Retirement Plans Newsletter

July 31, 2017

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Handling Missing Participants, Part 2: The PBGC Program
"Currently, PBGC's missing participant program only covers terminated ERISA single employer defined benefit plans. Under the [PBGC's 2016] proposal, that program would (among other things) be expanded to cover, on a voluntary basis, missing participants under terminated DC plans. The ultimate goal of the proposed expansion of PBGC's missing participant program is to enhance the ability of individuals to find retirement benefits they are owed, where the plan owing them those benefits has been unable to find them."
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Legal Fight to Stop DOL Rule Returns to Court
"Arguments will be heard by a three-judge panel [in the Fifth Circuit Court of Appeals on Monday, July 31].... The industry plaintiffs are consolidated from three lawsuits that were filed last summer in U.S. District Court for the Northern District of Texas. While the plaintiffs lost the federal court decisions, the Dallas court was chosen specifically because appeals would go to the Fifth Circuit. The Fifth Circuit is generally considered the most conservative in the country, with decisions that frequently define the government's role narrowly."
InsuranceNewsNet.com

NUA May Reduce Tax on 401(k) Plan Company Stock
"The net unrealized appreciation, or NUA rule, allows the unrealized gain on employer stock held in an employer retirement plan to be excluded from the taxable amount of a lump-sum distribution from the plan that occurs after a specified triggering event."
Seacoastonline.com

Tax Traps of Non-Conventional IRA Investments
"Advisers working with clients who wish to make non-conventional IRA investments must understand when a client might be entering a tax trap. They should know the answer to the question: When does a transaction become an unintended distribution because the IRA owner has too much control over the funds?"
Financial Planning

Retirement Income Strategies for Next Bear Market
"In addition to being dynamic with your withdrawal amounts, you will decrease the risk of running out of money if you are dynamic with what you sell to generate income. In 2008, the S&P 500 was down 37%, while the Barclays Capital Aggregate Bond Index (as it was known then) was up 5.24%. In that scenario, if you are forced to take income, take it from the bond side of the portfolio. That will give the stocks time to rebound."
Kiplinger

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Independent Financial Advisor Fee Comparison: All-In Costs
"[T]he reality is that the portion of a financial advisor's fees allocable to investment management is actually not that different from robo-advisors now, suggesting there may not be much investment management fee compression on the horizon. At the same time, though, financial advisors themselves appear to be trying to defend their own fees by driving down their all-in costs, putting pressure on product manufacturers and platforms to reduce their own costs.... [E]ven as financial advisors increasingly shift more of their advisory fee value proposition to financial planning and wealth management services, advisors are still struggling to demonstrate why financial planning services should command a pricing premium in the marketplace."
Nerd's Eye View

Treasury to Cut Obama-Backed Retirement Savings Program
"This is the third Obama administration retirement-related initiative that the Trump administration has tried to ax or soften, along with the state- and city-run retirement savings program regulations and the DOL's fiduciary rule.... At the end of 2016, just 20,000 myRA accounts had been opened, with assets of about $17 million."
Bloomberg BNA

Legal or Not, States Forge Ahead with 401(k)-for-Everyone Plans
"While the vast majority of small-business owners support the idea of offering auto-IRAs to their employees, most oppose the plans being sponsored and administered by the state or the federal government ... Seemingly, the negative news regarding many governments' growing public pension liabilities has cast a cloud over states getting involved in any kind of new retirement plan -- even one where the state has no liability.... But many feel this perception problem can be fixed."
Governing

In Birth of New California Program, What's in a Name?
"The current name, Secure Choice, doesn't say much about a big new program that in five years could be a mandatory option to supplement Social Security for an estimated 7.5 million Californians currently not offered a retirement plan by more than 200,000 employers.... Early attention to the 'brand' comes as the program, authorized by legislation last fall after a feasibility study approved in 2012, prepares to begin no earlier than 2019. A three-year phase-in starts with large employers and moves on to those with five or more employees."
Calpensions

Discussions on
the BenefitsLink Message Boards

Fixing Erroneous Adoption of Plan by Participating Employer
"A client added his brother's company to their plan in 2016. The recordkeeper forwarded a participation agreement, the client signed in error, and the plan was set up as a related participating employer. Since it's not part of a controlled group with the other entities, can this be self-corrected by retroactively amending the plan to be a multiple employer plan?"
BenefitsLink Message Boards

Retroactive Amendment, Self-Correction, Pre-Approved Plan
"Client has a pre-approved 401(k) plan. Recently discovered error allowing early inclusion of noneligible employees following purchase of company. Employees of purchased company were allowed to enter plan immediately; however, plan requires one year of service. Client would like to retroactively amend plan to allow immediate entry into plan for these employees in conjunction with the purchase. Rev. Proc. 2016-51, Appendix B, Section 2.07 allows correction by plan amendment and requires submission of the amendment to the IRS for a determination letter. Section 6.05 states that determination letters shall not be submitted with the VCP application and addresses determination letters and pre-approved plans under VCP or Audit CAP (but does not mention SCP). Can anyone confirm for me that if we correct through SCP with a retroactive amendment to a pre-approved plan whether we are required to submit the amendment (i.e. the plan) for a determination letter?"
BenefitsLink Message Boards

File Form 5558 Now, Despite Upcoming Filing for DFVC Relief?
"Plan Sponsor of H&W plan has never filed Form 5500 and is preparing all past years with intention to submit to the DOL under the Delinquent Filer Voluntary Compliance Program. The sponsor has asked that Form 5558 not be filed for the most recent year because it could trigger an alert to the IRS that they have not been filing and hence could be penalized. Both the broker and CPA have so advised. Has anyone had this happen (i.e., is there any connection between the Form 5558's and the examination division)? Personally, I like the idea of having one less plan year be late."
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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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