Retirement Plans Newsletter

February 20, 2019

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GAO Report: Federal Action Needed to Clarify Tax Treatment of Unclaimed 401(k) Plan Savings Transferred to States

"[1] The IRS Commissioner should ... consider clarifying if transfers of unclaimed savings from employer-based plans (such as 401(k) plans) to states are distributions, what, if any, tax reporting and withholding requirements apply, and when they apply.... [2] The IRS Commissioner should ... consider adding retirement savings transferred to states from terminating DC plans to the list of permitted reasons for rolling over savings after the 60-day rollover period, in a form consistent with the rules adopted on the taxation of transfers of unclaimed retirement savings.... [3] The Secretary of Labor should specify the circumstances, if any, under which uncashed distribution checks from active plans can be transferred to the states." [GAO-19-88, published Jan. 18, 2019, released Feb. 19, 2019]
U.S. Government Accountability Office [GAO]

[Advert.]

PBI reinvents Death Audit category with launch of CertiDeath

Sponsored by Pension Benefit Information, Inc.

CertiDeath™ eliminates the work, complexity, and uncertainty now associated with identifying deaths, saving companies loads of time spent reviewing obituaries and money lost due to missed or misclassified deaths.


Multiple Employer Plans and PEOs

"While a bona fide PEO must satisfy 4 conditions ... [t]he only requirement that might present any issues ... is the requirement that a PEO performs substantial employment functions on behalf of its client employers. While this is a facts and circumstances test, the DOL has also provided two safe harbors -- one for a certified PEO under Code Section 7705(a), and the other satisfying 5 of the 9 criteria listed in the DOL proposed regulations."
The Wagner Law Group

Details of Settlement of Franklin Templeton Self-Dealing Lawsuit Revealed

"[In] addition to the settlement payment, the fiduciaries to the plan with responsibility for selecting plan investment options will add a nonproprietary target-date fund option (TDF) to the investment lineup, which will be maintained as a plan investment option for the duration of the compliance period in addition to the plan's qualified default investment alternative (QDIA) -- the LifeSmart Target Date Funds."
PLANSPONSOR; free registration may be required

Claims Challenging Application of Phantom Account Offset to Reduce Retirement Benefits Time-Barred

"A retiree's challenge to a plan administrator's application of a phantom account offset as an impermissible reduction of benefits was time barred ... because the claim accrued 12 years before the suit was filed. In addition, the court stressed that the plan administrator did not breach his fiduciary duties under ERISA by continuing to apply the phantom account offset to plan participants who failed to bring timely denial of benefit claims." [Testa v. Becker, Nos. 17-1826, 17-1985 (2d Cir. Dec. 12, 2018)]
Wolters Kluwer; free registration required

The Extraordinary Upside Potential of Sequence of Return Risk During Retirement

"[S]equence of return risk truly cuts both ways, creating both the risk of depleting a portfolio too early with a bad sequence (even if returns do average out in the long run), but also the risk of the retiree waiting to long to fully spend and failing to enjoy the assets and income that turned out to be available because a favorable sequence of returns occurred instead!"
Nerd's Eye View

[Advert.]

ftwilliam.com Distribution Tracking Software -- New Integration!

Sponsored by Wolters Kluwer

Our cutting-edge Distribution Tracking Software makes distribution preparation and tracking faster and more efficient. Know exactly where each distribution is so nothing slips through the cracks. Integrated with 1099, Compliance & Docs. Learn more!


Annuity Purchase Update: February 2019 Interest Rates

"During 2018, the market experienced a favorable upward trend of rising interest rates which generally increased U.S. defined benefit plan funding ratios.... However, as interest rates began to drop in January and February 2019, annuity purchase costs began to increase along with plan liabilities. Significant cost volatility persisted these past 12 months."
October Three Consulting

Under Attack: The California Rule on Right to Future Benefit Accruals

"[The California Supreme Court] justices did not ask about the heart of the California Rule; whether alternative benefits must be provided whenever a vested right is impaired. Given the other cases pending before the Supreme Court and the nature of the justices' questions in [Cal Fire Local 2881 v. CalPERS], the court appeared to signal that it will likely issue a narrow ruling related to airtime itself, allowing major components of the California Rule to be argued in later cases."
Liebert Cassidy Whitmore

