Retirement Plans Newsletter

November 20, 2018

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Account Manager I
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in OH, OR

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Reinhart Boerner Van Deuren s.c.
in WI

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Best Best & Krieger LLP
in CA

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Webcasts, Conferences

Plan Sponsor Fee Litigation: Take-Aways from the Current Wave
November 28, 2018 WEBCAST
American Law Institute Continuing Legal Education Group [ALI CLE]

Employee Benefits Breakfast Briefing
December 4, 2018 in MA
Nixon Peabody LLP

First Quarter 2019 Washington Update
February 13, 2019 WEBCAST
ASPPA [American Society of Pension Professionals & Actuaries]

►See 70 Upcoming Webcasts and Conferences

►See 1439 Recorded Webcasts


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[Official Guidance]

Text of IRS Notice 2018-86: Weighted Average Interest Rates, Yield Curves, and Segment Rates Applicable for November 2018 (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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[Official Guidance]

Text of IRS Notice 2018-90: Extension of Transition Relief on Withholding and Reporting with Respect to Payments from IRAs to State Unclaimed Property Funds (PDF)

"The purpose of this notice is to extend the withholding and reporting transition relief described in Rev. Rul. 2018‑17 ... that applies with respect to payments made before the earlier of January 1, 2019, or the date it becomes reasonably practicable to comply with those requirements. Relief is extended to payments made before the earlier of January 1, 2020, or the date it becomes reasonably practicable to comply with the withholding and reporting requirements described in Rev. Rul. 2018‑17."
Internal Revenue Service [IRS]

IRS Proposed Regs on Hardship Distributions: What Plan Sponsors and Administrators May Do Now and Must Do Later

"What operational changes may a plan administrator of a 401(k) or 403(b) plan make for hardship distributions? ... What operational changes must a plan administrator of a 401(k) plan or 403(b) plan make for hardship distributions? ... When must a plan sponsor amend its 401(k) or 403(b) plan to reflect changes to hardship distributions?"
Bradley

New Hardship Rules, Other Statutory Changes Reflected in Newly Proposed 401(k) Regulations

"The stance taken by the IRS with regard to hardship distributions for casualty losses was unexpected.... [T]he proposed regulations allow (but do not require) plans to eliminate the requirement to suspend contributions for six months on the first day of the first plan year beginning on or after December 31, 2018, even if the hardship distribution was made prior to that date."
Newport Group

Baby Steps on 'Auto Portability'

"It is unclear what responsibility the plan sponsor would retain for data security and accurate processing. Auto-portability programs may be limited by recordkeepers' willingness to share participants' personally identifiable information with a third party and may also be hindered by administration and transfer fees."
Callan

[Advert.]

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Setting Defaults and Auto-Escalations Too Low May Undermine Their Power

"BlackRock ... looked at passive participants, those who merely accepted the defaults their employer set them into, and found that only 19% were saving more than 6%. Twenty-one percent were saving less than 6%, and 60% were saving between 4% and 6%.... BlackRock then looked at how saving 2% more a year over a 40-year career starting at age 25 would have on plan balances. For those saving 9%, the projected end balance would be $1,039,000. Those saving 11% would end up with $1,270,000, 22% more than the other group."
planadviser

A Plan Sponsor's Financial Wellness Mission Spurs Retirement Plan Changes

"With 10 recordkeepers, the OSU plan was not efficient. One plan had more than 80% of the plan assets, there were 282 investment options for plan participants from which to choose, and no limit on the number of loans permitted. Plan administration was decentralized across multiple campuses, fiduciary responsibilities were not clear, and there was no transparency in the fees being charged by the recordkeepers. OSU decided to tackle this[.]"
Cammack Retirement Group

Do Mandated Reporting Formats Unintentionally Raise Fiduciary Liability and Mislead Investors? Part 2

"On the face of it, the [standard 1, 5, and 10-year reporting format] appears to reflect a diverse data set (by using reporting periods with different durations). In reality, though, it produces a phenomenon known as the 'Snapshot-in-Time Anomaly.' ... A graph of rolling 5-year annualized performance returns offers a significant advantage for long-term investors, especially those who contribute regularly to their portfolios ... A fiduciary who only looks at the most recent reporting period stands to make an unfortunate -- and potentially damaging -- investment decision."
Fiduciary News

ERISA and SEC Prospectus Disclosures for Company Stock Funds (PDF)

16 pages. "This practice note discusses the disclosures required under [ERISA] and the Securities Act of 1933, when a publicly traded company maintaining a defined contribution plan includes a company stock fund as a permissible participant-directed investment. It also discusses the advantages and disadvantages of combining the plan's summary plan description (SPD) and the required securities prospectus information for the employer securities held in the company stock fund."
Barry L. Salkin, the Wagner Law Group, and Lexis Practice Advisor Attorney Team

Retirement Plans Under Tax Reform 2.0: How the Family Savings Act Could Affect Employers

"[1] Multiple employer plans ... [2] Safe harbor 401(k) plans ... [3] Lifetime income investments ... [4] Custodial accounts upon termination of a Section 403(b) plan ... [5] Required minimum distribution rules exemption ... [6] Deadline for adopting new plans ... [7] Closed and frozen defined benefit plans ... [8] Withdrawals from retirement plans for birth of child or adoption."
Thompson Coburn

Better Budgeting with an Actuarial Approach

"Most [sustainable withdrawal plans (SWPs)] and Monte Carlo models focus exclusively on recurring expenses in retirement. A more robust [sustainable spending plan (SSP)] should separately plan for future expenses that are non-recurring in nature as well as those expected to be recurring from year-to-year.... Because it involves a mark-to-market calculation of client assets and spending liabilities, the [actuarial budget benchmark (ABB)] can produce volatile results from year-to-year due to investment fluctuations. Those undesirable fluctuations can be mitigated by smoothing the results."
Ken Steiner, in Advisor Perspectives

[Opinion]

Pension Plans 101: What Is Backloading And Why Does It Matter?

