711; telephone number: (919) 541– 

4016; fax number: (919) 541–3470; 

email address: mayer.allison@epa.gov. 

SUPPLEMENTARY INFORMATION: 

I. How can I get copies of this document 

and other related information? 

This Federal Register notice, the 

petition for rulemaking and the letter 

denying the petition for rulemaking are 

available in the docket that the EPA 

established under Docket ID Number 

EPA–HQ–OAR–2013–0358. All 

documents in the docket are listed on 

the www.regulations.gov Web site. 

Publicly available docket materials are 

available either electronically through 

www.regulations.gov, or in hard copy at 

the EPA Docket Center (Air Docket), 

EPA/DC, EPA West, Room 3334, 1301 

Constitution Ave., NW., Washington, 

DC. The Public Reading Room is open 

from 8:30 a.m. to 4:30 p.m., Monday 

through Friday, excluding legal 

holidays. The telephone number for the 

Public Reading Room is (202) 566–1744 

and the telephone number for the Air 

Docket is (202) 566–1742. 

II. Judicial Review 

Any petitions for review of the letter 

denying the petition to list coal mines 

as a source category described in this 

Notice must be filed in the Court of 

Appeals for the District of Columbia 

Circuit by July 8, 2013. 

List of Subjects in 40 CFR Part 63 

Environmental protection, 

Administrative practice and procedure, 

Air pollution control, Intergovernmental 

relations. 

Dated: April 30, 2013. 

Bob Perciasepe, 

Acting EPA Administrator. 

[FR Doc. 2013–10827 Filed 5–7–13; 8:45 am] 

BILLING CODE 6560–50–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Part 73 

[DA 13–313; MB Docket No. 13–51; RM– 

11692] 

Radio Broadcasting Services; 

Ehrenberg, Arizona 

AGENCY: Federal Communications 

Commission. 

ACTION: Proposed rule. 

SUMMARY: This document requests 

comments on a Petition for Rule Making 

filed by S and H Broadcasting, LLC, 

proposing the substitution of Channel 

228C2 for vacant Channel 286C2 at 

Ehrenberg, Arizona. The proposed 

channel substitution at Ehrenberg 

accommodates the contingent hybrid 

application that requests the city of 

license modification for Station KRSX– 

FM, from Channel 287A, Twentynine 

Palms, California, to Channel 286A, 

North Shore, California. A staff 

engineering analysis indicates that 

Channel 228C2 can be allotted to 

Ehrenberg, Arizona consistent with the 

minimum distance separation 

requirements of the Commission’s Rules 

with a site restriction located 11.1 

kilometers (6.9 miles) east of Ehrenberg. 

In this regard, the Audio Division, on its 

own motion, modifies the reference 

coordinates for proposed Channel 

228C2 at Ehrenberg, Arizona to the least 

restricted site. The reference coordinates 

are 33–36–54 NL and 114–24–14 WL. 

Channel 228C2 at Ehrenberg is located 

within 320 kilometers (199 miles) of the 

U.S.-Mexican border, so concurrence by 

the Government of Mexico is required. 

Mexican concurrence has been 

requested for this vacant allotment, but 

has not yet been received. 

DATES: Comments must be filed on or 

before June 10, 2013, and reply 

comments on or before June 25, 2013. 

ADDRESSES: Secretary, Federal 

Communications Commission, 445 12th 

Street SW., Washington, DC 20554. In 

addition to filing comments with the 

FCC, interested parties should serve the 

petitioner as follows: Peter Gutmann, 

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