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November 15, 2017 logo logo
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Employee Benefits Associate
Wiggin and Dana LLP
in CT

401(k) Administrator
Pollard & Associates, Inc.
in MD

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[Official Guidance]

Defined Contribution LRM and Information Package, October 2017 (PDF)
123 pages. Oct. 2017, published online Nov. 14, 2017. "This information package contains samples of plan provisions that have been found to satisfy certain specific requirements of the Internal Revenue Code, taking into account changes in the plan qualification requirements, regulations, revenue rulings, and other guidance in the 2017 Cumulative List of Changes in Plan Qualification Requirements (Notice 2017-37)." [Also online: 130-page red-lined version showing changes from the previous (October 2011) version.]
Internal Revenue Service [IRS]


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[Official Guidance]

Text of IRS Notice 2017-69: Weighted Average Interest Rates, Yield Curves, and Segment Rates Applicable for November 2017 (PDF)
"This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Section 417(e)(3), and the 24-month average segment rates under Section 430(h)(2) ... In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under Section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Section 431(c)(6)(E)(ii)(I)."
Internal Revenue Service [IRS]

Pension Plan Limitations for 2018
"These changes will take effect on January 1, 2018, and are based on the fact that the Consumer Price Index increased by 2.2% last year. Many of the limitations are being increased, while others remain unchanged."
Trucker Huss

Delaying the Inevitable: Required Minimum Distributions for Defined Contribution Plans
"A plan sponsor may want to let account holders know that they can avoid receiving two RMDs in the initial year by taking their initial distribution in the year they attain 70-1/2. All subsequent RMDs must be paid by December 31. This includes the year in which the initial RMD is paid; ergo, account holders who receive their initial distribution using the April 1 grace period will receive a second distribution in December of the same year.... A plan sponsor should establish a policy to address how non-five-percent owners will be handled upon rehire.... There is no RMD aggregation for most qualified plans, and each qualified plan must separately calculate and pay (at least) the RMD amount.... The RMD calculations are further complicated if there are multiple beneficiaries or a death."
Findley Davies | BPS&M

A Tipping Point for Target Date Funds
"Half of all Vanguard participants are invested in a single target-date fund (TDF). And 57% of all participants were solely invested in a professionally managed allocation: 4% were using managed account options, 3% held a single-risk-based balanced fund, and 50% held one TDF.... In 2016, 8 in 10 new plan entrants held one TDF. In fact, we predict that in just five years, 75% of plan participants will be invested solely in a TDF. TDFs are dramatically reshaping investment allocations for these participants[.]"


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.

Wells Fargo Requires Advisers to Use Level Fees for New 401(k) Business
"[A]dvisers servicing 401(k) plans going forward will do so as fiduciaries receiving a flat fee -- a percentage of plan assets, for example -- for acting in clients' best interests. Prior to the fiduciary rule, which raises investment-advice standards in retirement accounts, firms such as Wells Fargo would only allow a select group of advisers ... to service retirement plans as fiduciaries. The remainder with retirement plan business could do so as non-fiduciaries and receive commissions, or 12b-1 fees, as payment."

Capital Markets Alone Are Not Likely To Close Pension Funding Gaps
"Plan sponsors could consider funding pension plans now and purchase either long-duration fixed income, utilizing increased liability-driven investment (LDI) strategies, or eliminate their discontinued operations, either partially or entirely through a combination of lump sum programs and buy-outs.... It's possible that waiting to acquire corporate fixed income securities could increase the future cost of supporting pension obligations.... [B]orrowing to fund makes sense on its own merits.... A pension buy-out or other risk transfer transaction with an insurer could also be more beneficial today than in a post-tax reform world."

