Retirement Plans Newsletter

November 10, 2017

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[Official Guidance]

Text of IRS Publication 4810: Specifications for Electronic Filing of Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefit (PDF)
52 pages, rev. Nov. 2017. "The purpose of this publication is to provide the specifications for electronically filing Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, with the [IRS]. This publication must be used to prepare current and prior year Form 8955-SSAs. Generally, the boxes on the paper forms do correspond with the fields used for the electronic record; however, if the form and field instructions do not match, the guidance in this publication supersedes the form instructions.... Beginning November 2, 2017, FIRE accounts will be required to establish a secret phrase to assist in resetting of passwords for FIRE systems (Production and Test)."
Internal Revenue Service [IRS]

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The Perils of Missing Participants
"Perhaps the most troubling of [the DOL investigators'] positions is ... that forfeiture of unclaimed retirement benefits may be a prohibited transaction -- because correction would require restoring the forfeited funds, adjusting such amounts for earnings in the case of a defined contribution plan, disgorging any profits earned by the plan sponsor by reason of the forfeiture, and paying a 15% excise tax to the [IRS].... [E]ven if the plan document provides for the forfeiture and restoration and received a favorable determination letter from the [IRS], this does not insulate the plan sponsor from potential DOL liability because prohibited transaction issues are within the purview of the DOL."
Wilkins Finston Friedman Law Group LLP

Participant's Missed Plan Loan Installment Payments Did Not Violate Level Amortization Requirement Because They Were Properly Cured
"The IRS assumed that the 401(k) plan permitted plan loans and allowed for a cure period ... in which a participant could make up a missed installment payment by the last day of the calendar quarter following the calendar quarter in which the required installment was due. The IRS explained that, in two situations, the participant properly cured missed loan repayments by either making payments within the cure periods or by refinancing the loan with a replacement loan within the cure period." [IRS Chief Counsel Advice Memorandum 201736022]
Wolters Kluwer Law & Business

Senate Introduces Tax Bill, Keeps Retirement Contributions Intact
"Like the House bill, the Senate version keeps pre-tax retirement contributions intact.... Unlike the House bill, the Senate version does not reduce the tax rate on partnerships' pass-through income, instead calling for a deduction that would benefit more income groups."
Pensions & Investments

Senate Tax Reform Proposal Caps Catch-Ups
"The Chairman's Mark of the Senate tax reform proposal throws a few unexpected curves -- bringing back problems for deferred compensation plans, introducing some new problems for 403(b) and 457 plans and capping catch-up contributions. Under the proposal unveiled Nov. 9 by Sen. Orrin Hatch (R-UT), Chairman of the Senate Finance Committee, as of plan years and taxable years beginning after Dec. 31, 2017, individuals could not make any catch-up contributions -- even on an after-tax basis -- for a year if they received wages of $500,000 or more in the preceding year."
National Association of Plan Advisors [NAPA]

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House Ways and Means Approves Tax Reform Package
"The bill, which will be voted on by the full House later in the month, leaves intact the tax treatment of 401(k) contributions.... The plan also eases some burdens on non-discrimination testing of benefit plans, but the current House committee version does not change highly compensated employees' ability to use non-qualified deferred compensation plans to boost retirement savings."
Pensions & Investments

TIAA Sales Practices Face Scrutiny from SEC, New York Attorney General
"[TIAA] handles retirement accounts for over four million workers at 15,000 nonprofit institutions across the country.... Most of TIAA's clients invest with the firm because their employers have hired it to administer their workers' retirement plans.... The SEC whistle-blower complaint contends that TIAA began conducting a fraudulent scheme in 2011 to convert 'unsuspecting retirement plan clients from low-fee, self-managed accounts to TIAA-CREF-managed accounts' that were more expensive. Advisers were pushed to sell proprietary mutual funds to clients as well, the complaint says."
The New York Times; subscription may be required

Episcopal Pension Fund Says Move to DC Plan Would Not Benefit Participants
"The Church Pension Group, the authority for administering pensions and other benefits for Episcopal clergy ... says it has considered moving from a [DB] plan for clergy to a [DC] plan and concluded that doing so 'would be irresponsible.' ... The group says its analysis shows that, assuming the same contribution level, the DB plan in the vast majority of cases would produce a higher benefit to a participant than would a DC plan."
PLANSPONSOR

Third Quarter Plan Sponsor Returns Stay Positive with Non-U.S. Equity Continuing to Lead the Way
"Public Plans reported the highest median return, climbing +3.55% for the BNY Mellon U.S. Master Trust Universe, which has a market value of more than $2.0 trillion and an average plan size of $5.4 billion. The BNY Mellon Master Trust Universe reported a one-year return of +11.82%, which surpassed its 3-year annualized return of +6.69% and 5-year annualized return of +8.26%."
BNY Mellon

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SEC Investor Advisory Committee to Meet December 7 (PDF)
"The agenda for the meeting includes ... a discussion of a recommendation of the Investor as Purchaser Subcommittee regarding electronic delivery of information to retail investors; ... a discussion regarding cybersecurity risk disclosures ... [and] a discussion regarding retail investor disclosure: what works, what doesn't, and best practices[.]"
U.S. Securities and Exchange Commission [SEC]

[Opinion]

