Retirement Plans Newsletter

July 11, 2016

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[Guidance Overview]

IRS Formally Cuts Back on Determination Letter Program (PDF)
"Determination letters ... for individually designed plans ... have prevented the IRS from finding that old flaws disturb the plan's qualified status and served as proof of qualified status for plan auditors as well as for individual participant rollovers and corporate mergers and acquisitions. And they have been required for access to the IRS's Employee Plans Compliance Retirement System (EPCRS).... It is not clear when the IRS is will issue guidance recognizing or addressing the effect of the determination letter program changes on EPCRS." (Xerox HR Services)  


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[Guidance Overview]

IRS Proposes Regs for Deferred Compensation Plans of Tax-Exempt and Governmental Employers
10 pages. "The proposed regulations do not 'grandfather' existing arrangements or offer a transition period to conform to the proposed or final regulations. Thus, while new arrangements generally should be designed with an eye to compliance with the proposed rules, decisions about existing arrangements will be more complex." (Ropes & Gray LLP)  

Determination Letter Rationing: IRS Reveals the Brave New World
"Historically, benefits attorneys have not, as a rule, issued opinions on the qualified status of plan documents because of the availability of periodically updated favorable determination letters, together with liberal remedial amendment periods for required changes. Under the new regime we can expect that tax and legal issues over proposed plan language will loom larger than before, including cases where model plan amendment language must be adapted to certain plans. Discretionary amendments that do not fit into any model language will give rise to even greater uncertainties." (Jackson Lewis P.C.)  

Automatic Features in DC Plans: How Do They Benefit Plan Sponsors? (PDF)
14 pages. "[This paper] provides a roadmap for implementation that suggests strategies a plan sponsor may employ to implement automatic plan features over a multi-year period.... [B]enefits to the employer include improved employee satisfaction and engagement, as well as the ability to negotiate for lower fees, including reduced recordkeeping and asset management fees due to greater plan participation.... Sponsors reported that a benefits program which includes a generous stretch match can help attract and retain employees, which reduces rates of turnover and results in lower training costs." (Defined Contribution Institutional Investment Association [DCIIA])  

Millennials: Your Retirement Could Suffer if Your Employer Doesn't Offer a Roth 401(k)
"Roth accounts should work well for young, low-paid workers, who are probably paying the lowest tax rates of their careers. And a recent study suggested that workers may end up contributing more to Roth 401(k) accounts than to traditional 401(k)s, albeit unintentionally." (Bloomberg)  

What Kind of Plans Are Targeted for Audit by the DOL or IRS?
"Just 22% of employers with only a DC plan report that they faced an audit, in contrast with 38% of those with open DB plans. Roughly a third of sponsors with closed (30%) and frozen (33%) DB plans also report being audited." (National Association of Plan Advisors [NAPA])  

Court Prohibits ESOP Participants From Selling Company Stock
"[The chief judge of the U.S. District Court for the Western District of Kentucky] said that the bankruptcy court exercised its equitable powers to breathe life into the provisions of Conco's reorganization plan by holding that a purchase of the equity interest by a third party before completion of the repayment terms would cause the company to stop operations and creditors wouldn't get paid. As such, under the reorganization plan the participants can't sell their interest in Conco's stock until 2019." [Harper v. Conco ESOP Trustees, No. 3:16-00125 (W.D. Ky. July 7, 2016) ] (Bloomberg BNA)  

Independent Citizens Advisory Committee Report on Sonoma County, California, Pension Issues: Findings, Conclusions, and Recommendations
99 pages, dated June 2016. "[Recommendations include:] [1] Aggressively pursue the sharing of pension costs with employees through continuing supplemental payments ... beyond 2024, sharing normal costs 50/50, and assuming some of the risks of plan gains and losses.... [2] Implement a new tier that is a hybrid plan of defined benefits and defined contributions, which [the Committee deems] to be a more effective plan to meet pension reform objectives than current plans.... Until this can be achieved, negotiate for ever higher employee contributions through collective bargaining, since this is the best tool available to control pension costs available to the County in the short term." (Sonoma County Independent Citizens Advisory Committee on Pension Matters)  

Department of Defense Gives Phased Retirement Program Green Light, Ending Lengthy Delay
"[A] long-awaited phased retirement program has become a reality, under a directive-type DOD memorandum, released June 21.... Phased retirement program participants must have been full-time employees 'for at least a consecutive 3 year period ending on the effective date of entry into phased retirement status,' and they must obtain consent from a DOD official ... Employees under the phased retirement program are allowed to work 50 percent of the number of hours they were working immediately prior to entering the program[.]" (Bloomberg BNA)  

[Opinion]

The Real 'Secure Choice': Building on the Success of the Private-Sector Retirement System
"Though specifics surrounding Secure Choice retirement proposals differ by state, many of the state-based programs seem likely to bring similar restrictions in investment options, high fees, and fiscal risks for taxpayers. And if the trend toward such plans continues, the country could soon be facing a complicated 50-state regulatory maze that will make the U.S. retirement system more fractured -- and less effective -- for the growing number of workers trying to save for their golden years." (Investment Company Institute [ICI])  

Benefits in General

[Guidance Overview]

Penalty Amounts Get Adjusted -- Upward, of Course
"These new penalty amounts apply to penalties assessed after August 1, 2016 for violations that occurred after November 2, 2015 ... [W]hile the penalty amounts aren't effective yet, they will be very soon and they will apply to violations that may have already occurred.... For a failure to file a 5500, the penalty will be $2,063 per day (up from $1,100).... A failure to provide participants a notice of benefit restrictions under an underfunded pension plan under [section] 436 of the tax code will cost $1,632 per day (up from $1,000).... A failure of a multiemployer plan to provide plan documents and other information or to provide an estimate of withdrawal liability will be $1,632 per day (up from $1,000).... Failure to provide the [ACA]'s Summary of Benefits and Coverage is now $1,087 per failure (up from $1000)." (Benefits Bryan Cave)  

Benefits Interference Claims Against Allstate Move Forward
"Sixteen years-worth of litigation against the insurance company has been consolidated into one complaint. After Allstate terminated employment contracts of approximately 6,200 employee-agents and offered four alternative post-Allstate futures in 1999, 499 individual lawsuits have been filed." (planadviser)  

Executive Compensation and Nonqualified Plans

[Guidance Overview]

Deferred No Longer: Treasury and IRS Issue Long-Awaited 409A Guidance
"The proposed regulations consist of 19 technical clarifications, most of which do not impact the core rules under the section 409A regulations. However, several of the technical clarifications are important in specific circumstances, including additional flexibility on the timing of payment following an employee's death and clarifications and new limitations regarding the ability to correct document errors with respect to unvested deferred compensation." (Sutherland Asbill & Brennan 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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