Retirement Plans Newsletter

January 13, 2017

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Webcasts and Conferences

Self-Funded Health Plans: What Employers Need to Know About Advantages and Risks
RECORDED
HRWebAdvisor

Specialty Medications - Simple Tips to Control Costs for You and Your Employee
February 8, 2017 WEBCAST
Worldwide Employee Benefits Network [WEB] - Houston Chapter

Understanding the Math of Your Health Plan Renewal
February 17, 2017 WEBCAST
Lorman Education Services

ERISA Audits: What We All Knew but Forgot
February 27, 2017 WEBCAST
Lorman Education Services

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[Official Guidance]

Text of EBSA FAQs: Consumer Protections for Retirement Investors -- Your Rights and a List of Questions to Ask Your Financial Adviser (PDF)
16 pages. "The [DOL's] recently adopted Conflict of Interest Rule protects retirement investors by requiring advisers to adhere to a fiduciary standard and give advice that is in the investor's best interest. After April 10, advisers who are paid to make recommendations about retirement accounts, such as [IRAs] and 401(k) accounts, will be treated as fiduciaries. This includes advisers who are paid directly by you or paid indirectly through commissions or other payments they may receive from third parties.... These [FAQs] will provide you with information about the Rule and related protections so that you can better understand your rights and benefits as a retirement investor. At the end of these FAQs [is] attached a list of questions for you to ask your financial adviser[.]"
Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL]

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[Official Guidance]

Text of IRS Rev. Proc. 2017-04: Consolidated and Revised Procedures for Employee Plans Determination Letters and Letter Rulings
"Notable changes to Rev. Proc. 2016-4, Rev. Proc. 2016-6 and Rev. Proc. 2016-8 that appear in this year's update and consolidation include: [1] Procedures for requesting determination letters were modified to reflect the elimination of the 5-year remedial amendment cycles for individually designed plans and other changes as described in section 4 of Rev. Proc. 2016-37.... Procedures for requesting determination letters were modified to reflect that employers may request determination letters on whether covered employees are leased employees only to the extent the employer is otherwise eligible to apply for a determination letter under Rev. Proc. 2016-37.... [2] Procedures for requesting determination letters were modified to reflect that employers that maintain individually designed plans may no longer request determination letters on whether a plan sponsor is part of an affiliated service group ... [3] Procedures for requesting a minimum funding waiver, as described in section 3 of Rev. Proc. 2004-15 have been modified ... [4] Procedures for requesting determination letters were modified to reflect that determination letters on partial terminations issued to individually designed plans will be limited in scope to whether a partial termination has occurred, unless the employer is otherwise eligible to apply for a determination letter under Rev. Proc. 2016-37."
Internal Revenue Service [IRS]

[Official Guidance]

Text of IRS Rev. Proc. 2017-18: Last Day of Remedial Amendment Period for 403(b) Plans (PDF)
"This revenue procedure provides that the last day of the remedial amendment period for Section 403(b) plans, for purposes of section 21 of Rev. Proc. 2013-22 ... is March 31, 2020. The selection of the last day of the remedial amendment period for Section 403(b) plans was reserved in section 21 of Rev. Proc. 2013-22 (setting forth the procedures for issuing opinion and advisory letters for Section 403(b) pre-approved plans)."
Internal Revenue Service [IRS]

[Official Guidance]

Text of IRS Form 5434 and Instructions: Joint Board for the Enrollment of Actuaries Application for Enrollment (PDF)
Rev. Jan. 2017. "You should not complete Form 5434 until you have satisfied the qualifying experience in section 901.12(b), the basic actuarial knowledge requirement in section 901.12(c), and the pension actuarial knowledge requirement in section 901.12(d)." [Also see Form 5434-A, Application for Renewal of Enrollment, rev. Feb. 2017.]
Internal Revenue Service [IRS]

[Official Guidance]

Text of IRS Notice 2017-13: Update for Weighted Average Interest Rates, Yield Curves and Segment Rates, January 2017 (PDF)
"This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Section 417(e)(3), and the 24-month average segment rates under Section 430(h)(2) of the Internal Revenue Code. In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under Section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Section 431(c)(6)(E)(ii)(I)."
Internal Revenue Service [IRS]

