Retirement Plans Newsletter

July 17, 2018

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[Official Guidance]

Text of IRS Instructions for 2018 Forms 1099-R and 5498: Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (PDF)

25 pages. "What's New: ... [1] A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made after December 31, 2017, cannot be recharacterized as having been made to a traditional IRA.... [2] Special rules apply to retirement plan distributions made to employees affected by certain natural disasters that occurred in 2016 and 2017."
Internal Revenue Service [IRS]

[Advert.]

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How America Saves, 2018: Small Business Edition (PDF)

36 pages. "[S]mall businesses represent 99.7% of all employer firms, and they employ half of all private-sector employees.... On average, [the plans in this study] plans had 42 participants and plan assets of $2.6 million.... Slightly more than half of these plans automatically enroll participants at a 3% contribution rate.... Nearly all of these plans use a target-date or other balanced investment strategy as the default fund, with 97% choosing a target-date fund as the default."
Vanguard

Interesting Angles on the DOL's Fiduciary Rule, Part 98

"[A] broker-dealer will need to justify recommending a higher-cost investment (over another reasonably available, but lower-cost alternative). However, if there are two similar investments (including costs), but one pays the broker-dealer (and the financial advisor), more than the other, and it is better for the investor, then it could be recommended under the best interest standard. The inverse of that, though, is that the higher cost (and higher compensating) alternative cannot be recommended unless there are different characteristics and features that justify the cost."
FredReish.com

Lessons Learned from Recent Litigation Involving ESOP-Owned Companies (PDF)

28 presentation slides. "Recent litigation and audit activity is focusing on the process undertaken by fiduciaries in connection with a transaction involving an ESOP."
McDermott Will & Emery

Importance of Corporate Structure for Employee Stock Ownership Plans

"The parent company sought a ruling that its stock held by the ESOP will constitute qualifying employer securities with respect to the subsidiary, and that the application of sections 409(h), 409(p), 512(e)(3) and 4975(e)(7) would not be affected by the C corporation subsidiary's adoption of the plan.... Ultimately, the IRS concluded [in PLR 201828007] that the C corporation's adoption of its parent company's ESOP will not affect its status and the rules will continue to apply based upon the S corporation parent, as the ESOP held employer securities consisting of stock in an S corporation."
RSM US

De-Risking: Options Available to Reduce Your Pension Plan Footprint

"The least costly de-risking solutions generally start with risk retention options where the focus is more on plan design modifications. Costs escalate as one moves along the de-risking spectrum away from risk retention. A lump-sum window would generally be more costly relative to making a one-time plan design change. A third-party risk transfer such as an annuity purchase would generally require the largest cash commitment from a plan sponsor."
Milliman

'Hibernation' Approach Recommended to Wait Out High Demand for DB Plan Derisking Transfers

"[G]rowing pressure on insurers' capacity to absorb more pension risk transfers (PRT) from an upswing in plan terminations is expected ... to continue and be 'more widespread in the near future.' ... So how should DB plans proceed that are still seeking to remove PBOs from their balance sheets -- or are still responsible for reduced pension plans remaining with non-standard features after partial derisking?"
HR Daily Advisor

Retirement Bills in Congress Could Alter 401(k) Plans

"Lawmakers are starting with a bipartisan bill that would encourage more small employers to offer retirement savings plans and make it easier for companies to offer annuities that turn workers' savings into a guaranteed annual income. If passed, the measures would comprise the most significant alterations to 401(k) plans since 2006"[.]
The Wall Street Journal; subscription may be required

CBO Preliminary Analysis of S.2147, the Butch-Lewis Act of 2017, as Introduced

"The estimated budgetary effects are highly uncertain because several key aspects of the legislation are broadly described ... CBO [previously] provided a preliminary and partial analysis ... that the bill would probably increase deficits by more than $100 billion over the 2019-2028 period. Under some interpretations of the bill language, however, few plans would qualify for loans and assistance, resulting in federal costs that would be substantially less than $100 billion."
Congressional Budget Office [CBO]

What To Do With Your Previous Employer's Retirement Plan

"As long as you have at least $5k in the account, most plans will allow you to keep the money there. If you have company stock or any unique investment options that you'd like to keep, this may be the best option for you. It also gives you time to decide during what is likely to be a hectic time in your life."
Financial Finesse

[Opinion]

Inspiring Trip to Columbus Brings Hope for Multiemployer Solution

"[H]undreds of activists headed to the Joint Select Committee on the Solvency of Multiemployer Pension Plans' hearing ... The hearing was held in Ohio because thousands of workers and retirees in the state would be devastated by reduced pensions, and hundreds of employers could be forced into bankruptcy."
Pension Rights Center

Benefits in General

Cybersecurity Hot Topics for Closely Held Businesses (PDF)

"Cyberattacks are not exclusively a threat to companies of a particular size.... [1] Users can be your greatest risk or your best security ... [2] Multifactor authentication and a password management solution can help keep you secure ... [3] Use security software and create access barrier ... [4] Image-based backups with an offsite copy ... [5] Consider cyber liability insurance."
Journal of Pension Benefits

[Opinion]

How to Keep HSAs From Cannibalizing Retirement Savings

"Anytime we can help a participant understand how to prioritize and spend their 'next best dollar' we should jump on that opportunity. It makes sense that the HSA should be integrated with any retirement discussions. Most health brokers are not licensed to talk about investments and retirement savings ... [As] long as the retirement industry leads the discussion and not the health broker, we should be in good shape. This just adds to the need of better communication and education. Which now points back to more resources are needed from adviser teams to provide this type of education."
Fiduciary News

Selected Discussions
on the BenefitsLink Message Boards

Disguised Service Condition If 2-Year Match Tier?

Is there any issue if a plan has immediate eligibility, a 6 year graded match (or any vesting other than 100% after 2 years) and a tiered service match formula as follows: 0-2 YOS: 0% match; 2-5 YOS: 50% match; 5+ YOS: 100% match? The participant is not eligible under the match for any contribution until 2 years of service, but the vesting schedule is not 100% after 2 years of service. Is this permitted? There's no stipulation in the plan document either way.
BenefitsLink Message Boards

Handling a Participant Who Has No Social Security Number

We have asked this question to the PBGC and have not received a response as of yet. We have a terminating DB plan with about 60 participants. One participant was terminated earlier in the year by the plan sponsor after they determined that she was using false identification and a stolen SSN. Her estimated payout in the plan termination is $1,200. She hasn't obtained a real SSN yet. What options does the plan sponsor have with respect to paying this participant her benefit?
BenefitsLink Message Boards

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David Rhett Baker, J.D., Editor and Publisher
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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2018 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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