Retirement Plans Newsletter

May 4, 2016

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[Official Guidance]

Text of IRS Final Regs: Additional Limitation on Suspension of Benefits Applicable to Certain Pension Plans Under MPRA
19 pages. "One specific limitation governs the application of a suspension of benefits under any plan that includes benefits directly attributable to a participant's service with any employer that has withdrawn from the plan in a complete withdrawal, paid its full withdrawal liability, and, pursuant to a collective bargaining agreement, assumed liability for providing benefits to participants and beneficiaries equal to any benefits for such participants and beneficiaries reduced as a result of the financial status of the plan. This document contains final regulations that provide guidance relating to this specific limitation. These regulations affect active, retired, and deferred vested participants and beneficiaries under any such multiemployer plan in critical and declining status as well as employers contributing to, and sponsors and administrators of, those plans." (Internal Revenue Service [IRS])  


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[Guidance Overview]

Treasury Finalizes Multiemployer Benefit Suspension Regulations (PDF)
"[T]he final rule: ...[C]larifies that individual-level contingencies (such as retirement) can be considered for those who had not started benefits before the effective date of the suspension.... [Adds] a floor of 2 percent of the periodic payment determined before the proposed reduction ... Details the steps that must be taken to locate participants whose notices are returned as undeliverable ... The final regulation also adds a new rule that, in appropriate circumstances ... allows a plan sponsor that has withdrawn an application to submit a revised application for suspension that will be subject to a different review process." (Xerox HR Services)  

[Guidance Overview]

More Design Flexibility in Maximizing Benefits for Highly Compensated Employees When the Employer Sponsors Both a DB and a DC Plan
"[With] an age- or service-based profit sharing formula in [the] defined contribution plan, the combined 'general test' gateway minimums will be more accommodating ... [M]atching contributions of up to 3% of pay will be taken into account for the first time for purposes of the gateway minimums, allowing more of a mix of match and profit sharing in the defined contribution plan while maximizing contributions/benefits to highly compensated participants." (Orrick)  

[Guidance Overview]

Traditional and Roth IRAs: A Primer (PDF)
21 pages. "This report explains the eligibility requirements, contribution limits, tax deductibility of contributions, rules for withdrawing funds from the accounts, and provides data on the account holdings. It also describes the Saver's Credit and provisions enacted after the Gulf of Mexico hurricanes in 2005 and the Midwestern storms in 2008 to exempt distributions to those affected by the disasters from the 10% early withdrawal penalty." [Report No. RL34397, dated Apr. 27, 2016.] (Congressional Research Service [CRS])  

IRS Rule Turns Away UPS Bid for Benefit Cut Changes
"According to the rules, a multiemployer plan looking to reduce benefits would first have to cut them to the maximum extent permissible for retirees with employers that withdrew from the plan without paying the full withdrawal liability, or in Tier 1. Retirees with employers with make-whole agreements (Tier 3) could face cuts, but they would have to be equal to or less than decreases for all other plan participants (Tier 2).... The rules didn't mention UPS by name, but address its make-whole agreement after it left the Central States fund in 2007 ... UPS [had] argued in written comments and at a hearing that benefits in tiers 1 and 2 would have to be cut to the maximum extent possible before those benefits in Tier 3 could be cut." (Bloomberg BNA)  


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ACT to Submit Determination Letter Recommendations at June Meeting
"The [IRS] Advisory Committee on Tax Exempt and Government Entities (ACT) will hold a public meeting on June 8, 2016, when the panel will submit its annual report and recommendations to the IRS.... At the public meeting, the ACT subcommittee members will present their report that includes ... analysis and recommendations regarding changes to the Determination Letter program." (Internal Revenue Service [IRS])  

What Small Businesses Are Doing to Provide Employees with Essential Retirement Benefits
"Are participants saving enough now? ... Plan design features can help employees save more.... Auto-enrollment sees 50% higher participation.... 94% set their default option in 2014 to a target-date fund option." (Vanguard)  

Shifting Davis-Bacon Dollars into a Qualified Plan
"Plan Design Considerations: [1] Davis-Bacon dollars can be applied toward minimum requirements for some coverage and nondiscrimination tests required in the plan. [2] The ability to make healthier contributions on behalf of management because higher contributions are being made to the plan for the hourly workers. [3] Davis-Bacon dollars must be immediately 100% vested. [4] The Employer can offset the company's profit sharing contribution for each participant by the amount of the Davis-Bacon contribution deposited for each participant." (Retirement Management Services)  

SEC Probes Retirement Advice
"The SEC has been sending lengthy sweep examination letters to many registered investment advisers (RIAs) and broker-dealers, requesting a broad variety of information regarding retirement plan advice. A form of the letter made public by the SEC includes 75 questions requesting information on advisory client accounts, fees, conflicts of interest, and supervision and compliance controls.... 25 questions pertain to products or services that are 'qualified default investment alternatives' (QDIAs) under [DOL] rules[.]" (Carlton Fields, via JDSupra)  

Some Annuity Execs Say DOL Rule Prevents Independent Agent Sales
"An insurance company executive at one of the top fixed indexed annuity sellers cast doubt on an insurance company's ability to police and supervise independent agents selling financial products into retirement accounts.... Other companies have said they are backing away from selling FIAs in the qualified market through independent agents because of the liability without the ability to supervise independents.... The exchange underscores the uncertainty among some insurance executives about their respective insurance companies' duties and responsibilities with regard to supervising the sale of annuities and other financial products by independent agents." (InsuranceNewsNet.com)  

