Retirement Plans Newsletter

September 26, 2017

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Senior Pension Administrator
Primark Benefits
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Bronfman Rothschild
in WI

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Premier Plan Consultants
in CA

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Armanino, LLP
in TX

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John Hancock Retirement Plan Services
in OK

Daily Valuation / Balance Forward Retirement Plan Administrator
Ingham Retirement Group
in FL

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[Guidance Overview]

Update on IRS 2018 Mortality Table Guidance
"[This article reviews] where we are in the regulatory process, certain concerns raised by industry groups about IRS's proposal, and (briefly) the effect of the new tables/rules on plan sponsors. [It also provides] a review of the proposal's rules for the use of substitute tables under the Bipartisan Budget Act of 2015."
October Three Consulting

[Advert.]

Online Learning Course: 401(k) Plan Structure

Sponsored by International Foundation of Employee Benefit Plans [IFEBP]

Review considerations for structuring a 401(k) plan. Topics include salary deferral limits and catch-up contributions, matching and profit-sharing contributions, nondiscrimination testing and safe harbors.


[Guidance Overview]

Comparison of Retirement Programs Available to Church and Church-Related Employers (PDF)
13 pages. "This chart compares retirement programs that are 'tax-qualified' under the Internal Revenue Code. In addition to these options, a non-qualified church controlled employer (non-QCCO) can establish a Code Section 457(f) ineligible deferred compensation plan. A church or qualified church controlled organization (QCCO) cannot establish a 457(f) plan, but can establish a non-qualified deferred compensation plan under Code Sections 451 and 83. This chart covers the general rules that apply to each of these types of retirement programs to provide context. However, the rules that apply only to church and church-related employers are bolded in red."
Ice Miller LLP

[Guidance Overview]

The DOL's Fiduciary Rule: Marketing and Sales Implications for Investment Managers
"[A]pproaches for investment managers to avoid fiduciary responsibility when marketing their products and services to ERISA and IRA clients [include:] [1] ensuring communications are general in nature and not tailored to a specific recipient or recipients, [2] limiting communications to the provision of investment education and [3] adhering to the requirements of an exception for transactions with independent fiduciaries[.]"
K&L Gates

Half of Business Owners Plan to Increase Their 401(k) Matches
"Fifty percent of business owners plan to increase their 401(k) matches, with 55% of this group saying it is because of rising revenue ... Among Millennial business owners, 85% plan to increase their 401(k) matches, compared to 31% of Baby Boomer business owners and 49% of Gen X business owners."
planadviser

Retirement Plan Termination: Are There Special Rules for Paying Out Account Balances?
"Although a bit of a hassle, it's not a huge issue if participants end up entitled to additional amounts and have to take residual distributions, but the last thing you want is to track down overpaid amounts just as you are approaching the finish line."
DWC

[Advert.]

70-1/2 Year Olds NOT in Pay Status?

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Hurricane Relief Legislation Would Grant Special Access to Retirement Accounts
"The Disaster Tax Relief and Airport and Airway Extension Act of 2017 would include the following provisions.... [1] Provide an exception to the 10 percent early distribution penalty tax for IRA and employer-sponsored retirement plan qualified hurricane distributions.... [2] Allow repayment of qualified hurricane distributions within a three-year period following distribution.... [3] Increase the maximum plan loan amount from $50,000 to $100,000, and remove the 50 percent vested account balance limitation. [4] Grant a one-year delay for plan loan repayments and disregard this one-year period for purposes of loan amortization."
Ascensus

University of Pennsylvania Prevails in 403(b) Fee Suit
"The suit, brought by participants in the $3.8 billion University of Pennsylvania Matching Plan against the University of Pennsylvania and its Vice President of Human Resources ... alleges ... that: [1] the defendants breached their fiduciary duty by 'locking in' plan investment options into two investment companies; [2] the administrative services and fees were unreasonably high due to the defendants' failure to seek competitive bids to decrease administrative costs; and [3] the fiduciaries charged unnecessary fees while the portfolio underperformed." [Sweda v. Univ. of Penn., No. 16-4329 (E.D. Pa. Sept. 21, 2017]
National Tax-Deferred Savings Association [NTSA]

