Retirement Income Team Newsletter - October 2013

This newsletter is published by the Drinker Biddle Retirement Income Team - a group of attorneys whose combined focus is on retirement income investments and products - but whose individual specialties include employee benefits, securities law, investment management, insurance, income taxation and government relations.

The purpose of the newsletter is to inform our clients and friends about issues of interest to the investment managers and insurance companies that create retirement income vehicles, people in their organizations who deal with the compliance issues, advisers and consultants who assist in the distribution of those products and services, and retirement plan sponsors who evaluate and select them.

With the aging of the baby boomers and the ongoing retirement of the first generation of 401(k) participants, the issue of retirement income is gaining in importance. The question is: how will the average retiree invest and withdraw his or her money in a way that it lasts for a lifetime (and the lifetime of the retiree's spouse), regardless of whether that is 10, 20, 30 or more years? That is a complex and difficult task.

Because of these issues, we believe there is a need to focus on the laws and compliance issues of importance to retirement income products and services. That is the work of our Retirement Income Team. Because of our combined expertise, we are able to address those issues arising under insurance and securities laws, as well as those under ERISA that govern the use of those products and services in 401(k) and other defined contribution retirement plans. It is a unique combination that we believe offers value to our clients.

Before ending this introduction, I want to thank John Blouch for his leadership of our Team since its inception. John is an outstanding attorney and a good friend. But, at this stage of life, he has decided to become the object of our focus... that is, John has become a retiree. John, we will miss you.

Fred Reish Chair, Retirement Income Team

UPDATE ON RETIREMENT INCOME PROJECTIONS

By Fred Reish, Bruce L. Ashton and Joshua J. Waldbeser

In our last newsletter, we wrote about the DOL's Advance Notice of Proposed Rule Making (ANPRM) concerning the projection of retirement income on ERISA participant benefit statements. Since that article was published, a number of plan sponsor and service provider organizations have filed their comments with the DOL, and the comment period has now expired. This article contains a general summary of the comments and our view of the next steps.

The DOL will now begin its review of the comments filed by the private sector. Many of the comments were thoughtful and detailed... which will give meaningful input to the regulatory process. Different comments filed by a number of knowledgeable and credible organizations supported almost all of the alternative approaches suggested by the DOL, meaning that the comments often conflicted with each other. Also, many of the organizations noted significant disagreement on key issues even within their own membership. As a result, the DOL should find some level of support (and some level of dissent) for virtually any avenue that it decides to pursue. Examples of the alternatives discussed include whether the projections should be made mandatory or merely voluntary with a fiduciary safe harbor to encourage their use, and even whether the project should be abandoned entirely in favor of online calculators for plan participants.

Realistically though, we suspect that the DOL will, after reviewing the comments, draft a proposed regulation that mandates retirement income projections on participant benefit statements. While some employer organizations and service provider organizations argued against the mandate, organizations that represent employees, participants and retirees were nearly unanimous in arguing that mandated projections would provide value to plan participants.

Allowing for a reasonable period of time to review the comments and draft a proposed regulation, it is possible that a regulatory package could be sent to the Office of Management and Budget (OMB) in mid-first quarter 2014. It ordinarily takes the OMB three months for its review, which suggests that the proposed regulation would not be publicly available for comment until well into the second quarter. That would then be followed by a comment period and perhaps public hearings. Allowing time for that, together with the development of the final regulation and its review by the OMB, would add another seven to nine months to the process.

So, our "best guess" is that we could have a final regulation in the second quarter of 2015, but with a...