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[Official Guidance]

Text of PBGC Monthly Interest Rate Statement, January 2017
"The immediate interest rate for valuing lump sum payments for the month of February 2017 is 1.25% and the deferred interest rate I1 is 4.00%, I2 is 4.00%, and I3 is 4.00%.... The select and ultimate interest rates for valuing annuity benefits in single-employer plans and multiemployer plans for the month of February 2017 are 1.87% for the first 20 years following the date of plan termination, and 2.37% thereafter."
Pension Benefit Guaranty Corporation [PBGC]

[Guidance Overview]

IRS Summary and Audit Indicators: 403(b) Universal Availability Requirement
Updated Jan. 11, 2017. "A common error occurs when employees, working less than full-time, are automatically excluded from making elective deferrals under the 403(b) plan. A plan that wants to apply the statutory exclusion for part-time employment must determine eligibility for the 403(b) elective deferrals based on whether the employee is reasonably expected to normally work less than 20 hours per week and has actually never worked more than 1,000 hours in the applicable 12-month period."
Internal Revenue Service [IRS]

Small Business Views on Retirement Savings Plans
"Three-quarters of business owners who do not offer a plan said that under current circumstances, they would be no more likely to offer one in the next two years than they are now. Key changes that could lead employers to offer a plan include greater profitability, financial incentives, and increased demand from employees.... Support for an auto-IRA initiative proved highest if the plan would be sponsored by an insurance or mutual fund company; it dropped if a state or federal government ran the program."
The Pew Charitable Trusts

Target Date Funds With Annuities Can Be Prudent Default Investments
"Products and portfolios that include annuity features may not qualify as QDIAs but can still be prudent default options, [according to a Dec. 22, 2016 Information Letter to TIAA]. However, participants and beneficiaries 'must be able to transfer their assets "in whole or in part" to any other investment alternative available under the plan with a frequency consistent with that afforded participants and beneficiaries who elect to invest in the QDIA, but not less than frequently than once within any three month period,' according to the DOL."
Bloomberg BNA

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Interesting Angles on the DOL's Fiduciary Rule, Part 33
"[If] a representative of a broker dealer or an RIA prudently recommends a distribution and IRA rollover (satisfying the Level Fee Fiduciary conditions), the IRA may be invested using [a] discretionary investment manager. Note, though, that the discretionary investment management must be provided by a 'pure' Level Fee Fiduciary. That means that neither the adviser, the supervisory entity (e.g., the broker dealer or RIA firm), or any affiliated or related party can receive any compensation in addition to the level fee."
FredReish.com

SEC Announces 2017 Exam Priorities, Adds Robo-Advisers to List
"The SEC said it would examine registered investment advisers and broker-dealers that offer robo-advice services, putting automated advice first on its list of 2017 exam priorities ... Robo-advice services under scrutiny include those primarily interacting with investors online ... and those combining automation with access to financial professional[.]"
InvestmentNews

2016 Ends Almost Where It Started (PDF)
"This is the sixth time since 2007 that there was an annual interest rate decline from the prior year.... Though 2015 posted a dismal investment gain of 1.08%, 2016 ended with a modest gain of 6.17%. The 2016 gain still fell short of the annual asset return expectation of 7.2%.... The result was a funded status decline of $19 billion at the end of 2016 when compared to the end of 2015."
Milliman

ESOP Loans: Internal vs. External
"Having separate loan transaction documents allows the Plan Sponsor more repayment and refinancing flexibility.... In addition, the company can have a much shorter loan term on the external loan in order to remove debt from the company's books and, in a seller financed transaction, pay off a selling shareholder without impacting the share allocation in the ESOP. It is common, for example, to see internal ESOP loans with terms of 15 to 30 years while external loans have terms of 5 to 7 years."
Blue Ridge ESOP Associates

