Retirement Plans Newsletter

October 10, 2019

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[Official Guidance]

Social Security Announces Benefit and Taxable Wage Base Increases for 2020

"The 1.6 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 63 million Social Security beneficiaries in January 2020. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2019.... [T]he maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $137,700 from $132,900."
U.S. Social Security Administration [SSA]

[Sponsored]

You deserve a successful, stress free 5500 filing season!

Sponsored by Wolters Kluwer

The best 5500 reliability in the industry combined with patented technology, consistent and timely released software updates, and outstanding customer support make ftwilliam.com the market leader in form 5500 filing software. Learn more! Learn more


[Official Guidance]

Text of IRS Action on Decision 2019-02: Whether Lump-Sum Payments Made to Unionized Employees Upon Ratification of Collective Bargaining Agreements Are Taxable Compensation Under the Railroad Retirement Tax Act (PDF)

"In light of the Supreme Court’s reasoning in Loos, the Eighth Circuit’s holding in Union Pacific that ratification payments are not subject to the RRTA has been superseded. Accordingly, the Service will not follow the Eight Circuit’s holding in Union Pacific regarding the RRTA taxation of ratification payments in other cases."
Internal Revenue Service [IRS]

[Guidance Overview]

IRS Finalizes New Hardship Withdrawal Rules

"The employee representation that she has insufficient cash/liquid assets only applies to cash/assets that are 'reasonably available' ... That representation may be made in writing, electronically, or verbally (if recorded) ... The requirement that the plan administrator not have 'actual knowledge' 'does not impose upon plan administrators an obligation to inquire'[.]"
October Three Consulting

Regulators Strive to Fit Annuity Sales Reg Into Dodd-Frank Framework

"Section 989J of Dodd-Frank grants states an exemption from securities regulation of indexed annuities as long as they adopt the Suitability in Annuity Transactions Model Regulation (#275). If the NAIC replaces #275, states that don't adopt the new regulation might also lose the ability to regulate indexed annuities[.]"
InsuranceNewsNet.com

SEC Launches Investigation of Practices in Retirement Plans for Teachers, Government Employees

"The agency is seeking details on how administrators -- which often serve crucial roles in selecting investments for 403(b) and 457 retirement plans for employees including teachers and government workers -- choose investment options and police themselves when conflicts of interest arise."
The Wall Street Journal; subscription may be required

[Sponsored]

Join the Pension Rights Center's Celebration of Superheroes!

Sponsored by Pension Rights Center

Join us to celebrate the 45th anniversary of ERISA, the 43rd anniversary of the Pension Rights Center, and to honor our Retirement Superheroes! Tuesday, Oct. 29, Washington DC. Learn more


Plan Sponsor Misperceptions of Fiduciary Responsibilities Persist

"25% [of survey respondents] believe they retain no fiduciary responsibility for selecting and monitoring plan investments ... 80% of plan sponsors who recognize that they are fiduciaries are extremely or very confident they are meeting these obligations.... A surprising number of plan sponsors are unclear on whether they offer a qualified default investment alternative (QDIA) in their plan. While 40% say they do and 35% say they do not, 25% are unsure."
J.P. Morgan Asset Management

Plan Sponsors, Are You Leaving Important Questions Unanswered?

"If you have an inexpensive provider, your plan seems to be in compliance, and your participants like the web features, there is a tendency to assume that you have answered all of the right questions and ticked all the correct boxes.... The people your participants talk to on the phone, to the individuals who are dedicated to working on your plan, and the process of working through the day to day challenges of administering a retirement plan -- these are all experiences, and these are all personal."
Conrad Siegel Actuaries

It's Time to Get Serious About Retirement Income Solutions

"More defined contribution (DC) plan participants are keeping their savings in plan after they retire, and future retirees expect to derive a greater share of retirement income from their DC plan balances. Despite more assets remaining in plans, money is being distributed at lower levels. This suggests that participants may need help converting DC plan assets into an income stream once they reach retirement.... There is no one-size-fits-all solution for retirement income. Participants' unique and changing needs require various solutions to help them achieve their goals."
T. Rowe Price

