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February 27, 2017 logo logo
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[Official Guidance]

Text of IRS EP Examinations Memo: Substantiation Guidelines for Safe-Harbor Hardship Distributions from Section 401(k) Plans (PDF)
Feb. 23, 2017. "This memorandum sets forth substantiation guidelines for EP Examinations employees ... If you determine that all applicable requirements in Step 1 and Step 2 are satisfied, the plan should be treated as satisfying the substantiation requirement for making hardship distributions deemed to be on account of an immediate and heavy financial need.... This memo is effective upon the date of issuance, and should be applied to examinations open on the effective date."
Internal Revenue Service [IRS]


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[Guidance Overview]

IRS Fact Sheet: How to Self-Correct Defective 403(b) Plan Provisions During the Remedial Amendment Period
"During the [remedial amendment period], sponsors of both 403(b) pre-approved plans and 403(b) individually designed plans are eligible to correct plan provisions that fail to meet IRC Section 403(b) requirements (including those under the 403(b) regulations and subsequent guidance) either by: Adopting a 403(b) pre-approved plan by March 31, 2020, that has a 2017 opinion or advisory letter; [or] Amending their individually designed plan by March 31, 2020."
Internal Revenue Service [IRS]

'Terminated' Participants Entitled to Enhanced Pension Benefits Despite Continuation of Employment
"[T]he Eighth Circuit held that a class of former salaried employees who participated in their company's pension plan were entitled to enhanced pension benefits under the plan because they were involuntarily terminated from employment with a member of the company's controlled group within three years of a change in control, regardless of the fact that they continued working in the same position." [Knowlton v. Anheuser-Busch Companies Pension Plan, Nos. 15-3538, 15-3851 (8th Cir. Feb. 22, 2017)]
Practical Law Company

OMB May Be Pondering Legal Implications of DOL Rule Delay
"The Office of Management and Budget is taking a more measured approach to reviewing the [DOL's] request for a delay of its controversial fiduciary rule.... [S]ources said the office is concerned that pro-rule groups will sue if the rule delay is not thoroughly vetted.... OMB received the delay request Feb. 9. It has since been meeting with primarily pro-rule groups such as AARP."

IRA Rollovers: Does Your Due Diligence Meet Regulatory Requirements?
"This memorandum suggests a process for information data gathering for a QRP-to-IRA rollover, or an IRA-to-IRA rollover, under the DOL's Best Interest Contract Exemption (BICE)... This analysis incorporates requirements imposed by other sources of law. The suggested process could be adapted to other regulatory regimes, although the requirements imposed upon financial advisors under other regulatory regimes are usually less strict than those applied under BICE."
Ron A. Rhoades, JD, CFP


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Plaintiffs Appeal District Court's Decision Upholding DOL Fiduciary Rule
"[T]he plaintiffs, which include the Insured Retirement Institute, the American Council of Life Insurers and the Financial Services Institute, said in a joint statement[,] 'This is a misguided rule that will harm retirement savers and financial services firms that provide needed assistance and options to their clients, including modest savers and small business employees ... Further the 'private right of action' mechanism creates unwarranted litigation risk for financial advisors, who will face the threat of meritless class action lawsuits challenging their every move.' "

Retirement Policy Directions in 2017 and Beyond (PDF)
"With a new Congress and a new president in Washington, how are U.S. retirement policies likely to change? Possibly quite radically, and for two main reasons... [1] [B]ecause of the new majority's plans to overhaul the entire U.S. tax structure and federal budget ... [2] [B]ecause of the drive to simplify and lower income tax rates[.] ... As one of the top sources of 'revenue foregone' by the federal government, ending or reducing current tax breaks for employment-based retirement plans (particularly 401(k)s) would free up revenue for other things the new Congress and president want to do."
Employee Benefit Research Institute [EBRI]

Carpe Diem: How to Seize Better Retirement Outcomes
"Sponsors have emerged as 'choice architects,' balancing the need for a well-designed default fund affecting many participants, against the expanded menu options for a minority of participants wanting to make active investment choices. But while investment evaluation and menu design remain critical plan sponsor duties, their ability to increase participant savings rates is essential."

