Retirement Plans Newsletter

May 3, 2019

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Senior Pension Administrator - Combo DB / DC Plans
Primark Benefits
in Burlingame CA / Telecommute

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Krakow, Souris & Landry, LLC
in Boston MA

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OneAmerica
in Indianapolis IN

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[Guidance Overview]

IRS Expands Determination Letter Program

"Because the IRS's scope of review during a statutory hybrid plan's most recent remedial amendment cycle did not include provisions related to the final hybrid plan regulations, sponsors of statutory hybrid plans now have the opportunity ... during this one year submission window to verify their plans comply with the hybrid plan rules and to correct plan document failures related to these rules without having to pay a sanction.... Second, sponsors of individually-designed 'merged plans' may, on an ongoing basis, submit requests for determination letters."
The Wagner Law Group

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[Guidance Overview]

IRS Expands Determination Letters for Hybrid, Merged Plans

"IRS will offer sanction relief for plan document defects discovered while reviewing a DL application submitted under this new revenue procedure: ... For statutory hybrid plans, IRS won't impose a sanction for any plan document failure due to a plan provision that doesn't comply with the final hybrid plan regulations in Treas. Reg. Sections 1.411(a)(13)-1 and 1.411(b)(5)-1.... For merged plans, IRS will impose no sanction for defective plan provisions included to implement the plan merger."
Mercer

[Guidance Overview]

IRS Expands Self-Correction Program for Certain Plan Failures

"Rev. Proc. 2019-19 expands EPCRS to allow the correction of certain Operational Failures or Plan Document Failures under the SCP ... Correction of plan document failures ... Correction of operational failure ... Correction of plan loan failures ... The IRS website ... will provide additional examples of insignificant Operational Failures."
Ice Miller LLP

[Guidance Overview]

Corrections Made Easier: IRS Expands the Self-Correction Program

"It is expected that the next two-year restatement window for defined contribution plans will run from mid-2020 to mid-2022. The related six-year cycle will end on January 31, 2023. Therefore, if a plan is not restated by January 31, 2023 ... the plan document may no longer be subject to an opinion letter for the most recently expired cycle (i.e., the cycle ended January 31, 2023). In that case, the failure may not be self-correctable, requiring a filing under VCP. Needless to say, this is an odd result, and we hope that it is simply an unintentional glitch caused by the procedure's wording. We hope the question will be clarified (favorably) by the IRS."
Ferenczy Benefits Law Center, via FIS Relius

IRS Expands Self-Correction Program for Fixing Retirement Plan Errors

"A bill modeled on last year's Retirement Security and Savings Act (S 3781) ... would expand SCP by: [1] Allowing sponsors to self-correct 'any inadvertent failure' to comply with the rules for qualified and 403(b) plans, unless IRS or Treasury identifies the error before the sponsor implements self-correction. [2] Requiring DOL to treat any plan loan failure corrected under SCP as satisfying VFCP requirements. [3] Allowing sponsors to self-correct missed required minimum distributions within 180 days of the date the distribution was due."
Mercer

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IRS Opens the Door to Lump Sum Payment Windows for Retirees in Pay Status

"[R]etiree lump-sum windows have an increased adverse selection cost because retirees generally have a better sense of their life expectancy than those who have not yet retired. Critics of retiree lump-sum windows also claim that participants are poorly equipped to weigh the relative value of continued annuity payments compared to a lump-sum payment. Moreover, the IRS guidance does not insulate plan sponsors from the risk of participant litigation."
McDermott Will & Emery

Starting a 401(k)? Make Sure Your Provider Has These Features

"On average, small businesses pay 5x as much for their 401(k) plans as their Fortune 500 counterparts. And those unfairly high fees can end up killing your savings.... [Y]ou'll want a provider who can take a lot of that tedious work off your plate. And better yet, a provider who also takes on the legal responsibility for your plan and investments.... [N]ot every provider supports custom plan designs. They might instead force you into cookie-cutter plan designs that are easy for them to run, but sub-optimal for your business.... [Be]sure your provider offers a delightful employee experience -- whether that's with an online portal, a simple user experience, or free financial guidance."
ForUsAll

Editor's Pick From Flossing to 401(k)s: Plain Language Speaks to Our Audiences

"Most employees are not native benefits speakers; they don't want to be and they don't need to be. As communicators, we need to respect that and meet them where they are.... Benefits are complex, kinda dry and often easy to ignore. Most of the time, all our readers really want to know is, 'What's in it for me?' When we give them more or our delivery isn't clear, we affect their ability to take the right action."
Buck