GE Pension Freeze Shows Employees Need Better Way to Save

"The average expected return for pension portfolios among companies in the Russell 3000 Index was 9% a year in 1999 ... roughly in line with GE's target. Two decades later, 83% of Russell 3000 companies that reported their pension status last year are underfunded.... [T]here's little indication corporate executives are any better at managing money than their employees."
The Washington Post; subscription may be required

[Opinion]

Pension Obligation Bonds May Soon Have Their Moment

"In some corners of the finance world, the phrase 'pension obligation bonds' [POBs] is practically a four-letter word. The debt, which raises money to plow into public retirement systems, is deemed risky and dangerous ... But consider a scenario ... in which the U.S. economy enters a recession.... In such an environment, equities, which have become the cornerstone of public pension plans, will likely have slumped ... Benchmark U.S. Treasury yields ... will head even closer to zero as investors seek safety. Would POBs make sense financially at that point? Absolutely."
Bloomberg; subscription may be required

[Opinion]

American Retirement Association Comment Letter to IRS Requesting Meeting Relating to Section 401(k) Hardship Regs (PDF)

"Sponsors of individually designed plans have two years from the publication of the Required Amendments List to adopt a conforming amendment. Imposing a substantially shorter deadline for adopters of pre-approved plans may undercut IRS' goal of fostering compliance within the retirement industry.... This is extremely problematic for plan document providers who must implement the underlying systems, delivery, and communications of the amendments. This interim amendment cannot simply be adopted by the volume submitter practitioner or prototype sponsoring organization because adopting employers have many options available to them."
American Retirement Association [ARA]

Benefits in General

Employers Try a New Perk: Matching Student Loan Payments With 401(k) Contributions

"Eight percent of the 2,763 employers the Society for Human Resource Management surveyed in April offered assistance with student loans, up from 4% in 2018 and 3% in 2015. According to a survey of 250 companies last year by the Employee Benefit Research Institute, 11% of employers offered student-loan repayment subsidies and another 13% planned to add it."
The Wall Street Journal; subscription may be required

Executive Compensation
and Nonqualified Plans

Editor's Pick Stock-Based Compensation Guide (PDF)

253 pages, updated Sep. 2019. "This guide explains the fundamental principles of accounting for all types of stock-based compensation, including which arrangements are subject to its scope, measurement date, vesting conditions, expense attribution, and classification ...  as well as the accounting required when when awards are modified. This guide also discusses the unique accounting for nonpublic companies, awards to nonemployees, employee stock purchase plans, as well as valuation considerations ... [and provides] perspectives on the impact of the accounting guidance on stock-based compensation plan design, including a summary of employer and employee income tax considerations."
PwC

How to Use a Supplemental Executive Retirement Plan

"There is no limit on the amount that can be contributed to a SERP, so the retirement payout could be substantial.... [A] SERP can be customized for each covered employee.... [If] the company structures the plan as a life insurance policy, taxes are not paid on the contributions from either the employer or executive until retirement. The plan can be especially beneficial for employees at privately held companies."
U.S. News & World Report

Selected Discussions
on the BenefitsLink Message Boards

Schedule C Shows 'Negative' Direct Compensation to Recordkeeper

I am reviewing a 2017 Form 5500 prepared by a large record keeper. The record keeper name is listed on Schedule C Part 1, 2(a). Under (d), their direct compensation is listed as a negative number. Does anyone know how a record keeper receives a negative direct compensation number? Does it have to do with revenue sharing and the way it is credited back?
BenefitsLink Message Boards

Do You File VFCP After Getting the 'Your Contributions Were Late' Letter from IRS?

A few of our clients are getting the "you had late contributions, VFCP is available..." letters. Do you submit via VFCP after getting those letters? Any anecdotal evidence of investigations if is isn't filed? Or do you just keep a copy of the self-correction in your files and show that when asked?
BenefitsLink Message Boards

Premature Use of Funds in Forfeiture Account

Plan Sponsor chose to forfeit participants' non-vested account balances immediately upon their termination of employment and use that money to reduce their payroll period employer match contribution payments. But the plan document says forfeitures occur on the earlier of being fully paid out their vested portion upon termination OR having incurred five 1-year Breaks-in-Service. How should this problem be corrected?
BenefitsLink Message Boards

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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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