The Impact of Rising Interest Rates on Defined Benefit Plans: The Return to the Overfunded Plan (PDF)
"[F]or every 100 basis points increase in interest rates, plan liabilities are reduced by 12-14%, while Target Normal Cost (TNC), the cost of providing a year's worth of new benefits, is reduced by 14-16%. For a plan with $10M in liabilities and a TNC of $500K, rates moving from 5.5% to 6.5% will reduce liabilities by $1.2-1.4M and TNC will decrease by $70-80K. Amortizing the liability reduction over 7 years will reduce the employer's Minimum Required Contribution by $190-220K."
Pentegra Retirement Services


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A Tale of Two Countries: DC Plans in the U.K. and U.S.
"While the shift from DB to DC plans got off to a later start in the U.K., the changeover was faster. Both the U.S. and U.K. seem headed for a common approach: automatic enrollment into a matching contribution structure with a default life-cycle investment fund. 28% of plan participants in the U.S. and 21% in the U.K. expect to work until 70 or even later."
Willis Towers Watson

In Puerto Rico, Pensions' Decline Pits Retirees Against Lenders
"As Puerto Rico attempts to sort out its tangled financial web, retirees may face bigger cuts than those in past U.S. municipal insolvencies ... Public pensions ... owe $45 billion in benefits ... [T]he pensions have almost no cash and a nearly 100 percent funding shortfall that is thought to be the largest ever for comparably-sized U.S. public pensions. Paying pension benefits out of the island's general fund, on a pay-as-you-go basis, could cost Puerto Rico $1.5 billion a year."
The New York Times; subscription may be required

CalPERS Investment Priority Shifts to Avoiding Loss
"Despite a low funding level little changed since massive investment losses nearly a decade go, CalPERS is focusing on avoiding another big loss, not risky attempts to maximize investment earnings.... CalPERS also sped up its 'risk mitigation' policy this month, lowering the trigger for tiny cuts of .05 to .25 percent in the earnings forecast used to discount future pension obligations. Now cuts will occur when annual earnings are 2 percent above the forecast, not 4 percent."


ERIC Comments to IRS on Update to Minimum Present Value Requirements for Defined Benefit Plan Distributions
"We ask the IRS to also keep in mind that changes it may view as relatively minor or clarifying come with substantial costs to plan sponsors and their service providers. Administrative systems and benefit calculation programs need to be updated, plan documents need to be reviewed and potentially modified (largely without the possibility of the assurances of a favorable determination letter), and employee communications need to be prepared. Additional funding requirements and increased PBGC premiums also need to be considered."
The ERISA Industry Committee [ERIC]

Benefits in General

[Guidance Overview]

DOL Finalizes Regs on Disability Plan Claims Procedures (PDF)
"The vast majority of employers offering disability benefits buy long-term disability insurance, in which case the burden of complying with the new claim processing regulations falls predominantly on the insurer. Additionally, employers typically offer short-term disability benefits through a payroll practice (e.g., salary continuation). Payroll practices are not subject to ERISA, and so the new rules would not apply to those types of arrangements."

'Probate Exception' Barred Federal Jurisdiction in Health Plan's Reimbursement Claim Against Estate
"The U.S. District Court for the Northern District of New York has ruled that the so-called 'probate exception' to federal jurisdiction precludes federal courts from adjudicating cases implicating federal question jurisdiction, including cases arising under ERISA. In so doing, the N.D.N.Y. joins ranks with a small but growing number of federal district and circuit courts that recognize the 'probate exception' as an absolute bar to federal jurisdiction over any in rem action in the custody of a state probate court." [In re Boisseau, No. 16-549 (N.D.N.Y. Jan. 30, 2017)]
Begos Brown & Green LLP

Executive Compensation and Nonqualified Plans

Massachusetts Introduces Highest Paid Employee-Ratio Legislation as Illinois Creates Pay Ratio Fee
"[L]egislators in ... Massachusetts and Illinois introduced new pay ratio measures, with Massachusetts becoming the first state to eschew use of the SEC's pay ratio calculation in favor of a pay ratio which focuses on comparing a company's highest paid employee to median U.S. employee pay.... [This] brings the number of states which have introduced or passed pay ratio legislation to five, not including the cities of San Francisco and Portland, Oregon."
HR Policy Association

10 Ways Stock Compensation Can Make You Happier
"[1] Wealth creation ... [2] A sense of anticipation ... [3] A feeling of being special ... [4] ESPP participation and discount ... [5] Control over when you receive income and pay taxes ... [6] Donations and gifts of company stock ... [7] Being an owner in your company ... [8] New friends ... [9] Feelings of financial security ... [10] Mindfulness and meaningfulness."

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David Rhett Baker, J.D., Editor and Publisher
Holly Horton, Business Manager

BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2017, 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, 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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