The Mother of All U.S. Pension Bailouts?
"[Sen. Sherrod Brown's] bill will ensure more mediocrity as there will be no incentive whatsoever to change what is fundamentally plaguing large U.S. pensions. Your discount rate is too high? No problem, keep it. Your plan is chronically underfunded? No problem, just borrow from the U.S. Treasury in perpetuity. You have no risk-sharing in your plan? Who cares, Uncle Sam will backstop it all so you don't need risk-sharing or better governance."
Pension Pulse

Benefits in General

ERISA Fiduciary Update (PDF)
45 pages. Topics: [1] DOL Fiduciary Rule: Arbitration agreements and prohibition on waiving right to participate in class action; [2] Tibble v. Edison Int'l: The tab for choosing retail over institutional shares of mutual funds; [3] Health Plan TPAs as Fiduciaries: Fee disputes; [4] Cross-plan offsetting in health plans; [5] Attacks on arrangements between Financial Engines and recordkeepers; [6] The 'Vanguard' of fee, and other investment, litigation; [7] Surprise! Defendants win in Tatum v. R.J. Reynolds Tobacco Co.; [8] Proof of causation and burden-shifting in fiduciary breach cases; and [9] Standing: Defined benefit plan fiduciary claims.
Utz & Lattan, LLC

Text of Ninth Circuit Opinion: Attorney Fee Award Considers Entire Litigation, Not Limited to Specific Issue on Appeal (PDF)
"[In] analyzing a party's request for appellate attorney's fees under the Hummell test, a court must consider the entire course of the litigation, rather than focusing exclusively on the prior appeal. Weighing the five Hummell factors in light of all of a defendant's conduct, from its wrongful denial of the plaintiff's claim for ERISA benefits to its filing of a petition for a writ of certiorari, the panel held that the moving party was entitled to attorney's fees for the prior appeal, in which the panel had affirmed an award of litigation attorney's fees." [Micha v. Sun Life Assurance of Canada, Inc., No. 16-55053 (9th Cir. Oct. 31, 2017)]
U.S. Court of Appeals for the Ninth Circuit

Description of the Chairman's Mark of the 'Tax Cuts and Jobs Act'
253 pages. "The Senate Committee on Finance has scheduled a markup on November 13, 2017, of ... the 'Tax Cuts and Jobs Act' ... This document ... provides a description of the Chairman's Mark[.]' " [Includes descriptions of employer fringe benefit provisions at page 97; executive compensation provisions at page 125, and retirement savings provisions at page 177. JCT has also released a report of estimated revenue effects of the legislation.]
Joint Committee on Taxation [JCT], U.S. Congress

2018 Inflation-Adjusted Limits Affect Many Employee Benefit Plans
"[Rev. Proc. 2017-58] sets out the 2018 inflation adjustments for ... health flexible spending arrangements (FSAs), qualified transportation fringe benefits, qualified adoption assistance programs, penalties related to the [ACA] individual mandate and qualified long-term care (LTC) premiums. The limits also include ... the qualified retirement plan limits released in Notice 2017-64 and the recently announced Social Security taxable wage base. The 2018 tax limits may affect design, administration, communication and tax reporting for these benefits."
Willis Towers Watson

Executive Compensation
and Nonqualified Plans

House-Proposed Tax Cuts and Jobs Act Would Send Executive Comp Back to the Stone Age
"If adopted, these provisions would significantly limit U.S. businesses in their flexibility to design competitive compensation programs tied to their specific business needs. It will push companies towards annual-only performance periods, time-vesting conditions for longer periods, and less use of equity compensation ... As proposed, Section 409B would effectively end -- or require dramatic redesign of -- many common compensation arrangements used today:"
K&L Gates

Discussions
on the BenefitsLink Message Boards

Tinker to Evers to Chance? Plan Loans to Participant, Participant Loans to Employer, Employer Funds the Plan
Client has not funded employer contributions to its plan since 2013. He would like to take a loan from his account under the plan and use that money to fund the plan. The kicker is that he has already defaulted on a prior loan. The loan policy could be amended to permit him to take a loan even after a default, and we could include the prior loan and missed interest when calculating how much he can take out to fund the plan. But wouldn't this be a prohibited transaction because it's the employer who already defaulted, and while he may use the money to fund the plan, he might not pay it back again?
BenefitsLink Message Boards

Disaster Relief Affects Deadline for SEP Adoption?
If an employer qualifies for the Hurricane Irma tax relief extension until 1/31/2018 for 2016 returns, do they also have until that date to adopt a SEP for 2016?
BenefitsLink Message Boards

Merger of Plans; Question on Reporting of Delinquent Contributions
Plan A had uncorrected delinquent employee contributions when the final 5500 filing was prepared in March 2017 due to a merger into a new plan (assume a 1/1/17 - 3/1/17 reporting period). Is there guidance that points to the fact that although this plan is terminated, the uncorrected delinquent contributions still need to be reported on the new plan's 5500 filing?
BenefitsLink Message Boards

Can Employer Limit 401(k) Deferrals to 15% of Pay?
My wife's employer caps her 401(k) deferrals at 15% of her salary. She defers the 15% max but it isn't enough to reach the $18,000 max for annual deferrals. She is over 50 but is not allowed to make "catch up contributions" because she hasn't reached the $18,000 limit. She wants to put more money into her 401(k) but cannot, due to these restrictions. Are these restrictions allowed by law? It seems unfair to restrict her deferrals in this manner.
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David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
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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