Retirement Plans Newsletter

May 15, 2019

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[Official Guidance]

New Address for DFVCP Submissions Effective May 15

"Effective May 15, 2019, the address for the Delinquent Filer Voluntary Compliance Program (DFVCP) lockbox changed to: DFVCP, PO Box 6200-35, Portland, OR 97228-6200. [IRS] will also begin accepting overnight delivery at US Bank, Attn: DFVC 6200-35, 17650 NE Sandy Boulevard, PD-OR-C1GL, Portland, OR 97230. There is no address to receive submission from a private delivery service. Note that submissions to the DFVCP also can be done electronically."
Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL]

[Advert.]

Legal Analytics help ERISA Litigators Win

Sponsored by Lex Machina

Join our webcast on May 30, where we unveil the first ERISA Litigation Report with valuable trends and insights. Learn about ERISA case timing, resolutions, damages, remedies, and findings.


Stealing from Colleagues? Fraud and Embezzlement in 401(k) Plans

"Do not underestimate the creativity of insiders who have no compunction about helping themselves to money others have saved and invested. Employers/clients (and their ERISA advisers) should educate and train themselves as to nature of embezzlement and fraud, as well as the modes of commission (means, opportunity, and motive for embezzlement and fraud), particularly where a plan's internal controls and organizational framework may be less than optimal."
Fisher Broyles, via Lexology; free registration required

Industry Definitions: Security Breach and Cyber Fraud (PDF)

"These definitions are not intended to supersede state and/ or federal laws, legislation, or regulation, but are meant to establish a base of communication between record keepers and plan sponsors regarding Security Breaches and Cyber Fraud events. Using these terms, clients can more accurately assess a recordkeeper's cybersecurity incident practices and controls, and use these definitions to obtain mutually agreed upon contractual protections with a recordkeeper should such an event occur."
SPARK Institute

Beyond Compliance: Auditing 401(k) Plans

"401(k) audits are often worthwhile even when not required ... Audits (or even self-policing on the part of an employer) can provide excellent value for money spent in several key respects.... [1] Global oversight, insight, coordination, and cooperation ... [2] Enhanced by audit: timeliness and transparency ... [3] Guarding the coffers: audits and fraud detection."
AllThingsERISA at FisherBroyles

Vanderbilt 403(b) Settlement Includes Participant Data Safeguards

"The agreement requires the school to pay $14.5 million into a settlement fund, review existing investment options and recordkeeping arrangements, and provide employees information about the plan's investments and instructions on how to reinvest their accounts. But another aspect of the settlement is making some employers take note: Vanderbilt must to take additional steps to protect confidential participant information." [Cassell v. Vanderbilt Univ., No. 16-2086 (M.D. Tenn., proposed settlement filed Apr. 22, 2019)]
Mercer

[Advert.]

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Sponsored by Pension Rights Center

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Is ESG in 401(k)s Really a 'Fiduciary Nightmare'?

"A major criticism of the strategy is that while there appears to be a correlation between the incorporation of ESG factors and better company performance, there was little evidence of causation -- that is until a high profile MSCI study appeared to show that companies that employ ESG factors deliver higher returns."
401K Specialist

Senate Finance Committee Hearing: Challenges in the Retirement System

May 14 hearing. Page includes video of hearing along with statements from Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR), and testimony from witnesses: [1] Joni Tibbetts, The Principal Financial Group; [2] The Honorable Tobias Read, State of Oregon; [3] Joan Ruff, AARP; and [4] Lynn D. Dudley, American Benefits Council.
Committee on Finance, U.S. Senate

New Bill Links 401(k) Matches to Student Loan Payments

"Among other changes, such as stepping up the age for required minimum distributions, ... the Retirement Security and Savings Act of 2019 allows companies to match an employee's student loan payment in the form of a contribution to their workplace retirement plan.... The student loan provision would effectively apply universal approval to a practice that has been gaining traction on a one-off basis, requiring private-letter rulings from the [IRS]."
InvestmentNews