The Role of IRAs in U.S. Households' Saving for Retirement, 2016 (PDF)
40 pages. "More than one-third of US households owned IRAs in 2016.... Rollovers from employer-sponsored retirement plans have fueled the growth in IRAs.... Although most US households were eligible to make IRA contributions, few did so.... IRA withdrawals were infrequent and mostly retirement related." [Also see 24-page Appendix, which includes supplemental data tables.]
Investment Company Institute [ICI]

Optimal Social Security Claiming Behavior Under Lump Sum Incentives: Theory and Evidence
"People who delay claiming Social Security receive higher lifelong benefits upon retirement. [The authors] survey individuals on their willingness to delay claiming later, if they could receive a lump sum in lieu of a higher annuity payment.... [E]arly claimers under current rules would delay claiming most when offered actuarially fair lump sums, and for lump sums worth 87% as much, claiming ages would still be higher than at present."
Pension Research Council, Wharton School of the University of Pennsylvania; free registration required

Another Call for a Paradigm Shift in Retiree Spending Budget Thinking
"Before you develop a spending budget for recurring annual expenses, you need to set aside assets for future expected non-recurring expenses, such as long-term care expenses, unexpected expenses and amounts desired to be left to heirs.... If you want to develop a recurring spending budget that is consistent with your retirement goals, you should spread the present value of your [income from other sources] over your expected retirement period, and add the result to your [strategic withdrawal plan (SWP)] amount for the year ... The simple answer for most individuals or couples, who don't live in a retirement researcher's artificial bubble, is to avoid SWPs."
Ken Steiner, FSA Retired

Another Question is Answered in the Who's the Employer Q&A Column
"Which of these three corporations are controlled groups? (Both sons are over 20. There are no options, rights of first refusal, or other transfer restrictions.) Corp. A is owned 50% by Dad, 25% by son One, and 25% by son Two. Corp. B is 100% owned by son One. Corp. C is 50% owned by Dad, and 50% by son One. Corp. D (as with Corp. C) is 50% owned by Dad, and 50% by son One."
BenefitsLink

Benefits in General

Nearly Three-Quarters of U.S. Employees Would Like a Customized Benefits Package
"[O]nly half of workers are satisfied with their current employer benefits. Married workers are more satisfied than non-married workers (55 percent vs. 45 percent) and workers who use a financial advisor are more likely to be satisfied with their benefits (62 percent vs. 46 percent).... Employees ranked health care coverage, retirement savings accounts and vacation as the three most popular workplace benefits."
Wolters Kluwer Law & Business

Executive Compensation and Nonqualified Plans

[Guidance Overview]

Preparing for CEO Pay Ratio Disclosure (PDF)
"When will companies first disclose the Pay Ratio? ... What companies are subject to the Pay Ratio rule? ... What is the purpose of the Pay Ratio rule? ... What factors should companies consider in determining whether to use their total employee population or a statistical sampling, as allowed under the rule? ... How do companies identify the median employee? ... Outline some considerations in developing the messaging and narrative around a company's disclosure, for instance, if the ratio is a big number.... [W]ill the incoming Trump administration repeal the CEO pay ratio?"
Meridian Compensation Partners, for Nasdaq

[Guidance Overview]

IRS Memorandum Reveals Approach for Avoiding Section 409A for Matched Elective Deferrals
"Chief Counsel Memorandum (CCM) 201645012 involved a nonqualified deferral arrangement under which participants could voluntarily elect to defer a portion of their salary. The amounts deferred were matched by the employer and made subject to service-based vesting conditions. The CCM concluded that because the deferrals were credited with a 25% match, the ongoing vesting conditions to which these deferrals were subject posed a 'substantial risk of forfeiture' for purposes of Section 409A. Because the deferrals were paid shortly after vesting, this conclusion meant that the arrangement qualified to be exempt from 409A."
Willis Towers Watson

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Lois Baker, J.D., President  loisbaker@benefitslink.com
David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2017 BenefitsLink.com, Inc. All materials contained in this newsletter are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of BenefitsLink.com, Inc., or in the case of third party materials, the owner of those materials. You may not alter or remove any trademark, copyright or other notices from copies of the content.

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