Retirement Plans Newsletter

July 26, 2018

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[Official Guidance]

Four Multiemployer Plans Submit Applications to Reduce Benefits Under MPRA

The Treasury Department has announced submission of benefit reduction applications, and posted those applications, for four multiemployer plans:


U.S. Department of the Treasury

[Advert.]

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[Official Guidance]

Text of 2018 IRS Form 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (PDF)

"Generally, distributions from retirement plans (IRAs, qualified plans, section 403(b) plans, and governmental section 457(b) plans), insurance contracts, etc., are reported to recipients on Form 1099-R."
Internal Revenue Service [IRS]

[Guidance Overview]

PBGC Staff Says Transactions That Reduce Premiums May Be Improper 'Form Over Substance'

"[The PBGC staff has] posted an interpretation on the PBGC's website [under the heading 'Premiums']... addressing its position on how PBGC premiums would be determined under a two-step spinoff and termination transaction ... PBGC Staff expressed concern that the transaction would implicate a federal common law doctrine that looks to 'the substance and not the form of a transaction,' and suggested that the transaction, and similar types of transactions, 'should be disregarded and premiums assessed as if such transaction had not occurred.' ... It is not yet clear whether PBGC will undertake an enforcement initiative in this area or propose a change in its regulations."
Groom Law Group

[Guidance Overview]

PBGC Issues Policy Statement on Alternative Terms and Conditions to Settle Withdrawal Liability

"[As] a general policy goal in evaluating a proposal, the PBGC looks to whether the trustees have supported their conclusion that the proposed alternative terms and conditions would 'realistically maximize' the collection of withdrawal liability and projected contributions relative to the withdrawal liability rules under ERISA. The PBGC must be convinced that the alternative terms are in the interests of participants and beneficiaries, do not create an unreasonable risk of loss to the PBGC insurance program, and are otherwise not inconsistent with Title IV of ERISA."
Segal Consulting

Segal Blend Rejected as Discount Rate for Determining Withdrawal Liability

"The Segal Blend is not prohibited as a matter of law, but [the court found it] was inappropriately applied as it was lower than the actuary's best estimate of anticipated plan experience in the long-term and included interest rates for assets that were not included in the Fund's portfolio." [The New York Times Co. v. Newspapers & Mail Deliverers'-Publishers' Pension Fund, No. 17-6178 (S.D.N.Y. Mar. 26, 2018)]
Wolters Kluwer Law & Business

[Advert.]

SPARK Forum - November 4-6, 2018 -- The Breakers, Palm Beach, FL

Sponsored by SPARK

Join us at the retirement services industry's leading event for top marketing, sales, administration and record keeping professionals. Comprehensive agenda includes topics of interest to Record Keepers, 401(k) Plan Providers, Financial Advisors and Cyber Security Professionals.


Second Decision in Wells Fargo Stock Drop Case Parses 'Loyalty' and 'Prudence'

"Given a second chance to argue their case, participants in a Wells Fargo retirement plan have again failed to meet the steep pleading standards set out by the influential Supreme Court decision known as Fifth Third vs. Dudenhoeffer." [In re: Wells Fargo ERISA 401(k) Litigation, No. 16-3405 (D. Minn. July 19, 2018)]
planadviser

Potential vs. Realized Savings Under Automatic Enrollment

"Automatic enrollment increases total potential retirement system balances by 7% of starting pay eight years after hire. Leakage in the form of outstanding loans and withdrawals not rolled over into another qualified savings plan increase by 3% of starting pay after automatic enrollment. After accounting for leakage, automatic enrollment increases retirement system balances by 4-5% of first year pay eight years after hire. As tenure increases among those who remain employed, leakage offsets a bigger portion of automatic enrollment's increase in savings."
TIAA Institute

Small and Mid-sized Plans Are Sweet Spot in 401(k) Market

"[N]ew data suggest that plan providers would be better off focusing sales efforts on small and mid-sized plans -- those with $5 million to just under $100 million in assets. Plan sponsors in the Small-Mid segment report the greatest intent to act, with 39% ready to launch a formal 401(k) plan review and three in ten (29%) likely to switch providers in the coming year.... [T]the factors that these plan sponsors seek in a new plan provider include the more personal aspects of trustworthiness ... acting in the best interest of participants, and a perception of being easy to do business with."
Cogent Reports

