Retirement Plans Newsletter

November 3, 2017

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Retirement Plan Services Associate
DHG [Dixon Hughes Goodman]
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DHG, LLP
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Premier Retirement Plan Services
in OR

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[Guidance Overview]

IRS Memo on RMDs Includes Standards for Searching for Missing Participants
"Prior to [the IRS Memo for EP examiners], qualified retirement plans that did not make RMDs to missing participants or beneficiaries risked being considered in violation of the RMD requirements, and different IRS regions could apply different standards on audit. Now, qualified retirement plans that cannot locate a participant or beneficiary will be treated as not violating the RMD standards if in compliance with the procedures [in the IRS memo]."
Seyfarth Shaw LLP

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[Guidance Overview]

Missing Participants: IRS Memo Addresses RMD and Search Aspects
"While the [IRS Memo for EP examiners] appears to create a 'safe harbor' for purposes of IRS audits, plans need to keep in mind that the DOL may require additional steps.... [P]lans should take into account a missing participant's account balance and the cost of search methods in deciding what additional steps are appropriate. For example, the DOL could insist on using multiple commercial locator services in some circumstances."
Kilpatrick Townsend

[Guidance Overview]

Relief Comes for Retirement Plans After Hurricane Maria and Wildfires
"Hardship distributions will still be taxable as an in-service distribution and potentially subject to early distribution penalties. [IRS Ann. 2017-15] simply temporarily removes certain administrative burdens of the plan so that funds can be released more quickly than normal procedures would typically allow. In addition, plans which do not currently have provisions for loans or hardship distributions can make them before the employer formally amends its plan to include such provisions. This guidance can be followed for distributions made by March 15, 2018."
RSM US

Chapter 13 Debtor Can Put Earnings Into 401(k)
"Chapter 13 debtors can deduct 401(k) contributions in calculating their disposable income that must be contributed to a payment plan, even if they weren't contributing in the six months prior to the bankruptcy ... The court followed what it said was the majority of courts considering the question and found that absent a showing of bad faith, the retirement plan deductions could be included among the debtor's expenses. [In re Davis, No. 17-70784 (Bankr. C.D. Ill. Oct. 30, 2017]
Bloomberg BNA

Interesting Angles on the DOL's Fiduciary Rule, Part 68
"RIAs and broker-dealers who do not have well-developed practices and documentation for recommending rollovers and distributions may be surprised when the SEC raises those issues and faults their practices. However, [the author's] belief is that compliance with the DOL's best interest standard of care (that is, the prudent man rule and the duty of loyalty) will satisfy the standard of care and conflicts of interest concerns of both the DOL and the SEC. As a result, broker-dealers and RIAs should focus on compliance with the DOL rules (especially in light of the SEC's examination positions)."
FredReish.com

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401(k) Lawsuits on the Rise: Best Practices for Plan Fiduciaries (PDF)
15 presentation slides. Topics: [1] Overview of ERISA fiduciary duties; [2] Overview of recent cases and activity; [3] Best practices for fiduciaries; and [4] Lessons/Takeaways.
McDermott Will & Emery

Year-End Compliance Issues for Single-Employer Retirement Plans (PDF)
"This [article] looks at key areas -- including administrative compliance issues -- that sponsors of such defined benefit or defined contribution plans should address by Dec. 31, 2017."
Milliman

Tax Reform Bill Contains Retirement Plan Changes
"Hardship distribution rule changes ... Plan loan rule change ... In-service distributions ... IRA contribution/conversion recharacterization rule.... [P]lan nondiscrimination testing [for closed plans]."
American Society of Pension Professionals & Actuaries [ASPPA]

[Opinion]

Beware of the U.S. Public Pension Ponzi?
"[P]ublic pension funds essentially hide their true funding status by simply choosing artificially high discount rates for future liabilities thus making their present values appear lower than they actually are. It's a clever scam but one that can only persist until the Ponzi runs out of cash.... [T]he median expected return of the 100 largest public pension funds in the U.S. is somewhere around 5.9% based on the asset allocations of those funds.... [But] 83 of the top 100 funds used discount rates in excess of 7%."
Pension Pulse

[Opinion]

401(k) Contributions: Limiting Pre-Tax 401(k) Contributions Is OK
"With a tax cut imminent, and deficits expected to rise as a result, does anyone believe that tax rates will be lower 10, 20 or 30 years from now? ... That would seem to argue for making Roth 401k contributions now versus pre-tax contributions. That is just what most savers would end up doing if the 401k pre-tax limit was lowered."
Lawton Retirement Plan Consultants

Benefits in General

GOP Tax Bill Outlines Significant Changes for Benefits and Compensation
"There is nothing in the bill that would limit pretax retirement savings or require them to be converted to Roth after-tax savings ... Some of the most significant changes relate to limits on executive compensation ... Beginning in 2018, individuals would no longer be permitted to convert a traditional IRA to a Roth IRA, or vice versa.... There are a few modest changes for tax-qualified retirement plans ... Beginning in 2018, the pretax treatment of expenses under a dependent care flexible spending account would be repealed.... Qualified tuition reimbursement plans through which employers can provide pretax tuition assistance to employees would be repealed effective in 2018.... Several other pretax fringe benefit arrangements would no longer be eligible for tax benefits beginning in 2018, including transportation fringe benefit plans, adoption assistance plans, qualified moving-expense reimbursement arrangements, employee achievement awards, and Archer medical savings accounts."
Ballard Spahr LLP

