Retirement Plans Newsletter

March 7, 2019

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[Guidance Overview]

Retiree Cashout Windows Once Again Viable

"IRS has announced that it will not move forward with previously announced changes to the minimum distribution regulations that would have prohibited retiree lump-sum windows. Instead, it will continue to evaluate whether such windows satisfy other qualification requirements -- but will not issue PLRs on them. IRS will no longer caveat determination letters to limit the opinion about the windows."
Buck

[Advert.]

Register for a Free Webcast on Building Resilience

Sponsored by International Foundation of Employee Benefit Plans [IFEBP]

Celebrate National Employee Benefits Day by learning about the importance of building resilience in your employees. Register for a free webcast on April 2: Building Resilience: Practical Tools to Help Your Workplace Thrive. Learn More.


IRS Notice 2019-18 Allows for Lump Sum Risk Transferring Programs for Participants in Pay Status

"Notice 2019-18 includes a retraction of intent by the Treasury Department and the IRS regarding proposed regulations under Code Section 401(a)(9) that would have limited accelerated forms of distribution to participants in pay status but allowed them for participants who had not yet begun to receive their benefit payments. Under Notice 2019-18, these proposed regulations will not be issued, which means that lump-sum windows may still be available for defined benefit plan sponsors."
Thomson Reuters Practical Law

Conducting an Operational Compliance Review of Your Retirement Plan

"No one likes finding out that they are being audited by the [IRS] or [DOL].... Prudent plan sponsors are proactive, have up-to-date procedures and guidelines, and periodically conduct an operational compliance review, or self-audit. Taking the initiative to do a self-review can help you avoid added costs and liabilities down the road."
Findley

Retirement Benefits for Millions May Be Slashed Without PBGC Reforms, Says GAO

"The increasing fragile PBGC finances for insuring multiemployer plans in unionized industries such as trucking and baking have long been a concern with a deficit running at $54 billion, but GAO cautions single employer plan insurance could also be at risk as well."
Forbes

Editor's Pick State Fiduciary and Best Interest Developments

"A number of states are seeking to impose fiduciary or best interest requirements on broker-dealers, investment advisers, financial planners and/or insurance brokers and producers in their dealings with customers.... [These rules] are in addition to -- and sometimes inconsistent with -- federal requirements being considered by the SEC or by the [DOL] for retirement investment advice.... [A chart summarizes] the activities in each state along with proposals of the National Association of Insurance Commissioners (NAIC)[.]"
Drinker Biddle

An Introduction to Modern Prudent Fiduciary Investing

"Investment uncertainties include the future in general and the unexpected -- both good and bad -- news that it brings such as which investments or investment managers, and so on, have outperformed (or underperformed). The antidote to these uncertainties is broad (across the asset classes that comprise a portfolio) and deep (within each such asset class) diversification of portfolio risk."
Morningstar Advisor

Americans in Physical Jobs Have High Retirement Hopes

"The high stated retirement confidence of physical workers reflects the fact that the sample is relatively young and majority male, according to Aegon researchers, who also say that employers with predominantly physical workers can do more to boost their true retirement readiness."
planadviser

[Opinion]

Advances in the Form and Function of Target Date Funds (PDF)

"Personalized model accounts are advancements in the Form of TDFs that solve the one-size-fits-all problem. Asset protection in the 'Risk Zone' is an advanced Function that reduces the risks that plagued 2008. The $2 trillion TDF industry is dominated by an oligopoly of 3 firms that manage 63%of the assets, stifling advancements. Fiduciaries should seize the opportunity to do what is prudent and wise.... Personalized model accounts solve the current one-size-fits-all problem, and U-shaped glidepaths solve the excessive risk problem."
Target Date Solutions

[Opinion]

Testimony of American Academy of Actuaries to Senate HELP Subcommittee: Why Congress Must Address the Multiemployer Pension Crisis (PDF)

12 pages. "The trustees of the plans that are projected to be insolvent face a very difficult situation.... The contribution rate increases needed to achieve recovery are so great that if they were imposed, the employers would be unable to remain in business or would choose to withdraw from the plans. For the plans that are unable to meet the criteria for benefit reductions under MPRA, they have no alternative other than to spend down their assets and wait for insolvency to occur.... Congress faces a dual challenge. Action is need ed to address the looming crisis that will occur when both plans and the PBGC exhaust their resources and reach the point of insolvency."
American Academy of Actuaries

Benefits in General

[Official Guidance]

Text of IRS Disaster Relief Notice AL-2019-01, for Alabama Victims of Severe Storms, Tornadoes and Straight-Line Winds

"Victims of the severe storms, tornadoes, and straight-line winds that took place on March 3, 2019 in Alabama may qualify for tax relief ... [A]ffected taxpayers in certain areas will receive tax relief. Individuals who reside or have a business in Lee County may qualify for tax relief.... [C]ertain deadlines falling on or after March 3, 2019 and before July 31, 2019, are granted additional time to file through July 31, 2019"
Internal Revenue Service [IRS]

Executive Compensation
and Nonqualified Plans

[Guidance Overview]

Loophole for State University Coaches Excess Compensation Is a Congressional Fumble

"The 2017 Tax Act enacted ... a new provision imposing a 21% tax on 'applicable tax exempt organizations' ... that pay any of their top five paid employees more than $1 million in annual compensation.... [In] Notice 2019-09, the IRS admitted that the statutory language does not reach public colleges and universities exempt under implied statutory immunity. In fact, the Notice advises that such institutions that have received a determination letter from the IRS recognizing them as exempt under Code section 501(c)(3) may relinquish this status to avoid being subject to the tax."
Murphy Austin

[Guidance Overview]

Change-in-Control Consequences on Specified Employee Status Under Code Section 409A

"If a corporate transaction occurs during the applicable 12-month period for which the specified employee group has been set, the successor(s) are required to determine how specified employees will be identified following the transaction during a transition period. [This article] describes the transition rules applicable to several different types of corporate transactions."
Morgan Lewis

State and Local Taxes: Nonqualified Plans Can Help Protect Retirement

"Some states ... attempt to tax nonresidents on this income on the basis that it was earned, or had its source, in the first state. Retirement income has always been a key target of this type of state taxation. Under the federal 'Source Tax Law,' however, retirement income meeting certain conditions will be taxable only by the recipient's state of residence at the time of payment, regardless of its 'source'.... The Source Tax Law ... covers retirement income paid from tax-favored vehicles such as tax-qualified retirement plans and IRAs. It also protects income from nonqualified deferred compensation arrangements if the income either is paid from a certain type of plan or in substantially equal periodic payments over life or life expectancy or a period of at least ten years."
Fulcrum Partners LLC

Selected Discussions
on the BenefitsLink Message Boards

How to Be Sure an Individually Designed Document Remains Tax-Qualified?

Is there some form of documentation that would enable an individually designed plan document to maintain its qualified tax status? (Individually designed documents can no longer obtain IRS determination letters.)
BenefitsLink Message Boards

Working Less Than 500 Hours and Benefiting Under SH NEC

Under a 401(k) safe harbor plan, a long-time participant has semi-retired. The participant now works only 200 hours annually and has agreed to do the same for the next 5 years or so. Does the participant continue to be entitled each year to an allocation of the employer's safe harbor non-elective contributions, or is there a way to exclude this participant based on hours?
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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