How the Multiemployer Pension System Affects Stakeholders

Video of hearing held July 25, 2018. Testimony from witnesses: [1] Mr. James P. Naughton, Northwestern University; [2] Mr. Joshua D. Rauh, Ph.D, Hoover Institution, Stanford University; [3] Mr. Kenneth Stribling, Retired Teamster; [4] Mr. Timothy P. Lynch, Morgan, Lewis, and Bockius LLP.
Joint Select Committee on Solvency of Multiemployer Pension Plans

[Opinion]

ERIC Offers Comments to EBSA on Missing Plan Participants

"The ERISA Industry Committee (ERIC) [on July 25] sent a a letter to [EBSA Secretary] Preston Rutledge encouraging the [DOL] to focus its efforts on developing guidance related to the challenge of employers locating missing retirement plan participants. The letter also asks that until guidance is provided, for the DOL to stop issuing letters that allege an employer has committed a breach of fiduciary duty with respect to the practices utilized to locate missing retirement plan participants."
The ERISA Industry Committee [ERIC]

Benefits in General

Ninth Circuit: Collective Claims Made on Behalf of ERISA Plans Survive Motion to Compel Arbitration

"[T]he plaintiffs' ERISA claims alleged 'fiduciary misconduct as to the Plans in their entireties,' not merely 'mismanagement of individual accounts,' and were brought 'to benefit their respective Plans across the board, not just to benefit their own accounts.' Consequently, the claims were not captured within the scope of the employees' arbitration agreements, and were not subject to arbitration." [Munro v. Univ. of Southern Calif., No. 17-55550 (9th Cir. July 24, 2018)]
McGuireWoods

Ninth Circuit Holds That Arbitration Agreement Does Not Extend to ERISA Fiduciary Breach Claims

"The court rejected USC's argument that because the case involved a defined contribution plan with individual accounts, the relief could individually benefit the plaintiffs, and, therefore, their arbitration agreements covered the claims.... [T]he court refused to reach the employees' argument that ERISA breach of fiduciary duty claims are inarbitrable as a matter of law[.]" [Munro v. Univ. of Southern Calif., No. 17-55550 (9th Cir. July 24, 2018)]
Greensfelder

Social Security Administration to Notify Employers of Name/SSN Errors

"Starting in August 2018, the Social Security Administration (SSA) will begin mailing 'Educational Correspondence' to employers that submit Forms W-2 containing employee names and Social Security numbers (SSNs) that do not match SSA's records."
ADP

Executive Compensation
and Nonqualified Plans

[Guidance Overview]

Tax Reporting for Nonqualified Deferred Compensation Plans

"The reporting of nonqualified deferred compensation plans is complex and depends on several factors, including contributions, vesting and payments, as well as the different rules that apply for income tax and employment taxes (FICA/FUTA).... [This article provides two] charts to assist employers and payroll vendors in properly following the IRS rules for the reporting of these payments.... [1] Defined contribution-type nonqualified plans (like an excess 401(k) plan); [2] Defined-benefit-type nonqualified plans (like a SERP)."
Stevens & Lee

Selected Discussions
on the BenefitsLink Message Boards

402(g) Limit Exceeded; How to Correct After April 15?

Let's say a participant contributed over the 402(g) limit in 2017 to the plan and the error wasn't discovered until after April 15. How would this issue be corrected? My understanding is that if the participant exceeded the limit at just one company, that means that the plan is at risk of disqualification and the excess needs to be distributed even if the participant is not terminated. Is that correct? Also, I read that the 10% penalty would apply as well as the 20% Federal tax rate. How would that be coded? Still code "8"?
BenefitsLink Message Boards

HCE Started Deferrals Before Eligible to be a Participant; How to Correct?

A calendar year safe harbor plan has a 12-month elapsed time eligibility to defer. The owners hired their daughter in August 2017. She deferred $5K in 2017, in violation of the eligibility requirement. She's deferred more during 2018. We got the 2017 annual data yesterday. Going 'by the book,' what violation occurred 'first'? Her 'personal 415 limit', such that the excess simply needs be distributed to her and will be taxed in the year of distribution? That seems too easy. Also, I'm remembering something about double-taxation under section 402(g).
BenefitsLink Message Boards

Plan Sponsor Has Left a Controlled Group Mid-Year: Consequences for Testing?

We have a plan sponsored by a company that was part of a controlled group. As of 6/28 it was spun off. It's now a stand-alone plan. How do we do testing for 2018? Do we have to do half the year as a controlled group, and half as a stand-alone? Or can we just test based on how everything sits as of 12/31/18?
BenefitsLink Message Boards

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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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