Q&As on the DOL Rule: Product Impact
"Are group annuities (whether they are registered or unregistered) covered under 84-24 or would they need to comply with BICE? ... Any specific mention of liquid alternatives, specifically? Is increased scrutiny applied based on an asset class/type, or will strategy, track record, and risk management be considered in the best interest decision of ERISA and non-ERISA accounts? ... Will the new ruling cause agents who sell equity-indexed annuities to get the Series 65 (IAR) license?" (fi360)  

FINRA Levies Its Largest VA-Related Fine Against MetLife Securities
"[FINRA] has fined MetLife Securities, Inc. (MSI) $20 million and ordered it to pay $5 million to customers for making negligent material misrepresentations and omissions on variable annuity (VA) replacement applications for tens of thousands of customers. Each misrepresentation and omission made the replacement appear more beneficial to the customer, even though the recommended VAs were typically more expensive than customers' existing VAs. MSI's VA replacement business constituted a substantial portion of its business, generating at least $152 million in gross dealer commission for the firm over a six-year period." (InsuranceNewsNet.com)  

DOL Glows and Invesco Glowers Over $10 Million Settlement of Alleged ERISA Infraction
"The Labor Department contends that Invesco violated ERISA rules by hiding plan losses and continued to ensure the fund was trading at $1 even though the fund's net value had fallen below $1 due to the value of the fund's securities holdings. Invesco did not disclose the losses to investors or disclose the steps it took to hide the losses, according to the DOL.... Invesco spokeswoman Jeaneen Terrio insists her firm came to terms with DOL to avoid having the matter distract from broader business concerns." (RIABiz)  

April 2016 Pension Finance Update
"Pension sponsors suffered another down month in April on the back of relentlessly lower interest rates. Both model pension plans we track lost ground last month: Plan A slipped 2% in April, and is now down more than 7% this year, while Plan B lost less than 1% last month and is now down more than 3% during 2016[.]" (October Three Consulting)  

How to Use Social Security After the File-and-Suspend Rule Ends
"[S]ome people are still eligible to use the restricted application, allowing them to choose between their own or a spousal benefit.... In one option, the spouse with the bigger benefit would start Social Security, and the other spouse would use a restricted application to get the spousal benefit. That would allow the second spouse's own benefit to grow larger until she starts to take it. Or the couple could do the opposite, using a restricted application to start a spousal benefit for the spouse with the larger benefit, allowing the regular benefit to grow even bigger." (U.S. News & World Report)  

Retirement Spending: How Much Can You Afford?
"The 4% rule is a simple rule of thumb, but needs adjustment to fit current market conditions and your situation. To determine retirement spending that you're comfortable with, consider your time horizon, asset allocation and confidence level -- then stay flexible." (Charles Schwab)  

Worse Than It Looks: The True Burden and Risks of Federal Employee Pension Plans in Canada (PDF)
16 pages. "Federal government employees enjoy pure defined-benefit pensions that promise relatively generous benefits to a large current and former workforce.... [M]isleading accounting understates the true burden and risks these plans create for Canadian taxpayers ... To relieve taxpayers of their current sole responsibility for risks in the federal plan, Ottawa would need to switch to a shared-risk, target-benefit model already common in much of the provincial public sector, which calculates benefits with reference not only to salary and years of service but also to the plans' funded status." (C.D. Howe Institute)  

[Opinion]

Faulty Claims Underlie Federal Legislative Call for Public Employee Pension Reporting
"In 2011, a flawed research paper was used as the basis for proposed federal legislation to mandate costly pension reporting requirements on state and local governments.... [T]here was no GAO conclusion that the funds should be expected to run out of money in the foreseeable future. Further, those states the research paper projected to be the first to become exhausted, namely Oklahoma and Louisiana in 2017, are predictably nowhere near insolvency. Yet the bill's sponsor is renewing claims of public fund insolvency, as well as efforts to pass what is again being called the Public Employee Pension Transparency Act." (Pensions & Investments)  

[Opinion]

Comments on Proposed Regs Regarding the Application of Federal Normal Retirement Age Regs to Governmental Plans (PDF)
"[The proposed reg] provides that a good faith determination by the employer will be given deference... It would be helpful to also include a provision that a state or local law establishing a normal retirement age will also be given deference, assuming the law is reasonable under the facts and circumstances and is otherwise consistent with pre-ERISA vesting.... We believe it would be helpful if the preamble to the final regulations noted that these regulations do not affect the application of the 10% penalty rules contained in Code Section 72(t)." (National Association of State Retirement Administrators [NASRA], National Council on Teacher Retirement [NCTR], and National Conference on Public Employee Retirement Systems [NCPERS])  

Benefits in General

Private Employer Costs for Pay and Benefits Rose from March 2015 to March 2016
"Private employer costs for pay and benefits rose 1.8 percent from March 2015 to March 2016. That compares with a gain of 2.8 percent from March 2014 to March 2015. Wages and salaries increased 2.0 percent from March 2015 to March 2016." (U.S. Bureau of Labor Statistics [BLS])  

Executive Compensation and Nonqualified Plans

[Guidance Overview]

FASB Updates Accounting Standards for Stock-Based Awards
"Among other changes, the updated standards permit employers to withhold stock for tax purposes upon settlement of stock-based awards -- such as stock options and RSUs -- at up to the maximum individual statutory tax rate without triggering adverse accounting consequences." (Wilson Sonsini Goodrich & Rosati)  

[Guidance Overview]

Can You Amend Your Stock Plan to Allow Tax Withholding Up to the Maximum Statutory Rate?
"[A] company could not apply an amendment to allow tax withholding up to the maximum statutory rate unless it applies the change to future accounting for tax deductions attributable to current equity awards and other ASU 2016-09 changes. Companies should double-check with their auditors as to when these amendments should be adopted and applied." (Winston & Strawn LLP)  

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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2016 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 that content. You may not alter or remove any trademark, copyright or other notice from copies of the content.

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