Defined Contribution Plans and the Challenge of Financial Illiteracy

"[The authors] show that people whose only exposure to investment decisions is by virtue of their participation in an employer-sponsored 401(k) plan ... suffer from higher levels of financial illiteracy than other investors. This lack of financial literacy is critical both because of the financial consequences of poor financial decisions and because of a legal structure that relies on participant choice to limit the fiduciary obligations of the employer with respect to the structure and options provided by the retirement plan.... [The authors] propose mandated employer-provided financial education ... [and] identify and discuss three requirements that a financial education program should incorporate."
Jill E. Fisch, Annamaria Lusardi, and Andrea Hasler, via SSRN

Challenges Faced by Public Pension Plan Administrators

"Administrators at the largest state-run pension programs ... say nothing compares to the challenges that have intensified over the last decade due largely to four key factors. [1] Growing structural complexity ... [2] Changing roles for administrative staffs ... [3] Participant expectations for interacting with pension programs are evolving rapidly ... [4] Ineffective legacy technology."
Governing

Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)

"The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) are two separate provisions that reduce regular Social Security benefits for workers and their eligible family members if the worker receives (or is entitled to) a pension based on earnings from employment not covered by Social Security." [In Focus IF10203, updated May 14, 2019]
Congressional Research Service [CRS]

[Opinion]

Urban Institute Testimony to House Budget Committee on Promoting Middle-Class Retirement Security: The Importance of Accounting for Inequality in Resources, Burdens, and Risk (PDF)

29 pages. "Social Security is the bedrock of the US income security system.... For many, employer-sponsored retirement plans and Social Security complement one another, but access to such plans is not yet universal, and government subsidies to these plans now mostly go to those who need them least.... Medicare is a vital support for older Americans.... Americans face a significant, unpredictable risk of needing long-term services and supports. For many, this is the largest financial risk in retirement.... Decades of income stagnation and high levels of inequality in health risks have compounded many of these challenges."
Urban Institute

Benefits in General

[Official Guidance]

Text of IRS Announcement Providing Filing Extension for Returns Delayed Due to Recent Software Outage

"Taxpayers affected by the CCH outage [on Monday, May 6 and some days thereafter] who do not file an extension and file after the deadline should include the phrase 'Late filed return due to CCH Software Outage' as a statement of reasonable cause. Potential tax returns affected by this include Forms 990, 1120, 1120S and 1065 for some calendar year and fiscal year filers."
Internal Revenue Service [IRS]

Executive Compensation
and Nonqualified Plans

A Top-Hat Plan Primer (PDF)

"Companies that consider nonqualified deferred compensation arrangements for their key executives often focus on how those arrangements are treated for tax purposes. But in the midst of the tax discussion (including the effect of Sections 409A and/or 457(f) of the Internal Revenue Code), it is important not to lose track of the other federal law that governs these arrangements -- ERISA."
Spencer Fane

Selected Discussions
on the BenefitsLink Message Boards

Compensation While an Excluded Employee: Must Count It?

Plan excludes employees who are part of Division C. Employees of Divisions A & B are included. Compensation for each division is tracked separately, though everything is on one W-2. Plans definition of comp is W-2, no exclusions. Several people work for A or B as well as C. Some work for all three. For profit sharing purposes, can/should we exclude the income from C? Example: Employee entered the plan in, say 2014, as an employee for Division A. Jim makes $60,000 for 2018. However, $20,000 was for work he did as an employee for Division C. What is his compensation for PS purposes? $60,000 or $40,000?
BenefitsLink Message Boards

New SERP for Recently Deceased Participant

A client (an LLC) was entering into discussions to provide a SERP to a top executive. The client wants to complete and execute the SERP and provide the death benefits to the surviving spouse. I think this is possible (I have put in non-elective SERPs with effective dates retroactive to the first day of the executive's tax year), but have never come across this issue before. I am concerned that Reg. Section 1.409A-1(b) defines a deferral of compensation plan as a plan where the service provider has a legally binding right during a taxable year to compensation that is payable to or on behalf of the service provider in a subsequent taxable year. Technically, the service provider didn't have a legally binding right to the SERP before death, and is no longer a service provider when the SERP is executed. Any thoughts or comments?
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David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
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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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