Retirement Plans Newsletter

January 23, 2019

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Florida consulting company
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Government Shutdown Affects Lump Sum Payments from DB Plans

"The interest rates for determining lump sum payments are published monthly by the IRS.... It appears that the rates aren't posted at all when the government shuts down. Eventually, these rates will be posted, but in the meantime, ... participants may have to wait for a later payout date."
Watkins Ross

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Strategies to Manage Retirement Plan Loans

"For plan sponsors aiming to reduce leakage through loans, ... changes to loan policy statements (LPS) that sponsors should consider [include] ... [1] While the [DOL] permits loans up to $50,000 or half of the participant's balance, whichever is lower, sponsors might consider altering their LPS to limit that to $20,000 or $30,000 ... [2] Sponsors might also want to create a screening process that includes requiring participants to read materials about the adverse consequences of taking out a loan, have them sign that document and make this part of the LPS[.]"
planadviser

Effectively Communicating Your Retirement Plan Message

"When asked if their employer's communication program helps them make confident [retirement planning] decisions, 76% indicated 'Not Very Well / Not at All.' ... [P]lan sponsors can look to segment their participants ... and distribute communication materials that are the most relevant to each particular group of the employee population.... [It] is important for a plan's communication program to use many different media to deliver education.... [T]he type of information being communicated has an impact on the communication medium preference."
Cammack Retirement Group

Student Loan Repayment Programs: Outstanding Issues

"[Student loan repayment (SLR)] non-elective contributions would not count for safe harbor purposes. As a result, plans that depend on matching contributions to satisfy an ADP testing safe harbor may not be able to adopt an SLR program.... If the participants making student loan repayments, and getting SLR non-elective contributions, are (disproportionately) highly compensated employees (HCEs), the program may be treated as 'discriminatory.' A possible solution to this problem might be to limit SLR non-elective contributions to non-highly compensated employees (NHCEs)."
October Three Consulting

Ex-Employees' Retirement Assets Help Plan Sponsors Keep a Lid on Fees

"401(k) plans with a high percentage of non-active participants risk losing value if they fail to retain the assets of terminated and retired employees.... Almost 3 in 5 plan sponsors (58.1%) have a policy for retaining the assets of non-active participants, up from 43.5% in 2015, according to Callan's research. Among those that had a policy, 70% sought to retain assets in 2018."
Pensions & Investments

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What's the Optimal Number of 401(k) Investment Categories?

"[O]ffering fewer than 12 categories may mean that participants are not being given sufficient opportunity to diversify. Offering more than 20 investment categories could lead to lower average investment in each fund, which may cause higher fees. An overly large number of investment categories may also contribute to participant confusion."
planadviser

Editor's Pick New Insights Into Real-World Retirement Spending Behaviors

"[C]onventional wisdom about prudent retirement income strategies has typically centered around two much-touted rules of thumb. The first is the 4% rule ... The second is that post-retirement income can be broadly modeled using a fixed, reduced benchmark rate relative to someone's pre-retirement income level.... [R]esearch into real-life retirement spending patterns, however, uncovered three surprising trends that suggest it may be time to re-examine these popular replacement income strategies.... There is a lifetime spending curve. There is a retirement spending surge. There is notable spending volatility at and through retirement."
J.P. Morgan Asset Management

Ninth Circuit Allows Pension Fund to Wipe Out Credit for Prior Partial Withdrawal Liability

"Affirming the district court, and discounting a 33-year old PBGC opinion letter to the contrary, the Ninth Circuit held that the credit for the prior partial withdrawal is applied before the application of the 20-year cap on payments, drastically increasing the amount of payable withdrawal liability. Because the order in which these items are applied can significantly alter the amount of liability, the decision will likely be used by pension funds to decrease or even eliminate the credit for which withdrawn employers would otherwise qualify." [GCIU-Employer Retirement Fund v. Quad Graphics, Inc., No. 17-55667 (9th Cir. Dec. 7, 2018)]
Conn Maciel Carey

Maryland Seeks to Place Brokers, Agents Under a Fiduciary Standard

"Nevada was the first state to pass increased standards. New York is on track to enact rules later this year placing all life insurance and annuity sales under a best interest standard. The expectation is that the Maryland will follow with a bill based on the commission recommendations very soon[.]"
InsuranceNewsNet.com

Treasury and IRS Cancel Jan. 24 Public Hearing on User Fees of Enrolled Agents and Enrolled Retirement Plan Agents

