Senate legislation (S 4087) would require pension plan sponsors offering terminated vested participants a lump-sum window to provide information to help them understand the financial trade-offs of choosing a lump sum over an annuity. The bill also would require a sponsor to report information about the lump-sum window to the Department of Labor (DOL) and the Pension Benefit Guaranty Corp. (PBGC) before and after offering the window.

Giving participants more information on choices

The Information Needed for Financial Options Risk Mitigation (INFORM) Act of 2022, first introduced in the last Congress, was reintroduced on April 26 by Sens. Patty Murray, D-WA, chair of the Senate Health, Education, Labor and Pensions (HELP) Committee, Tina Smith, D-MN, and Tammy Baldwin, D-WI. Under the bill, employers would have to send a notice to participants and beneficiaries offered a lump-sum option to replace their annuity payments at least 90 days before the election period begins. That notice must provide:

• An explanation of the available benefit options, including the estimated monthly benefit payable at normal retirement age, the availability — if any — of a subsidized early retirement option or fully subsidized qualified joint and survivor annuity (QJSA) option, the immediate monthly benefit amount, and the amount payable under the lump-sum option
  
• An explanation of how the lump sum is calculated, including whether any additional plan benefits like early retirement subsidies are included in the lump sum
  
• The relative value of the lump sum compared with the plan’s single life and QJSA annuities (in a manner consistent with the requirements for relative value disclosures in a QJSA notice)
  
• Whether the participant could replicate the plan’s annuity payments by purchasing a comparable retail annuity with the lump-sum amount
  
• The potential ramifications of accepting the lump sum, including longevity risks; the loss of PBGC protections, protection from creditors, and spousal protections; and any other ERISA-provided protections that would be lost
  
• An explanation of the tax rules pertaining to lump sums, including rollover options and early distribution penalties, with a disclaimer that the plan does not provide tax, legal, or accounting advice and a suggestion for the participant to consult advisors in those fields before deciding whether to take a lump sum
  
• Information on how to accept or reject the offer, what the deadline to respond is, and whether spousal consent is required
  
• Plan sponsor contact information for requesting more information

The bill directs DOL to issue a model notice, additional guidance and any necessary regulations within 180 days of the bill’s enactment.

Notices to DOL and PBGC before and after window

The bill would also require sponsors to provide the following information to DOL and PBGC at least 30 days before the window opens:

• Total numbers of participants and beneficiaries eligible for the window
• Length of the window
• Explanation of how lump sums are calculated
• Sample of the notice provided to participants and beneficiaries

Within 90 days after the window closes, sponsors would have to send a “post-offer report” to DOL detailing how many participants and beneficiaries elected the lump sum and any other information DOL requires in regulations or other guidance.

Lack of understanding, perils of lump sums cited

A fact sheet accompanying the bill cited a 2015 Government Accountability Office (GAO) report concluding that participants need better information when presented with a choice between a lump-sum payment and an annuity. The senators also noted a recent survey indicating that a third of respondents who took lump sums from their defined contribution plans depleted their funds within an average of five years.

Addition to SECURE 2.0 package?

The HELP Committee is developing a wide-ranging “SECURE 2.0 bill,” building on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (Div. O of Pub. L. No. 116–94). Expected to be introduced within weeks, the bill focuses on changes to ERISA and could incorporate the INFORM Act. Also coming soon is a separate SECURE 2.0 measure containing tax-related provisions from the Senate Finance Committee. The two committee products will be merged into a single Senate bill at some point, and the proposed lump-sum disclosures may survive if they can win broad bipartisan support, which may be possible in light of Sen. Bill Cassidy’s (R-LA) co-sponsorship of the INFORM Act.

Any Senate measure would need to be reconciled with major SECURE 2.0 legislation recently passed by the House, the Securing a Strong Retirement Act (HR 2954). While the outlook is uncertain, strong bipartisan support in both chambers for passing a SECURE 2.0 package suggests that Congress could send a bill to the president this year, most likely as part of larger must-pass legislation during a post-election lame-duck session.

Related resources

Non-Mercer resources

• Fact sheet (Sen. Patty Murray, April 27, 2022)
• Press release (Sen. Patty Murray, April 27, 2022)
• S 4087, the INFORM Act (April 26, 2022)

Mercer Law & Policy resources

• Broad ‘SECURE 2.0’ retirement bill gets overwhelming House approval (April 18, 2022)
• Host of retirement bills may hitch ride on final SECURE 2.0 package (March 25, 2022)
• 2022 legislative, regulatory and judicial outlook for retirement plans (March 15, 2022)