Retirement Plans Newsletter

December 12, 2017

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[Official Guidance]

Text of IRS Notice 2017-76: Weighted Average Interest Rates, Yield Curves, and Segment Rates Applicable for December 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]

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[Guidance Overview]

Spousal Consent/J&S Issues Under 403(b) Plans May Trigger Document Conflicts
"[T]he only way the spousal rights rules apply to 403(b)plans is through ERISA Section 205. This means that if you have a non-ERISA 403(b) plan, the spousal rights rules DO NOT apply. Be careful to avoid inadvertently applying them in the restatement.... HOWEVER, many non-ERISA 403(b) annuity contracts impose the spousal rights rules as a matter of contract language ... It is typical for a 403(b) plan to provide a set percentage of pay as the employer benefit under the plan, much like a money purchase plan. There is a very real and unresolved issue as whether or not this set formula makes the plan a 'money purchase plan' which is subject to the J&S rules[.]"
Business of Benefits

ERISA Stock Drop Cases Since Dudenhoeffer: The Pleading Standard Has Been Raised
"The requirement that the plaintiffs 'plausibly' plead that no other prudent fiduciary would find that a proposed alternative action would do more harm to a plan than if that fiduciary took no action at all has proven to be very difficult for plaintiffs to overcome. Nevertheless, ... the plaintiffs' bar continues to attempt to find new ways to satisfy the substantial hurdles presented by Dudenhoeffer."
Trucker Huss

Ostrich Fiduciaries: Can We Get Their Heads Out of the Sand?
"49% of plan sponsors surveyed, 39% of investment committee members and 22% of administrative committee members didn't understand that they are fiduciaries.... A clueless fiduciary may be: [1] Failing to monitor high plan fees ... [2] Putting plan investments in a 'set it and forget it' category ... [3] Not checking what the vendors are doing ... [4] Not picking the best outside advisers ... [5] Missing reporting deadlines or unaware that forms must be filed. [6] Engaging in prohibited transactions."
Cohen & Buckmann, P.C.

How Anchoring Hurts 401(k) Retirement Savers
"Investors will often look at what the market is doing and compare their own returns to that. If the market is up 10% and they are up 5%, they're not happy, even though they're making money. If the market is down 10% and they're only down 5%, they're happy, even though they're losing money. This is perhaps the greatest reason why people miss their goals -- they're anchored to (and therefore aiming at) the wrong target."
Fiduciary News

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If Tax-Deferred Saving in a 401(k) Is Eliminated, Nearly Half of U.S. Investors Would Save Less or Stop Saving
"Three-quarters of non-retired investors in the survey have a 401(k) plan, and more than half -- 57 percent -- say the most valued feature of their plan is the 'match contribution from their employer.' ... Forty-six percent say they would 'save less' or 'stop saving' in their 401(k) if the tax deferred status of their plan was taken away, whereas 42 percent say they would 'save the same amount.'... 72 percent of investors are 'somewhat' or 'very optimistic' that they will be able to achieve their investment goals over the next five years, up from 52 percent of investors during the same quarter five years ago."
Wells Fargo

Pass-Through Tax Reform Impact on Small Businesses May Be Mitigated by Roth
"[A] business owner that feels that their pre-retirement tax-bracket is lower than their retirement tax bracket could save significantly more through the 401(k) Roth feature versus a Roth IRA. The Roth feature would allow them for 2018 to contribute $18,500/$24,500, if age 50 by the end of the year, and receive the distribution tax-free assuming current rules. This is significantly more than the $5,500/$6,500, if over age 50, for IRAs for 2018."
planadviser

'Automatic Retirement Plan Act' Proposes Mandatory Retirement Plans
"[Most] employers ... would be required to maintain AC plans for their employees beginning in 2020 ... AC plans would generally be required to [1] include all part time and full time employees ... [2] include automatic-enrollment beginning with a minimum deferral of six percent ... and include automatic increases; [3] invest plan assets in a QDIA in the absence of a participant investment election; and [4] permit participants to elect to receive at least 50 percent of their account balance in the form of a distribution that guarantees them lifetime income."
Ascensus

Tontines Meet Blockchain: Something Old Could Be New Again
"Variations of the tontine principle could be used to create retirement income products that provide lifetime income, generate higher returns, and guarantee pensions that will always be fully funded ... TontineTrust, a company based in Gibraltar, is building a tontine product using blockchain and smart contract technologies to eliminate fraud and maximize payouts."
Bloomberg BNA

