Retirement Plans Newsletter

September 23, 2015

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Medium-sized Employee Benefits Firm
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Webcasts and Conferences

Affordable Care Act -- What's Trending and What's Next
October 1, 2015 in NY
(Mintz Levin)

Making Plan Committee Meetings Truly Work – Workshopping Real Problems with Real Solution
October 20, 2015 WEBCAST
(Each Enterprises)

Final IRS Forms 1094 and 1095: In-Depth Analysis for 2016 Mandatory Filings
October 22, 2015 WEBCAST
(Thomson Reuters / EBIA)

ABC Carolinas Fall Conference
November 17, 2015 in NC
(ASPPA Benefits Council [ABC] of Carolinas)

Retirement Plan Insights Seminar
November 23, 2015 in MD
(McKay Hochman Co., Inc.)

IRA Required Minimum Distributions
December 8, 2015 WEBCAST
(Ascensus)

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[Official Guidance]

Text of Instructions for IRS Form 8950: Application for Voluntary Correction Program (VCP) Under EPCRS, Rev. September 2015 (PDF)
"Modifications have been made to improve the Employee Plans [Compliance] Resolution System [EPCRS] by changing some of the requirements in Rev. Proc. 2013-12[.] Rev. Proc. 2015-27 ... made modifications such as reducing the compliance fees relating to certain submissions and modifications to the correction rules. Rev. Proc. 2015-28 ... also provides new supplemental safe harbor correction methods." (Internal Revenue Service [IRS])  


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[Official Guidance]

Text of PBGC Submission to OMB: Reportable Events
"Under PBGC regulations implementing ... ERISA, plan administrators and contributing sponsors must notify PBGC of certain reportable events. The reporting requirements give PBGC timely notice of events that indicate plan or contributing sponsor financial problems. PBGC uses the information provided in determining what, if any, action it needs to take." [Forms submitted for approval: [1] Form 10, Post-Event Notice of Reportable Events, and [2] Form 10-Advance, Advance Notice of Reportable Events. Includes a Supporting Statement.] (Pension Benefit Guaranty Corporation [PBGC])  

[Official Guidance]

Text of PBGC Submission to OMB: Notice of Insolvency, Notice of Insolvency Benefit Level
"These notices, mandated by section 4245(e) of [ERISA], provide information PBGC needs to estimate cash requirements for financial assistance to troubled mutliemployer pension plans, and other interested parties need for financial planning or to bargain over contribution increases. Multiemployer plans in reorganization that are or may become insolvent give these notices." [Forms submitted for approval: [1] Notice of Insolvency, and [2] Notice of Insolvency Benefit Level. Includes a Supporting Statement.] (Pension Benefit Guaranty Corporation [PBGC])  

[Official Guidance]

Text of PBGC Submission to OMB: Notice of Failure to Make Required Contributions
"To implement a statutory requirement, PBGC requires contributing sponsors and parents of parent-subsidiary controlled groups of which a contributing sponsor is a member to submit Form 200 to notify PBGC of failures to make required payments. PBGC uses this information to make decisions regarding enforcement of statutory liens." [The form submitted for approval is Form 200, Notice of Failure to Make Required Contributions. Includes a Supporting Statement.] (Pension Benefit Guaranty Corporation [PBGC])  

[Official Guidance]

Text of PBGC Submission to OMB: Duties of Plan Sponsor Following Mass Withdrawal
"Plan sponsors of multiemployer pension plans terminated by mass withdrawal give notices to PBGC and plan participants about plan insolvency and benefit reductions; notices to participants about electing benefit options; and requests to PBGC for financial assistance or permission to distributee benefits in different amounts or forms than otherwise allowed. PBGC uses information submitted to it to make statutory determinations and estimate the need for financial assistance to plans. Participants use information sent to them to make personal financial decisions." [Forms submitted for approval: [1] Application for Financial Assistance -- Recurring, [2] Application for Financial Assistance -- Initial, [3] Notice of Insolvency Benefit Level, and [4] Notice of Insolvency. Includes a Supporting Statement.] (Pension Benefit Guaranty Corporation [PBGC])  


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[Official Guidance]

Text of 2016 Instructions for IRS Form 1098-Q: Qualifying Longevity Annuity Contract Information (PDF)
"File Form 1098-Q, Qualifying Longevity Annuity Contract Information, if you issue any contract that is intended to be a qualifying longevity annuity contract (QLAC). Prior to annuitization, the value of a QLAC is excluded from the account balance that is used to determine required minimum distributions." [Also available: 2015 Form 1098-Q and 2016 Form 1098-Q.] (Internal Revenue Service [IRS])  

