Retirement Plans Newsletter

October 22, 2019

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[Guidance Overview]

DOL Proposes New Safe Harbor Electronic Disclosure Rule for Retirement Plans

"Reflecting modern internet technology, the proposal offers a safe harbor for employers who want to make retirement plan disclosures accessible on a website, rather than sending volumes of paper documents through the mail. Plan participants would be notified that information is available online, including instructions for how to access the disclosures and their right to receive paper copies of disclosures. The proposal includes additional protections for retirement savers, such as standards for the website where disclosures will be posted and system checks for invalid electronic addresses."
Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL]

[Guidance Overview]

Text of DOL Fact Sheet: Retirement Plans Electronic Disclosure Safe Harbor Rule

"The proposal: [1] Offers more disclosure options, which will benefit retirees, workers, and employers by enhancing communication regarding retirement savings. [2] Saves an estimated $2.4 billion net cost over the next 10 years for ERISA-covered retirement plans by eliminating materials, printing, and mailing costs associated with furnishing printed disclosures. [3] Ensures workers’ rights to make the decision on how to best access their retirement information."
Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL]

[Guidance Overview]

Warning: Your 2020 PBGC Premiums Could Be Much Higher Than You Expect

"With the recent decline in interest rates (and the possibility of further decline before yearend), plans may face an unexpected increase in their variable rate PBGC premium for 2020 because the value of the 'unfunded vested benefits' may be quite a bit higher in 2020 compared to 2019."
Morgan Lewis

[Guidance Overview]

Final IRS Hardship Regs: Less of a Hardship to Take and Administer

"Although the IRS does not require employers to expand hardship withdrawal sources to include the noted contributions and earnings, it is an option worth considering.... [A]mendments to individually-designed 401(k) plans will most likely be required by Dec. 31, 2021 ... As it currently stands, any 403(b) plans must be amended by March 31, 2020. However, the IRS is considering extending the 403(b) plan deadline."
Porter Wright Morris & Arthur LLP

[Guidance Overview]

Ready or Not, Prepare to Start Answering Questions About Reg BI Compliance

"While the compliance deadline for Reg BI and Form CRS is not until June 30, 2020, firms should be prepared to shortly begin answering questions from regulators regarding their Reg BI implementation efforts.... [F]irms should review and update their procedures, update account information where necessary, evaluate current conflicts of interest, and train registered representatives, supervisors, and compliance personnel on the SEC's new standard."
McGuireWoods

How 401(k) Bankruptcy Exemption Can Be Lost

"The benefit to be gained from a voluntary correction under EPCRS -- the ability to avoid the potentially harsh tax penalties that the IRS could assert if a qualification failure is discovered on audit -- has long been known. The Xiao case highlights a potentially significant additional reason for a small business to promptly correct plan qualification failures under EPCRS." [Xiao v. Chorches, No. 18-1477 (D. Conn. Sep. 30, 2019)]
Blank Rome LLP

New Case Raises Difficult Questions About ERISA Remedies for 401(k) Account Thefts

"[T]he allegations suggest that each of the named defendants may have concluded it had not breached a duty of care in processing the allegedly fraudulent distributions and felt no obligation to restore or to participate in a restoration of the account balance. The Court will need to consider ... whether the plan's recordkeeper acted as a fiduciary by processing the fraudulent distributions through its call center or website and, if so, whether a duty was breached by its failure to detect the fraud." [Berman v. Estee Lauder, No. 19-6489 (N.D. Cal. complaint filed Oct. 9, 2019)]
Groom Law Group

What Your 401(k) Investment Committee Should Be Doing

"A primary purpose of investment committees is to monitor the cost of the entire 401k plan, not just investments.... Take your corporate employee hat off when you walk through the door and put your participant hat on.... [Y]ou can always discriminate in favor of lower compensated employees.... [Do] what you know is right for all plan participants."
Lawton Retirement Plan Consultants