Social Security Trust Fund Investment Practices

"Social Security tax revenues are invested in interest-bearing U.S. government obligations held by the Social Security trust funds, as required by law.... The effective interest rate earned on all obligations held by the trust funds in 2018 was 2.9%; the average interest rate on new special issues was 2.9%. The trust funds earned $83 billion in interest in 2018, representing 8.3% of Social Security's total income." [Report IF10564, updated May 3, 2019]
Congressional Research Service [CRS]

Social Security: The Trust Funds and Alternative Investments

25 pages. "Investing in marketable securities would signify a departure from the norms that govern the current investment practice. Investing in equities ... would demonstrate a similar departure from the trust funds' investment norms and would represent a government intervention into the private market. Some argue this expansion of investment options would be problematic because it dictates government ownership of, and possibly influence on, private companies.... [T]he historically higher returns on equity investment may motivate policymakers to enact changes to the OASDI Trust Funds' investment options and practices." [Report R45709, May 2, 2019]
Congressional Research Service [CRS]

Age and Wisdom: Retirement Readiness in the U.S., U.K. and Australia (PDF)

11 pages. "In 2015, the American Academy of Actuaries, the Australian Actuaries Institute and the Institute and Faculty of Actuaries in the United Kingdom identified longevity risk ... as a major issue in all three countries ... [T]he survey sought to identify significant differences in the perceptions of and planning for a secure retirement.... This article seeks to explore more deeply the differences in response by age in that original survey, focusing on the U.S. respondents in the 2016 survey but with a comparative look at the responses from Australia and the U.K."
Benefits Quarterly, published by the International Society of Certified Employee Benefit Specialists [ISCEBS]

Benefits in General

Editor's Pick Things Employers Should Know About EBSA Investigations

"25% of EBSA investigations start with a participant complaint.... If the EBSA finds that a service provider is violating ERISA or ignoring plan terms, it may also conduct investigations of the plans that the service provider serves.... An employer will not know the focus of the EBSA investigation ... The initial notice will include an extensive document request ... The onsite visit is not a formal deposition ... There will be long periods of time between contacts with the EBSA investigator.... An employer's cooperation with the EBSA investigation can affect the outcome of the investigation."
Thompson Coburn

Executive Compensation
and Nonqualified Plans

Private Company Stock Grants: Recent SEC Filings by Uber and Other IPO Companies Reveal Plan Design Trends

"Some major private companies in the tech sector have recently gone public or are about to.... [One innovation] for employees at private companies is early-exercise stock options. Instead of letting you exercise options only after the vesting date, when you might face a big taxable spread between the exercise price and the fair market value of the stock, the company instead grants options that are immediately exercisable.... Larger, later-stage pre-IPO companies often grant RSUs instead of stock options[.]"
myStockOptions.com

Implementing Compensation Clawbacks in a Global Economy

"The argument in favor of clawbacks is that if compensation is awarded for short-term corporate or investment performance, executives and traders are incented to pursue immediate profits, even at the expense of long-term risks.... To address this, employers can structure financial incentives to include: [1] Deferred compensation arrangements, contingent on future financial performance; [2] Malus clauses that allow for all or part of deferred compensation to be rescinded in cases of bad behavior; and [3] Mechanisms to reclaim money already paid, in certain circumstances."
Allen & Overy, via Bloomberg BNA

Selected Discussions
on the BenefitsLink Message Boards

ASOP 51: Applicable to ASC 715 Reporting?

Our interpretation of ASOP 51 is that it is not applicable to ASC 715 reporting. Agree?
BenefitsLink Message Boards

Two Plans Sponsored by Same Employer, Both Require Top-Heavy Minimum Contributions

We're taking over a PS plan that has employer-directed investments. We're not taking over the 401k plan, employee-directed investments. In reviewing both documents, we found that both plans provide the TH minimum. Because we're restating the PS, we're thinking of suggesting that it be removed from this Plan. Are we missing anything?
BenefitsLink Message Boards

Can Acquiring Plan Sponsor Grant Vesting Credit for Prior Service by Independent Contractors?

Employer acquires a company under an asset purchase. There were several individuals who were paid as 1099 contractors by the prior employer. Under the new employer these employees will be paid W-2 wages. Eligibility for the 401(k) and match is immediate. The question is regarding vesting. Can the new employer recognize service for vesting purposes?
BenefitsLink Message Boards

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Press Releases

Most Popular Items in the Previous Issue

Notes from Meeting of Actuaries 'Intersector Group' with IRS, March 7, 2019 (PDF)
American Academy of Actuaries, Conference of Consulting Actuaries, Society of Actuaries, and ASPPA College of Pension Actuaries [ACOPA]

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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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