Senate Tax Proposal Could End Feds' Catch-Up TSP Contributions
"The chairman's retirement savings amendment ... would increase the maximum catch-up contribution that all employees age 50 and older can make to their 401(k), 403(b) or 457(b) retirement savings plans in a given year from $6,000 to $9,000, but would require those contributions to be made to Roth plans only ... This would affect federal employees age 50 and older who make such extra payments to the TSP[.]"
Government Executive

Cost-of-Living Adjustments in State and Local Government Pension Plans (PDF)
16 pages, Nov. 2017. "Cost-of-living adjustments (COLAs) in some form are provided on most state and local government pensions.... Considerable variation exists in the way COLAs are designed, and in many cases they are determined or affected by other factors, such as inflation or the condition of the plan.... This brief presents a discussion about the purpose of COLAs, the different types of COLAs offered by government retirement systems, and an overview of recent state changes to COLA provisions."
National Association of State Retirement Administrators [NASRA]

House and Senate Tax Bills Propose Changes to Qualified Plans
"[T]he House bill contains a number of smaller proposed changes that are intended to simplify plan administration, promote savings, and/or raise revenue, and the Senate bill proposes several targeted reductions to various tax-qualified retirement plan contribution limits."
Morgan Lewis

Benefits in General

Description of the Chairman's Modification to the Chairman's Mark of the Tax Cuts and Jobs Act
103 pages. "Scheduled for markup before the Senate Committee on Finance on November 15, 2017 ... The Chairman's modification strikes the following proposals: [1] Item III.H.1, Nonqualified deferred compensation, [2] Item III.K, Determination of worker classification and information reporting requirements, [3] Item III.M.2, Application of 10-percent early withdrawal tax to governmental section 457(b) plans, and [4] Item III.M.3, Elimination of catch-up contributions for high-wage employees." [Also available: Estimated revenue effects of these modifications.]
Joint Committee on Taxation [JCT], U.S. Congress

Executive Compensation
and Nonqualified Plans

Analysis of Executive Change in Control Arrangements of the Top 200 Companies (PDF)
24 pages. "[T]his study analyzes the benefits received by the CEOs and other named executive officers ('Other NEOs') at the 20 largest public companies in 10 different industries, based on market capitalization.... The prevalence of a three times or higher severance multiple for CEOs has fallen from 37% in 2015 to 33% in 2017 ... 67.5% of the average 2017 total [change in control] amounts for CEOs and Other NEOs is made up of equity awards. This is down slightly from 70.4% in 2015.... 90% Percent of companies that currently provide an excise tax gross-up or modified gross-up payment have indicated that they intend to phase out or completely eliminate excise tax gross-up provisions in the future."
Alvarez & Marsal

Executive Comp Enters Uncertain Territory with Tax Overhaul and Other Changes Pending
"In addition to pending tax changes that could reshape the executive comp landscape, the GOP's deregulatory agenda has placed various Dodd-Frank Act requirements on the chopping block.... Legislation isn't the only avenue available for taking down unwanted Dodd-Frank requirements, however, as evidenced by recent regulatory shifts coming out of the [SEC]."
Bloomberg BNA


Tax Reform Would Put Your Retirement at Risk, Change Rules for Deferred Comp
"Although the House Ways and Means Committee announced ... it has removed from its version of the bill Section 3801, which would have dismantled and destroyed nonqualified deferred compensation, the Senate has yet to follow suit. As the proposed changes currently stand, the Senate's Tax Reform bill will increase taxes on employee savings, radically change compensation policies and reduce the capability of U.S. employers to compete for talented workers....Changing 409A will change how people save, how executives are paid, and how businesses compensate workers, not just executives."
Fulcrum Partners, LLC

on the BenefitsLink Message Boards

Independent Contractor's Medical Practice; What if Employee-Son Becomes Independent Contractor?
Essentially have a father/son medical practice. Father owns 100% and is taxed as a sole proprietor. Son has been practicing at the business for years as an employee. Multiple CPAs have advised them that the son should incorporate and work for the father as a contractor, and that one of the advantages would be the ability of the son to set up his own 401(k). Is that true? Even if the son were no longer an employee, how could they get around the controlled group issues?
BenefitsLink Message Boards

Switching the Custodian of a SEP Arrangement
We have a client who established a SEP with Schwab in 2007 using the Schwab protoype document. In 2016 the client opened SEP IRA accounts with TDA and transferred all their Schwab dollars to TDA. The client also made a contribution in 2016 directly to the TDA accounts. The client did not update the documents of the SEP arrangement. Is there a problem with using Schwab prototype documents but opening and contributing directly to TDA accounts without restating the plan?
BenefitsLink Message Boards

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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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