University of Chicago Can't Escape Retirement Plan Lawsuit
"The judge on Sept. 22 refused to dismiss claims that the plan's fiduciaries acted imprudently by offering high-fee investment options and poorly performing funds in the school's $980 million retirement plan. However, the judge dismissed allegations of disloyalty and claims involving a separate retirement plan with $2.1 billion in assets and 13,000 participants." [Daugherty v. Univ. of Chicago, No. 17-3736 (N.D. Ill. Sept. 22, 2017)]
Bloomberg BNA

Participant Says 'Large Plan' Failed to Negotiate Better Fees
"An excessive fee lawsuit has been filed against fiduciaries of the Novitex Enterprise Solutions Retirement Savings Plan, a 401(k) plan which had more than $157 million in assets as of the end of 2015.... The lawsuit says the fiduciaries breached their duties under [ERISA] by failing to fully disclose to participants the expenses and risks of the plan's investment options; by allowing unreasonable expenses to be charged to participants for administration of the plan; and by selecting and retaining opaque, high-cost, and poor-performing investments instead of other available and more prudent alternative investments."
PLANSPONSOR

Fidelity Prevails in Suit Over Investment Costs, Robo-Adviser Fees
"Fidelity Management Trust Co. and a subsidiary defeated a lawsuit by participants in Delta Air Lines Inc.'s retirement plan challenging alleged high-cost investment options and certain financial advisory fees. The participants failed to show that Fidelity exercised a fiduciary function over which share classes would be available to them through the brokerage account that would give rise to liability under [ERISA] ... The plan documents show that once Delta chose to include a brokerage account, Fidelity was bound to follow the participants' investment instructions and exercised no discretion or authority with respect to which shares they elected to buy[.]" [Fleming v. Fidelity Management Trust Co., No. 16-10918 (D. Mass. Sept. 22, 2017)]
Bloomberg BNA

SEC: Advisers Must Offer Investors the Lowest-Fee Share Class Available
"[The SEC] issued a cease-and-desist order to Envoy Advisory, Inc., a registered investment adviser that allegedly sold Class A mutual fund shares to advisory clients without disclosing that lower-fee institutional shares were available.... Envoy's clients are primarily organizations that sponsor [ERISA] Section 403(b) retirement plans for their employees, and individuals who hold individual retirement accounts with Envoy."
Thompson Hine

Where Does the Fiduciary Rule Leave Mutual Funds?
"Mutual fund share classes that pay broker commissions can create a conflict of interest. By removing front-end loads, deferred sales charges and 12b-1 fees, clean shares and other new share classes aim to eliminate conflicts that might arise for recommending such products. Any sales fees or other commissions charged by the broker would be handled separately, provided certain conditions are met."
Financial Planning

University of California Hands Out Generous Pensions While Students Pay the Price with Higher Tuition
"As parents and students start writing checks for the first in-state tuition hike in seven years at the University of California, they hope the extra money will buy a better education. But a big chunk of that new money -- perhaps tens of millions of dollars -- will go to pay for the faculty's increasingly generous retirements. Last year, more than 5,400 UC retirees received pensions over $100,000. Someone without a pension would need savings between $2 million and $3 million to guarantee a similar income in retirement."
Los Angeles Times

Guidelines for Minor Children: How to Avoid a Personal Retirement Crisis
"It's not too early for minor children to begin the process of preparing to become self-sufficient during retirement. By not relying on others, they'll have more control over their lives and greater freedom to live their retirement dream. This begins with avoiding a reliance on one of the most relied-upon methods of securing a strong retirement -- intergenerational wealth transfer.... It's particularly important for children to quickly understand the consequences of debt.... One way to insulate them from the worst is by saving early and often."
Fiduciary News