[Guidance Overview]

How New Procedures Affect Plan Correction Methods Under EPCRS
"Although Rev. Proc. 2015-27 will bring about changes to the procedures of the EPCRS, it is important to note that it serves only as a modification, and the latter Revenue Procedure does not supplant the former. Thus, in order to properly correct any errors, a plan sponsor still must follow the rules set forth in Rev. Proc. 2013-12, as modified by the recent IRS guidance. The most significant changes are ... [1] Clarification to the correction rules on overpayment failures ... [2] Extended period for self-correction of 415(c) failures... [3] Reduced Voluntary Compliance Program (VCP) fees." (Reid and Riege, P.C.)  

Six Questions for Your Next 401(k) RFP
"[1] What plan design changes would you recommend, and why? ... [2] How many other clients like me do you have? ... [3] Are there any restrictions on fund choices? ... [4] What's your preferred QDIA? ... [5] How -- and how much -- do you and your other partners get paid? ... [6] Please provide the contact information for three clients that have left you in the last 18 months." (Nevin Adams via LinkedIn)  

Evaluating Target Date Funds: A Fiduciary's Guide
"[This] guide is focused on the practical steps to take during the evaluation process -- which may include comparison and selection of TDFs, understanding their underlying investments, reviewing fees, developing communications, and documenting the process. It provides a checklist for periodic reviews, key questions to ask when following the DOL guidelines, and items to consider." (Vanguard)  

Benchmarking Target Date Funds to the Price of Retirement
"Over the last decade, near-retirees have faced an escalating retirement price tag.... From a 2008 low to a peak in 2013, the near-retiree saw her retirement cost jump by about $150,000 -- twice her final pay.... Understanding both past and future retirement costs opens the door to benchmarking the plan's investments. As the most prevalent DC investment default, target-date funds rise to the top in requiring scrutiny and benchmarking." (PIMCO)  

The Federal TSP Is a Baseline for 401(k) Plans -- and Any Small Business Can Match It
"The [Thrift Saving Plan's] efficiency is the key to its greatness. Its low fees mean minimal drag on participant account returns. Any small business in the country can have a 401k that's comparable to the TSP. Will these plans pay the same low expenses as the TSP? No way, but they can offer similar investments and pay low fees." (Employee Fiduciary)  

Next Steps for Pension Risk Management (PDF)
20 pages. "In 2015, over 80% of sponsors report that they either have implemented a dynamic de-risking strategy, or are currently considering one for their plan. Those that have already implemented dynamic de-risking are almost universally satisfied with the outcome (88%).... Seven in ten (70%) indicate they are funding more than the minimum required. Many sponsors are taking advantage of low interest rates and borrowing to fund the plan -- improving funded status and reducing PBGC premiums. Normalized survey results show that more than 30% have implemented or plan to implement such a strategy, and an additional 12% are actively evaluating one.... Another notable development in the marketplace has been the interest in pension risk transfer transactions through either lump-sum cashouts to participants or annuity buyouts to an insurer.... [A]n increase in [interest] rates could result in a rapid increase in demand for buyouts, leaving many plan sponsors unprepared to make the most of attractive prices." (Mercer and CFO Research)  

Retirement Planning in an Uncertain World, Part 2
"The Actuarial Approach anticipates that a retiree's assets and liabilities will be re-measured at least once a year to adjust the retiree's budget for differences between actual and assumed experience, for differences between actual and assumed spending and for changes in assumptions. This re-measurement process is essential for keeping the retiree on track.... Depending on the proportion of a retiree's spending budget that is derived from accumulated savings invested in risky assets, differences between actual and assumed investment returns can have a significant effect on the retiree's spending budget." (Ken Steiner, FSA Retired)  

Don't Use a QLAC to Avoid RMD Obligations
"The ability to accumulate mortality credits still means [a QLAC] can be very effective as a fixed income alternative for those who fear they may not have enough money to fund a retirement well beyond their life expectancy. And if [such a] retiree intends to spend all of his/her assets anyway, and the only available dollars for retirement are held in an IRA or other retirement account, the QLAC is an effective means to engage in such a strategy. Nonetheless, the bottom line is that while a QLAC may be a valid way to use a retirement account to hedge against longevity -- and defer RMDs along the way -- it's still not very effective as an RMD avoidance or deferral strategy!" (Michael Kitces in Nerd's Eye View)  

