417(e) assumptions for SECURE Act disclosure

I am embarrassed that I don't know how to turn the 417(e)(3)(B) factor that is published each year into a formula that would convert an account value into single life and J&S 100% survivor annuity forms at age 67 (or older age if the person is older than age 67). I've got clients who self administer their DC plans and they need to come up with the hypothetical annuities each year (with December 1 assumptions and December 31 account values) for the required SECURE ACT ERISA 105 disclosure. Is there a formula to convert lump sums into the annuity equivalents with the 417(e)(3)(B) assumptions that DOL requires? Even better, is there an easy conversion table like we see with 401(a)(9)?   

For example, Notice 2023-73 says that at age 67 there is a factor of 0.00920. How do you turn a lump sum into the single life and  100% jt and survivor annuity equivalents? There is a great calculator on the DOL web site, but it generates annuity equivalents that cannot possibly satisfy the Department's 105 guidance. It grossly understates annuity equivalents and must still be using the outdated 10 year CMT rate that was much lower in 2019. 

Actuarial firms I contacted are charging outrageous amounts. Is there some way to do this without hiring an actuary? Frankly, I'd like to learn. Converting a lump sum into annuities for a fixed term is easy. It's genrating a SECURE Act mortality table for age 67 and later years that has me stumped.

The factor you quote at 67 (.00920) is the probability of dying between age 67 & 68.  It is used, along with the probability of death at all future ages, to determine the 417(e) factor.  

If you knew a friendly actuary, maybe one you shared business with, they might just give you a table of factors based on current 417(e) rates.  

What is your role in the process?  Are you a TPA?  I would think most TPA software systems would contain the ability to do this conversion?

Did a quick Google search for "Lifetime annuity calculator" and found a bunch of free calculators, including this one on the DOL site.  https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/advanced-notices-of-proposed-rulemaking/lifetime-income-calculator

Not 417(e), but also not sure the requirements require that you use 417(e) for DC illustrations.

It's not straightforward to convert from the table to a factor. You really have to use software to do it. I posted a spreadsheet here a couple of years ago that will calculate the factors for you, if you paste in the table and enter an interest rate. Let me see if I can dig it up again.

Edit: here it is

See how friendly actuaries are.  ☺️ 

On 11/8/2024 at 12:23 PM, Effen said:

The factor you quote at 67 (.00920) is the probability of dying between age 67 & 68.  It is used, along with the probability of death at all future ages, to determine the 417(e) factor.  

If you knew a friendly actuary, maybe one you shared business with, they might just give you a table of factors based on current 417(e) rates.  

What is your role in the process?  Are you a TPA?  I would think most TPA software systems would contain the ability to do this conversion?

I'm a lawyer who is simply annoyed that clients need to consult an actuary to get a very simple set of factors to calculate the ERISA 105 annuities from lump sums. The DOL has a great calculator, but has not gotten off its butt to repopulate it each year with up to date conversion factors. (They created this calculator for pre-2019 law when they wanted participants to get better information, not the unhelpful assumptions they now require for ERISA 105 that assumes that accounts don't grow and that participants are each age 67 and married to another 67 year old of the same sex.)

Unisex fine. I'm just trying to insert a little humor into this expensive government mandate that requires plans to hire an actuary for a very simple age 67 assumption, and is audaious enough to say that a better calculation with real ages and a real annuity quote is allowed, but does not comply.

On 11/8/2024 at 12:26 PM, Effen said:

Did a quick Google search for "Lifetime annuity calculator" and found a bunch of free calculators, including this one on the DOL site.  https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/advanced-notices-of-proposed-rulemaking/lifetime-income-calculator

Not 417(e), but also not sure the requirements require that you use 417(e) for DC illustrations.

Thanks, but you just reiterate my frustration. It would take only a few thousand dollars for DOL to upgrade its calculator for the purpose of complying with its mandate. God knows how much time they spent for the wordy semi-regulation that does everything but give a simple table, which the IRS has done for 401(a)(9) withdrawals. The DOL continues to make things hard for employers, who just need simple rules without professionals milking them by the hour.