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Retirement Benefits for Members of Congress (PDF)
19 pages; topics include: [1] Retirement plans available to members of Congress; [3] Age and length-of-service requirements; [4] Required contributions to retirement programs; [5] Pension plan benefit formulas; [8] Replacement rates; [9] Cost-of-living adjustments; [10] The Thrift Savings Plan; [11] Mandatory coverage under FERS; and [12] Retirement benefits for members with limited service. [Report RL30631, Dec. 5, 2017]
Congressional Research Service [CRS]

When Can I Afford to Retire and When Should I Commence My Social Security Benefits?
"While it is common for retirement experts to tout the benefits of the Social Security deferral strategy as a way to maximize retirement income, ... continuing to work (and at the same time deferring commencement of Social Security benefits) produces much larger increases in expected retirement income than retiring and employing the Social Security deferral strategy."
Ken Steiner, FSA Retired

[Opinion]

Public Pensions Can Meet Their Obligations
"Funded ratio is an important measure to consider when examining the health of a public pension plan, but it is only one measure.... [T]here are usually more good years than bad years as far as investment returns are concerned, and good years allow pension funds to build up a cushion that can cover the shortfall during recession years."
National Public Pension Coalition

Benefits in General

Text of Amicus Brief to Supreme Court: Claim for Misrepresentation-Based ERISA Fiduciary Breach Requires Participant's Detrimental Reliance
"The Second Circuit's holding that reliance is not an element of a claim for misrepresentation-based fiduciary breach is squarely at odds with the other courts' decisions and the ERISA principles underlying them. But the holding also sanctions claims that are jurisdictionally infirm. A plan participant who did not rely on a misleading communication has no standing to challenge it, because she cannot establish an injury -in-fact that was caused by the alleged ERISA violation.... Plaintiffs' real concern here -- the implementation of less advantageous plan terms -- derives from plan sponsor decisions that are permitted by ERISA, not from the defective communications plaintiffs now challenge." [Osberg v. Foot Locker, Inc., No. 15-3602 (2d Cir. July 6, 2017; cert. pet. filed Nov. 8, 2017)]
American Benefits Council

DOL Extends Relief for Victims of Hurricane Maria and October California Wildfires (PDF)
"DOL will not pursue ERISA violations against plans that are complying with IRS relief in connection with hardship withdrawals and loans of Hurricane Maria and October 2017 California wildfire victims. Additionally, DOL extended certain ERISA deadlines for plan sponsors, participants, and beneficiaries affected by Hurricane Maria -- in some circumstances on a mandatory basis."
Conduent

[Opinion]

American Benefits Council Letter to DOL on Claims Procedure for Plans Providing Disability Benefits
14 pages. "[We] urge the Department to [1] delay the application of the Final Rule as long as needed to permit the Department to engage in fulsome analysis of the potential effects of the Final Rule's provisions, and [2] take the necessary steps to strike a more appropriate balance between the goal of ensuring a full and fair review of all claims with the need for continued employee access to affordable disability coverage."
American Benefits Council

Selected Discussions
on the BenefitsLink Message Boards

OK to Reduce Automatic Rollover Threshold to $0?
My client (plan sponsor) received a letter from TPA saying a trust company will handle the plan's automatic rollovers effective next year and inquiring whether the plan sponsor would like to reduce the automatic cash-out threshold from $1,000 to $0. Would that mean that all terminated participants who did not make an election and have a balance below $5,000 automatically would have their accounts rolled over to the trust company, rather than being distributed as a lump sum? Can that be done?
BenefitsLink Message Boards

QJSA Rules Apply to Single-Sum Purchase of an Annuity?
If a plan allows life annuity distributions, but requires the payment of a single lump sum to an insurance company to purchase a single premium annuity, do the QJSA rules apply?
BenefitsLink Message Boards

Compensation Question -- Use Self-Employed Income Plus W-2 Income as Plan Comp?
S Corp filing as LLC. Only owners working in the business. Each owner receives K-1 and a W-2. Would I do the S/E Adjustment on the K-1 income and then add full income on the W-2 in order to get a total income figure for calculation purposes?
BenefitsLink Message Boards

Plan Has HCEs Only; No Testing Needed?
All plan participants are highly compensated employees -- can they max out on 401(k) deferral amounts without worrying about testing?
BenefitsLink Message Boards

Press Releases

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Centre for Fiduciary Excellence [CEFEX]

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Lois Baker, J.D., President  loisbaker@benefitslink.com
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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