Retirement Plans Newsletter

November 7, 2019

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[Official Guidance]

Text of IRS Proposed Regs: Updated Life Expectancy and Distribution Period Tables Used for Required Minimum Distributions

122 pages. "[T]he Treasury Department and the IRS have determined that [the life expectancy and distribution period tables in Section 1.401(a)(9)-9] should be updated to reflect current life expectancies.... The life expectancy and distribution period tables in [these] proposed regulations have been developed based on mortality rates for 2021.... The life expectancy tables and Uniform Lifetime Table under these proposed regulations would apply for distribution calendar years beginning on or after January 1, 2021....

"These proposed regulations include a transition rule that applies if an employee died before January 1, 2021, and, under the rules of Section 1.401(a)(9)-5, Q&A-5, the distribution period that applies for calendar years following the calendar year of the employee's death is equal to a single life expectancy calculated as of the calendar year of the employee's death (or if applicable, the year after the employee"s death), reduced by 1 for each subsequent year....

"After final regulations that provide updated life expectancy and distribution period tables under section 401(a)(9) are issued, if a taxpayer commenced receiving substantially equal periodic payments before January 1, 2021, using the required minimum distribution method described in section 2.01(a) of Rev. Rul. 2002-62, then the application of the final regulations will not be treated as a modification to a series of substantially equal periodic payments as described in section 72(t)(4)(A)(ii)....

"A public hearing on these proposed regulations has been scheduled for January 23, 2020[.]"
Internal Revenue Service [IRS]

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[Guidance Overview]

2020 Adjustments to Retirement Plan Limits, and Some Thoughts on the Hardship Regs

"The 2020 and prior year limits are [shown in a table].... No plan can require a participant to suspend deferrals due to a hardship distribution that is taken on or after January 1, 2020.... if the 401(k) plan is a preapproved document, the current deadline for this amendment is the tax return due date (including extensions taken) for the employer's tax year that includes January 1, 2020. This means that, for a C Corporation that files its income taxes on a calendar year basis, the plan amendment is due by April 15, 2021, unless the return is extended. However, for a partnership with a fiscal year ending January 31, the deadline is April 15, 2020."
Ferenczy Benefits Law Center

[Guidance Overview]

Best Interest Standard of Care for Advisors, Part 16

"[T]he SEC, much like the DOL and FINRA, agrees that education is not a recommendation. Of course, if the educational conversations and materials are biased towards a rollover, it could be viewed as a disguised recommendation. That will be gauged, at least partially, by the written materials provided to the participant, the training materials for advisors, and the scripts, if any, that are given to the advisors."
FredReish.com

Supreme Court Debates Liability of Insiders for Mismanagement of Pension Plans That Invest in Employer Stock

"A major thread in the discussion was how to respond to the argument of the fiduciaries that the justices should adopt a bright-line rule under which insider fiduciaries would have no separate responsibility under ERISA -- they would be immune from liability so long as they made any disclosures required by the securities laws.... Gorsuch acknowledged the commonplace decision to use insider fiduciaries but stated: 'I'm less clear why this Court should be in the business of accommodating that decision.' ... None of the other justices followed up on that comment, but it well might provide a way to avoid the dilemma ... portrayed as confining the responses of the fiduciaries." [Jander v. Retirement Plans Committee of IBM, No. 17-3518 (2d Cir. Dec. 10, 2018; cert. pet. granted Jun. 3, 2019; oral argument Nov. 6, 2019; official transcript available)]
SCOTUSblog

Early Returns on Actuarial Equivalence Cases (PDF)

"The plaintiffs in these cases contend that the calculation methodology employed ... results in inappropriately low benefit payments, typically because mortality tables used in the calculation are alleged to be outdated.... In the first two decisions on motions to dismiss these lawsuits, federal district courts for the District of Minnesota and the Northern District of Texas have concluded that two different sets of claims are sufficient to survive past the pleadings stage. These rulings all but guarantee that more similar complaints will be filed."
Jenner & Block, via Employee Relations Law Journal

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Improving Expected Returns for Corporate Defined Benefit Plans

"[Some plans] could improve returns by 50-100 basis points (0.5 - 1.0%) per year, without taking additional funded status risk, by making relatively simple changes.... An additional benefit of this strategy is that the synthetic equity position can be customized or 'shaped' to provide a precise range of outcomes that a plan is seeking."
River and Mercantile Solutions

S&P 1500 Pension Funded Status Increased in October

"The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 1 percent in October 2019 to 85 percent, as a result of an increase in equity markets. As of October 31, 2019, the estimated aggregate deficit of $371 billion decreased by $34 billion  as compared to $405 billion measured at the end of September[.]"
Mercer

Senators Push Bipartisan Fix to Coal Miners' Pensions, Health Benefits

"[S 2788] would transfer excess money from an abandoned mine reclamation fund to a United Mine Workers of America multiemployer pension plan.... Without an infusion of public funds, the pension fund is projected to become insolvent by its 2022 plan year.... [The bill] would also give miners whose companies went bankrupt since last year access to medical benefits that Congress established in 2017."
The Wall Street Journal; subscription may be required

403(b) and 457(b) Plans Going Under the Regulatory Microscope

"It appears that the SEC has initiated a 'sweep' examination to inquire into the sales practices applicable to retirement plans for teachers and state and local government employees.... Further, the New York Department of Financial Services recently launched an investigation into the sales tactics and costs involved with 403(b) plans ... Many of these 403(b) and 457(b) plans are not subject to ERISA and its higher regulatory standards[.]"
Drinker Biddle

Benefits in General

2020 Employee Benefit Limitations (PDF)

Two-page reference guide provides key 2018-2020 annual limits for retirement plans along with health, fringe benefit and ACA figures.
Mercer

Executive Compensation
and Nonqualified Plans

2020 Qualified Retirement Plan Limits Affect NQDC Participants

"The contribution limits of qualified plans are the major reason for the existence of nonqualified plans ... The changes in limits from 2019 to 2020 are slight. If you've already maxed out your qualified plan contributions for 2019, you will probably do the same in 2020, so you will need NQDC plans to defer any salary and bonus increases you expect in 2020."
myStockOptions.com

Selected Discussions
on the BenefitsLink Message Boards

Consolidating Participant Loans

"I have a client that wants to allow participants to consolidate loans (take two loans and make them into one). I don't see my plan document/loan policy software addressing this. Does anyone have any guidance as to the language to put in to allow it?"
BenefitsLink Message Boards

Add 3(16) Services to My TPA Firm?

"I am a small TPA about 180 clients and I'm not sure if it makes sense to add 3(16) services or is a way to prepare for the possible Open MEP legislation. Is there certification to become 3(16) authorized? How are people billing clients for this?"
BenefitsLink Message Boards

Amendments to a Takeover Plan and Anti-Cutback Rules

"In a takeover case, the employer would like to do the following in his new document: [1] Annuities are the normal form of benefit in the current 401(k) plan document. He wants us to take out any reference to annuities and put in lump sum only. [2] Normal retirement age has been plain age 65, and he wants us to change it to the statutory definition of age 65 or the completion of 5 years of service, whichever comes later. Does anybody see either of these changes to the document as a violation of anti-cutback rules?"
BenefitsLink Message Boards

Participant Plan Loans and 'Double Taxation'

"Is it correct that if a participant takes a plan loan from their pre-tax 401k deferral account that they are essentially double taxed when they make the payments back on an after tax basis. Taxed once when the deferral is made and then taxed again when they take a distribution from the plan?"
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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