90 Democrats Sign Letter Critical of Proposed Conflict of Interest Rule
"In the letter, Democratic House members called on the DOL to convene 'a small working group of industry professionals and consumer advocates' to help finalize the rule. Also, the letter asks for a 'good faith implementation' period to allow those who work with retirement plans 'to comply with the rule without the threat of lawsuits.' The Democrats emphasized that they favor a fiduciary-only rule -- with modifications." (InsuranceNewsNet.com)  

Peer Pressure Doesn't Help People Save More for Retirement
"When workers were informed about the savings habits of their peers, they weren't more likely to put money into their own accounts at all. What's more, non-savers who weren't subject to auto-enrollment in a 401(k) plan were actually less likely to save when presented with peer data. Why? 'It could be that learning that your peers are ahead of you financially is much more demoralizing than, say, learning that you use more energy than your neighbors,' [Yale School of Management professor James Choi said]. 'And when people are demoralized, they tend to disengage from a problem rather than address it.' " (TIME)  

Almost Three in Ten Lack Confidence in Affording Quality Life When Retired
"Internationally, close to three in ten (28 percent) lack confidence that they will be able to afford the life they want during retirement, including one in ten (11 percent) who have no confidence in this at all.... 42 percent believe they will have enough money for the life they want, including 18 percent who are completely confident.... Looking at those people who claim confidence in their ability to afford a good life come retirement, the highest levels are found among the 20-29 year olds, where nearly a half (48 percent) agree either somewhat or completely. This drops slightly to 45 percent for those aged 30-39 -- and then drops considerably to just over a third (36 percent) among 40-49 and 50-59 year-olds." (GFK)  

Benefits in General; Executive Compensation

Benefit Contribution Limits Unlikely to Change Much for 2016
"Contribution limits on 401(k) and flexible spending accounts (FSAs) will probably remain the same or increase only marginally in 2016, as evidenced by recent consumer price index (CPI) reports. The same is likely for annual changes to the amount of income subject to Social Security payroll withholding (FICA) ... Contributions from all sources to HSAs linked to individual coverage will remain at $3,350 next year, the same as in 2015. But for HSAs linked to family coverage, the limit will increase by $100 to $6,750." (Society for Human Resource Management [SHRM])  

Courts of Appeal Continue to Circumscribe Instances in Which ERISA Plan Administrators May Rely on an Internal Plan 'Statute of Limitations'
"Notwithstanding Heimeshoff's stated reverence for adhering to ERISA plan terms, [three federal circuit courts of appeal] have held that to be able to enforce a plan limitations provision, an ERISA fiduciary must clearly notify claimants of the limitations period in the claim denial letter.... ERISA plans should adopt a term containing a reasonable limitations period to limit the plan's liability for stale claims. But now that more courts are holding as the Third Circuit recently did in Mirza, fiduciaries should also ensure that their form appeal denial letters specifically detail such limitations periods." (Calfee, Halter & Griswold LLP)  

New IRS Equity-Based Compensation Audit Guide Highlights Importance of Documenting Compensation Practices
"The Guide provides a general discussion of potential tax issues that could arise with respect to these arrangements (e.g., disqualifying dispositions of incentive stock options, Code Section 83(b) elections for restricted stock). Interestingly, the Guide devotes a fair amount of detail to explaining where auditors may find these documents, encouraging them to review [SEC] filings as well as internal documents. As such, the Guide serves as an important reminder to employers to be mindful that the IRS (or other third parties) someday could seek to review their corporate documents." (Porter Wright Morris & Arthur LLP)  

Another Heads-Up for Companies and Committees Making (or Preparing to Make) Performance Awards
"Many incentive stock plans give the Committee the discretion to adjust performance metrics for the impact that extraordinary items have on the performance measures under the plan. To the extent a plan uses the term 'extraordinary items,' the Committee may be limited in its discretion in the future, as this standard is phased out." (Winston & Strawn LLP)  

Recommended Steps to Successful Equity Plan Approval, Part 1
"Companies that are planning to submit an equity plan for shareholder approval in 2016 should start the process early and consider a wide range of issues, from shareholder perspectives to future needs for equity grants to evolving case law. In this two-part blog series, [the authors] outline 15 steps to be considered when submitting an equity plan for shareholder approval in 2016." (Morgan Lewis)  

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