Benefits in General

[Official Guidance]

Text of IRS Notice 2017-54: 2017-2018 Special Per Diem Rates (PDF)
"This annual notice provides the 2017-2018 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home, specifically [1] the special transportation industry meal and incidental expenses (M&IE) rates, [2] the rate for the incidental expenses only deduction, and [3] the rates and list of high-cost localities for purposes of the high-low substantiation method."
Internal Revenue Service [IRS]

[Guidance Overview]

When Disaster Strikes: IRS Guidance Gives Employers Additional Options for Assisting Employees Hit by Hurricanes Harvey and Irma
"[T]he new guidance permits employers to waive the restrictive rules usually imposed by the Internal Revenue Code on loans and hardship distributions from tax-favored retirement plans. The guidance also permits employers to adopt leave-based donation programs to facilitate contributions to charities assisting victims of the disasters.... [E]mployers may also make 'qualified disaster relief payments' directly to employees under certain circumstances.... In addition to the tax relief provided by the IRS, the U.S. House of Representatives is expected to consider legislative relief for individuals affected by Hurricanes Harvey and Irma (and also Hurricane Maria)."
Foley & Lardner LLP

EBSA Sees Slower Start in Trump Era
"President Trump's EBSA is off to a slower start than President Obama's on at least two metrics: new cases filed and confirmation of key players. And while the agency's workforce is about the same size as it was in the early days of the Obama administration, total staffing numbers have declined more than 9 percent since their Obama-era peak in September 2012. Even so, the Trump-led EBSA isn't wildly out of line with those of other recent administrations."
Bloomberg BNA

Executive Compensation
and Nonqualified Plans

[Guidance Overview]

SEC Issues Additional Guidance on CEO Pay Ratio Rule
"The additional guidance confirmed that the SEC does not plan to postpone the effective date of the Rule. This means that calendar-year public companies must be ready to disclose their pay ratio in their 2018 proxy statements as has been contemplated. However, the new guidance should simplify a public company's ability to comply with the Rule in a more cost effective way by permitting the exclusion of independent contractors from such calculation, the use of records already generated by the public company in identifying the median employee and the expanded use of estimates and statistical sampling."
Foley & Lardner LLP

ISS Survey Results Reveal That Investors Intend to Use Pay Ratio Disclosures
"[N]early 75 percent of the 131 investor respondents indicated that they intend to use pay ratio disclosures as one factor in their analysis of compensation issues. Those respondents indicated they would analyze a company's pay ratio by comparing it to that of other companies in its industry, by assessing year-over-year changes in the company's ratio, or both."
Skadden

Discussions
on the BenefitsLink Message Boards

401(k) Catchup Has to Be Separately Identified?
"Is there a requirement for 401k catchup annual limit amounts ($6,000 for 2017 tax year) to be separately identified from an employee's regular 401k annual limit amount of $18,000 for 2017 tax year for payroll deduction purposes? The IRS makes a statement that the $18,000 limit has to be reached before 401k catchup contributions begin; however, does that imply that the catchup amounts have to be reported separately to third party 401k administrators or the IRS?"
BenefitsLink Message Boards

Deadline for a New Safe Harbor 401(k): October 2?
"Because the deadline for establishing a new Safe Harbor 401(k) plans falls on a weekend this year, it is OK to start such a plan on October 2, 2017?"
BenefitsLink Message Boards

Reporting a Required Minimum Distribution Paid Late
"First RMD was due for a participant by April 1, 2017. The RMD was not processed timely. Participant did not receive the RMD until just last week (September 2017). Would you report this as a 'failure to provide a benefit when due" on the 2016 Form 5500-SF line 10f or the 2017 Form 5500-SF line 10f?"
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Holly Horton, Business Manager  hollyhorton@benefitslink.com

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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