NAIC Gets Plenty of Advice on Annuity Sales Rule

"Based on the first batch of comment letters, state insurance commissioners have a long way to go to finalize an annuity sales model law that gains approval from industry players."
InsuranceNewsNet.com

[Opinion]

Industry Associations Provide Joint Statement to NAIC on Best Interest Standard of Care for Annuities and Securities Transactions

"The standard that life insurance companies and financial professionals support will enable retirement savers at all income levels to maintain access to, and information about, annuities, the only financial products in the private marketplace that can guarantee lifetime income."
American Council of Life Insurers [ACLI], the Association for Advanced Life Underwriting (AALU) and the National Association of Insurance and Financial Advisors (NAIFA).

[Opinion]

Professor Ghilarducci Worries About De Facto Poverty in Future Retirement

"The most important academic contribution has been to shift the focus away from badly-behaved savers to a poorly designed retirement system.... [P]oorly-designed 401k plans hurt workers because they lack automatic enrollment, favor predatory and high-fee investment choices, prohibit rollovers, and do not require employer contributions.... [T]ax deductions for retirement savings create inequality as the majority of tax breaks go to high earners.... [A]cademics have shown that active management is far worse for savers than index funds."
Fiduciary News

Benefits in General

ERISA Preemption of State Slayer Statutes: Does It Matter?

"Over the last decade, courts around the country have been asked to decide whether ERISA preempts ... state laws that prohibit a murderer from collecting benefits as the beneficiary of the victim's estate or as the surviving spouse of the victim under an insurance policy or benefit plan. Courts have come down on both sides of the issue ... And some courts have decided that the question is moot because, even if the state's slayer statute is preempted, federal common law prohibits a killer from being rewarded for their crime as a beneficiary so the outcome is the same."
Verrill Dana LLP

Executive Compensation
and Nonqualified Plans

[Guidance Overview]

IRS Issues Guidance on New Excise Tax on Excess Compensation Paid by Not-for-Profit Entities

"The [JCT] Explanation indicates that Congress intended to apply the excise tax to state colleges and universities (and thus highly paid athletic directors and coaches), but a technical correction may be necessary to reflect this intent. Notice 2019-09 does not make this assumption.... The same rules that apply in determining a related entity for reporting on Form 990 apply here.... While remuneration from the related entities is aggregated, each tax-exempt entity in a control group has its own covered employees."
Buck

Repeal of Section 162(m)'s Performance-Based Exception Makes Inducement Awards More Viable

"In the past, one drawback of an inducement award had been that it would not qualify for the stock option/SAR or qualified performance-based compensation exemption from the $1 million deductibility limit of Code Section 162(m). However, with that exception gone, that drawback no longer exists! To qualify as an inducement award, other requirements must be met[.]"
Winston & Strawn LLP

Compensation Committee Reminders

"The only reason for continuing to maintain a compensation committee that satisfies the requirements of Code Section 162(m) ... is if there are any unvested or unpaid performance-based awards outstanding and grandfathered. If there are any such awards outstanding, a Committee consisting solely of 'outside directors' would need to certify that the performance goals were achieved in order to ensure/preserve their deductible status."
Fulcrum Partners LLC

Selected Discussions
on the BenefitsLink Message Boards

ADP and ACP Testing If Safe Harbor Match Stopped Mid-Year

We have a calendar year plan that had an employer matching safe harbor contribution for 2018. They stopped the safe harbor match as of 11/15/18. Does the ADP and ACP test need to cover only the period from 11/16/18 -- 12/31/18, or does it need to pass the tests for the whole year?
BenefitsLink Message Boards

Plan Sponsors Get Notice of Class Action Settlement

A couple of our plan sponsors received notices that their plan is one of the settlement class members covered by some class action against a bank. The period covers some foreign transaction fees from 1997 to January 2019. If they do nothing, it explains that a small percentage of the settlement may be sent to them, if the court approves. Does this mean that years from now, the plan fiduciaries will receive some small check to allocate to participants to offset expenses paid by the plan from 1997 to January 2019? Would it be better to just write back asking to be excluded from the settlement? Or would that be a fiduciary breach?
BenefitsLink Message Boards

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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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