Executive Compensation
and Nonqualified Plans

Holy Cow! Proposed Tax Bill Would Turn Executive Compensation on Its Head
"The bill would eliminate Code Section 409A effective next year and come up with a new 409B that essentially applies the 457 approach of taxable when vested."
Winston & Strawn LLP

Proposed Tax Bill Has Little Impact on 401(k) Plans But Has Sweeping Changes to Nonqualified Deferred Comp
"[U]nder the new legislation, all nonqualified deferred compensation would become taxable when vested.... Deferred compensation relating to services performed before 2018 would continue to be subject to the current rules until 2025. At that time, even these grandfathered deferrals would become subject to the new tax-on-vesting rule."
Mazursky Constantine LLC

Passage of the Tax Cuts and Jobs Act Would Mean the End of Executive Comp as We Know It
"If enacted, the newly proposed Tax Cuts and Jobs Act would effectively put an end to many of the most widely used forms of executive compensation: Deferred compensation and stock options would disappear. Use of performance-based compensation would be severely limited. Compensation over $1 million to senior executive officers would be nondeductible for public companies and subject to an excise tax for tax-exempt organizations."
Skadden

Tax Bill Would Change the Face of Executive Compensation
"The draft would amend Code Section 162(m) (the $1 million pay cap) to eliminate the exemption for performance-based compensation. In addition, that section would be amended to cover the Chief Financial Officer in addition to the Chief Executive Officer. Code Section 409A would be repealed (you thought that was good news, didn't you?) and replaced with a new Code Section 409B. Essentially, 409B as drafted would apply the much more stringent taxation upon vesting rules that have previously applied generally only to 457(f) plans."
Benefits and Compensation with John Lowell

[Opinion]

How Will Employees React If Peer Group Comparisons Are in Your CEO Pay Ratio Proxy Disclosure?
"[A] recent ISS Position Paper [recommends] companies include in their disclosure a comparison to peer group disclosures.... [T]aking an approach that focuses solely on placing the pay ratio in context for shareholders is likely at odds with the message companies want to communicate to their employees, which they've expressed to be their biggest challenge regarding the pay ratio ... [BLS] data used in the ISS position paper greatly overstate employee pay levels, and should not be used to compare pay ratios published in company proxies."
Willis Towers Watson

Discussions
on the BenefitsLink Message Boards

Allow Participant to Stop Paycheck Withholding of Loan Payments?
Participant has said he wants to stop loan payment withholding from his paychecks because he can no longer afford them, and wants to treat it as a taxable distribution. I'm thinking he can't do that, while he is still employed by the plan sponsor. The paperwork probably states it's an irrevocable pledge and that the loan was conditioned upon repayment via payroll deduction. So it seems to me that the plan sponsor can't merely stop collecting repayments because the sponsor has a duty to the plan and risks a prohibited transaction excise tax. But could a hardship distribution be used to pay off the remainder of the loan? I'm expecting that the participant will express an immediate and heavy financial burden qualifying as one of the safe harbor instances.
BenefitsLink Message Boards

SIMPLE IRA Program and 401(k) Plan During the Same Plan Year
A small non-profit (no HCEs) has a SIMPLE IRA program under which it's been making contributions all year. It's considering a 401(k) plan and wants to know if it's possible to adopt one so late in 2017, and then submit the SIMPLE IRA under VCP. Is that possible? I know the VCP process for correcting SIMPLE IRA programs is more streamlined, but I thought that the later you get into the year the less likely the IRS will approve.
BenefitsLink Message Boards

Physician Group Splitting Up: 401(k) Plan to Split into Two New Plans -- Distributable Event?
We have a physician group "A" that has split into two groups "B" and "C" effective as of January 1, 2017. They have continued to maintain the existing 401(k) plan for 2017. Each of the two groups will adopt its own plan effective January 1, 2018. This seems to be a spin-off from the plan of Group A and transfer of assets to the Plans of Groups B and C. The participants would not incur a separation from service. But the national retirement plan company that currently runs the plan of Group A is says the participants must elect to receive a distribution in order for these steps to proceed. I think they believe that the plan is terminating. It seems to me that the new plans would be sponsored by successor employers and hence the new plans would be replacement plans, such that no right to a distribution would arise due to the transaction. Who is right?
BenefitsLink Message Boards

Do You Request Client Authorization for Corrective Distributions?
We're trying to minimize risk and not take on too much fiduciary responsibility as a daily record keeper. We direct the trade orders. Some in our firm would like a client's affirmation prior to processing ADP corrective returns. Others know that as a practical matter the involvment of the client or the plan participants during such a process can be frustrating and create anxiety that has its own monetary risks and service problems. What are others doing? Processing without approval? Explaining the process upfront and not asking approval at the time of processing? Asking for approval and processing after a number of days regardless? Asking for approval and not processing until approval is received even at the risk at missing the corrective distribution deadline?
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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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