"The public hearing was scheduled for Jan. 24, 2019, at 10 a.m. ET ... The notice of proposed rulemaking and notice of public hearing was published on Nov. 19, 2018 ... Also due to the lapse in appropriations, the IRS will not determine until later, whether the public hearing will be rescheduled."
Internal Revenue Service [IRS]

Largest Public Sector Pension Obligations Likely for Teachers

"SOA found the largest pension obligations likely to be for teachers than other job categories, when comparing the same benefit amount. Teachers have the longest age-65 life expectancy, and more deferred-to-62 annuity values, compared to public safety and general employee categories. The SOA tables also suggest a correlation between higher income and lower mortality."
Pensions & Investments

Massachusetts Lawmakers Move to Expand Secure Choice, Add MEP

"SD 1902 ... [would establish] the Massachusetts Secure Choice IRA savings program and [extend] the offering of the MA CORE Plan to all employers in the Commonwealth, whereas this was previously only available to non-profits.... SD 1858 ... seeks to [establish] the IRAP Secure Choice Individual Retirement Account Program. But it also would establish the MERP Secure Choice Multiple Retirement Plan -- an ERISA qualified MEP."
National Association of Plan Advisors [NAPA]

Benefits in General

[Guidance Overview]

Editor's Pick DOL Increases Civil Monetary Penalties for 2019

"The DOL provided a table illustrating which penalty level applies, keyed to when the underlying violation occurred and when the resulting penalty was assessed.... [A table in this article] reflects the DOL's 2019 annual inflation adjustments to the civil money penalties for violations of certain requirements under ERISA, effective January 23, 2019."
Thomson Reuters Practical Law

Executive Compensation
and Nonqualified Plans

[Guidance Overview]

457(f) Landmine Lurks for All Tax-Exempt Organizations -- Even the Small Ones!

"Once an employee is classified as an HCE for any year, that employee will always be considered an HCE for Section 4960 purposes.... Section 4960's 3x limit is exceeded if an HCE receives 'contingent payments' exceeding three times the HCE's average W-2 income for the five calendar years ending before the year in which employment terminates.... There is not yet any grandfathering for amounts already accrued under existing 457(f) plans.... Rolling risks of forfeiture have long been an effective tax planning device under Section 457(f) plans. Now, however, their use could 'roll-up' parachute payments to levels that trigger Section 4960 problems."
The Wagner Law Group

Making Sense of Form W-2 When You Have Stock Compensation

"If you exercised nonqualified stock options (NQSOs) last year, the income you recognized at exercise is reported on your W-2.... With incentive stock options (ISOs), the value of the exercise income appears on Form W-2 only if you made what is technically called a disqualifying disposition.... The W-2 reporting for ESPP income depends on whether your company's ESPP is tax-qualified or not and, if it is tax-qualified, how long you have held the shares."
Forbes

Selected Discussions
on the BenefitsLink Message Boards

Exclusions in Compensation Definition in Safe Harbor Plan

Is it possible to use a definition of compensation that passes 414(s) testing when the plan's design is using a safe harbor enhanced match per pay? My fact set is the plan was designed to exclude pay in excess of $125,000. Because this is a 403b plan, the safe harbor design is used to pass the 401(m) test. The formula is 100% on 4% salary deferred with comp for employees capped at $125,000. Since the only employees impacted by the cap are HCEs, the 414(s) testing passes. But now I am wondering and am getting conflicting answers with some research I am doing that even allows a Safe Harbor plan to exclude any forms of pay even if the exclusions passes 414(s) testing.
BenefitsLink Message Boards

Excluding 'On-Call' Pay and Hours

Non-profit organization has two full-time employees in management positions, neither of which is highly compensated. They also have nurses who are on-call and will receive $2-$4 per hour for being on-call. Each nurse is on-call 24 hours per week, which means a nurse would have 1,000+ in a year just for on-call time. A nurse may be called in on a case, and would be paid regular hourly compensation (at a nurse's regular pay rate) for those hours. The question is whether a 401(k) plan can exclude the on-call time and pay for eligibility, participation and contribution calculations.
BenefitsLink Message Boards

Realtor's LLC Can Be QSLOB Despite Marriage to Owner of Another Business?

We have a realtor who is an LLC and files as a sub-S. Spouse is an attorney (professional association with 5 employees). Would the realtor LLC be able to qualify as a SLOB and adopt a defined benefit plan?
BenefitsLink Message Boards

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Press Releases

Plan Enhancements Drive Record Retirement Savings Rates
PSCA [Plan Sponsor Council of America]

Most Popular Items in the Previous Issue

Nevada Fiduciary Reg Skips Over ERISA Exemption
National Association of Plan Advisors [NAPA]

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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 2019 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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