FedEx Marches to Its Own Beat on Pension De-risking

"[FedEx] recently announced plans to contribute $1 billion to its U.S. pension plans before the end of its fiscal year ending May 29, 2020. That's $300 million more than its expected minimum required contribution.... The move will hold down FedEx's payments to the [PBGC] ... This year the fee is 4.3% -- significantly higher than the 3.1% coupon the company pays on its U.S. bonds."
CFO

401(k) Plan Sponsors' Fiduciary Obligation to Former Employees

"Fulfilling the obligations of a plan sponsor can increase administrative costs when it comes to ex-employees ... If the plan absorbs these costs, it means current employees are paying for benefits enjoyed by former employees.... Most 401k plans now provide financial tools to participants.... Former employees also have access to these tools, but it's more difficult for plan sponsors to monitor how those tools are being used ... [which] can increase the fiduciary liability of plan sponsors."
Fiduciary News

How Would More Saving Affect the National Retirement Risk Index?

"[B]oosting the 401(k) contribution rate for eligible workers by [5] percentage points would only modestly reduce retirement risk overall. The impact would be a bit larger if all workers had access to an employer-based retirement plan, but -- even then -- many households would still be at risk. The only way to make dramatic progress is to combine saving more with working two years longer, which cuts the share of 'at risk' households to about [25] percent."
Center for Retirement Research at Boston College

[Opinion]

Pension Failures and Why You Should Care

"Congress needs to revisit the religious-affiliated pension plan exemption. Or many more people might find out too late that a promised safety net has vanished."
Michelle Singletary, via Portland Press Herald

Benefits in General

Supreme Court to Decide Three Cases on Ability to Sue Under ERISA

"The Intel case deals with the statute of limitations for bringing a breach of fiduciary duty claim under ERISA. The Thole case involves whether participants in a fully funded defined benefit plan can sue for breach of fiduciary duty when there was no apparent effect on their benefits. And the Jander case will expand upon the Dudenhoeffer ruling as to what plaintiffs need to plead in a stock drop case to avoid the case being dismissed."
Murphy Austin

Selected Discussions
on the BenefitsLink Message Boards

Correcting Missed Elective Deferrals for Terminated Participants

A 403(b) plan incorrectly excluded some employees from participating in the plan over several years. To correct the error under VCP, a contribution must be made for the missed deferrals and the missed matching contributions. How are those corrective contributions made when the employees no longer participate in the plan (and don't have accounts anymore)?
BenefitsLink Message Boards

IRA Beneficiary Is a Foreign National

A recently deceased client's IRA has several beneficiaries, all of whom are foreign nationals. Can these beneficiaries set up rollover IRA's in the U.S. to avoid having to pay taxes? Do the beneficiaries have any other ways to keep the monies tax-sheltered?
BenefitsLink Message Boards

25% Deduction Limit for DC Plan as Part of 401(k)/DB Combo

Plan Sponsor has a PBGC-covered DB Plan and a 401k Profit Sharing Plan. I understand because of the PBGC coverage there is no combined deduction limit. However, does the 25% limit still apply to the DC plan only? My understanding is that yes, it does. For example, they could deposit and deduct as much as they want into the DB Plan. And in the DC Plan, anything up to 25% of compensation is allowable. But anything over 25% in the DC plan would be a non-deductible contribution and subject to an excise tax.
BenefitsLink Message Boards

Excluding Leased Employees

If a client's plan is excluding leased employees, do you check to see if:

A person shall not be considered a Leased Employee if: (i) such person is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Code section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Code sections 125, 402(e)(3), 402(h)(1)(B), 403(b), 132(f) or 457, (2) immediate participation, and (3) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20 percent of the Employer's nonhighly compensated work force.

I never thought to ask if their leased EEs are covered under a MP. And what is the second part saying? Leased EEs must make up more than 20% of the workforce in order to be considered leased and able to be excluded?
BenefitsLink Message Boards

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Press Releases

Most Popular Items in the Previous Issue

Text of DOL Proposed Regs: Default Electronic Disclosure by Employee Pension Benefit Plans under ERISA
Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL]

Remembering a True Public Servant: Alan Lebowitz
U.S. Department of Labor [DOL] Blog

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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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