"[T]his characteristic of pension plans was originally highly desirable for employers, because they ... primarily wanted to reward those employees who worked with them for a full career. A traditional plan design enabled them to do this comparatively cheaply. But once it became important to be able to recruit younger employees who didn't necessarily intend to stay for their full career ... these traditional plans got in the way of offering benefits that accrued evenly for young and old employees alike. They became albatrosses."
Elizabeth Bauer, in Forbes

[Opinion]

Annuities: The Broccoli of Retirement Planning -- Nudging People to Choose Lifetime Income Over Cash (PDF)

"How can near retirees be nudged into overcoming their natural biases and using part of their nest egg to buy an annuity? Proposals to make it safer -- fiduciary liability-wise -- for employers to offer an annuity and translate participants' 401(k) balance into its annuity equivalent will move the needle a bit.... What's needed is a new type of lifetime income plan that workers do not think of as simply a pile of dough."
K&L Gates

Benefits in General

[Official Guidance]

Text of EBSA FAQs for Participants and Beneficiaries Following the 2018 California Wildfires (PDF)

22 Q&As covering health and retirement plan benefits, including: [1]  I think I may lose my health coverage because of the 2018 California Wildfires. How can I obtain other health coverage? ... [2] I lost my spouse in a wildfire. My spouse's employer has agreed to pay the premiums for my health coverage for 12 months. Will that affect my future eligibility for continuation health coverage under COBRA? ... [3] My employer did not pay my insurance premium. May I pay the premium to continue my coverage? ... [4] How can I make changes in the way my 401(k) plan account is invested if it was affected by the wildfires? ... [5] Can I get money out of my retirement plan if I need financial assistance now? ... [6] All of the records concerning my employment with the retirement plan sponsor and my participation in the retirement plan were destroyed as a result of the wildfires. What do I do?
Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL]

Benefits Communications Shouldn't Stop After Open Enrollment Ends

"By segmenting communications -- using the data that you have after open enrollment is complete -- you can make your messages more applicable and valuable.... [D]ocument the questions that are raised outside the large group settings and reshape the language to fit a broader audience.... The goals of a Total Rewards Statement often include that it's cost-effective; it's personalized with accurate information; and it's tailored for the unique programs offered in each part of the organization."
Findley

Atrium Health Accused of Cheating Staffers on Health, Pension Benefits

"Atrium employs more than 65,000 people across three states. The lawsuit alleges that Atrium has cheated those employees by skirting ERISA laws, which require employers to set aside minimum amounts to cover pensions. Atrium accomplished this by falsely claiming it is a governmental agency, according to the lawsuit."
Modern Healthcare Online; free registration required

Executive Compensation
and Nonqualified Plans

Tax Reform Impacts Year-End Planning for Equity Comp

"Multi-year planning is always valuable with equity compensation, as you can control the timing of stock sales and option exercises, and you know when restricted stock/RSUs will vest. Employees with equity grants, employee stock purchase plans, and company shares should be aware of the 2018 and 2019 thresholds for higher tax rates on compensation income and capital gains, the additional Medicare tax on compensation income, and the Medicare surtax on investment income."
myStockOptions.com

Selected Discussions
on the BenefitsLink Message Boards

Using 'Negative Contributions' to Correct Excess Deferrals

Plan has highly compensated individual who switched jobs earlier this year. He made significant 401(k) elective deferrals at his last job before coming to the new job. He enrolled in the new plan and has been deferring for several months now. Last week he realized he's well over the elective deferral limit for 2018 and is seeking correction from the plan. Because this has been discovered in 2018, the recordkeeper is proposing to correct through negative contributions within the next payroll runs. Sounds like that's fairly routine (been awhile since I've had one discovered in the same year as the deferral) but I'm curious as to what sort of paperwork/documentation all this generates. Also, still trying to get our arms around potential earnings in the account but assume if he has earnings on the excess that will have to come out too? How does that happen with negative contributions?
BenefitsLink Message Boards

Government Money Purchase Plan Subject to Joint-and-Survivor Annuity Rules?

Is a money purchase plan sponsored by a government/government agency subject to the same spousal waiver rules applicable to private money purchase plans? i.e., must the spouse consent to non-annuity payment of benefits?
BenefitsLink Message Boards

Does a Plan Administrator Pay on a Small-Estate Affidavit?

To allow a convenience in collecting the assets of a small estate, some state laws permit an affidavit in which one claims she is entitled to the decedent's property. Under a typical law of this kind, one might collect up to $50,000 without any court-supervised proceeding. If a participant dies with no surviving spouse and no other designated beneficiary, some retirement plans provide that the participant's estate is the "default" beneficiary. If a plan you administer or serve is in this situation, is the plan willing to pay a taker based on a small-estate affidavit?
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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