Retirement Plans Newsletter

November 13, 2019

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[Official Guidance]

Text of IRS Notice 2019-60: Additional Temporary Nondiscrimination Relief for Closed Defined Benefit Plans Through 2020 (PDF)

"This notice provides additional temporary nondiscrimination relief for closed defined benefit plans (that is, defined benefit plans that provide ongoing accruals but that have been amended to limit those accruals to some or all of the employees who participated in the plan on a specified date) that generally meet the eligibility conditions for the relief provided in Notice 2014-5 ... Specifically, this notice provides that, if a plan satisfies the conditions specified in this notice, the plan is deemed to have satisfied certain of the nondiscrimination requirements relating to benefits, rights, and features....

"The temporary relief ... applies to defined benefit plans for which the relief under Notice 2014-5 (as extended) is available (except that eligibility for this relief does not depend on the method used to satisfy the nondiscrimination requirements for the plan year beginning in 2013)....

'The temporary relief ... applies for plan years ending after November 13, 2019, and beginning before January 1, 2021. Accordingly, the last plan year for which this relief applies is the same as the last plan year for which the relief under Notice 2014-5, as extended most recently by Notice 2019-49, applies.'

Internal Revenue Service [IRS]

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[Official Guidance]

Text of Treasury Department Letter Approving Sheet Metal Workers Local Pension Fund Application for Reduction of Benefits (PDF)

"Treasury has determined that the Plan is eligible to reduce benefits under MPRA and that your application satisfies the requirements of ... section 432(e)(9) ... as added by MPRA. This notification is not a final authorization to implement the benefit reduction described in your application.... [N]o reduction of benefits can take effect before a vote of the participants and beneficiaries of the Plan with respect to the proposed reduction."

U.S. Department of the Treasury

[Guidance Overview]

SEC Examines Mutual Funds, Money Market Funds and Target Date Funds

"On November 7, 2019, the SEC's Office of Compliance Inspections and Examinations (OCIE) published a Risk Alert highlighting the most often cited deficiencies and weaknesses observed in recent examinations of registered investment companies, including as related to national examination initiatives focusing on money market funds and target date funds."

Dorsey & Whitney LLP

[Guidance Overview]

IRS Proposes Updated Life Expectancy Tables for Required Minimum Distributions

"The current RMD life expectancy tables use (obsolete) individual annuity mortality tables plus individual annuity mortality improvement assumptions. The proposal takes a different approach, using an individual annuity mortality base scale but a general population mortality improvement scale. Using an individual annuity mortality improvement scale generally would produce even longer life expectancies (for RMD purposes) than does the approach taken by the proposal."

October Three Consulting

IRS Proposes Updated RMD Life Expectancy Tables for 2021

"[W]hen considering someone with an IRA valued at $1 million, the first year RMD would only decrease by roughly $2,100, and only a portion of that amount would have been due as taxes; the value of deferring that tax liability is only the growth potential on those taxes ... which are hardly amounts that could significantly alter someone's overall financial picture later in life[.]"

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Time to Issue Annual Retirement Plan Notices

"Now that the cost of living adjustments have been issued for 2020, it is time for plan sponsors to finalize and issue their annual notices to participants. The 401(k) safe harbor, qualified default investment alternative (QDIA), and automatic enrollment notices must all be sent to plan participants between 30-90 days before the beginning of the plan year (i.e., no later than December 2nd for calendar year end plans)."

Graydon Head & Ritchey LLP, via Lexology; free registration required

A Proposal to Strengthen the PBGC's Multiemployer Insurance Program Through a Combination of Premium Increases and Benefit Reductions

13 pages. "[This paper examines] a reform package designed to stabilize the [PBGC] guarantee fund without relying upon loans from the federal government.... [1] Any plan within 15 years of projected insolvency ... would be required to cut benefits to the level guaranteed by the PBGC.... [2] [PBGC coverage] would be 100% up to a benefit rate of $25, and 0% above that level.... [3] The existing 'flat' premium would be increased from $29 to $80 per participant per year ... [4] A variable rate premium would be introduced[.]"

The Pension Analytics Group

Population Aging, Implications for Asset Values, and Impact for Pension Plans: An International Study

"The Society of Actuaries is pleased to make available material for a multi-phased research effort investigating Population Aging and its impact on pension plans.... The researchers are looking at the use of an overlapping generations (OLG) model to model the impact of population structure on returns across asset classes. Several items are available[.]"

Society of Actuaries

Data and Simulations on Retirement Income Adequacy Among Low-Earning Households

"[The author presents] a simple model to calculate the household wealth and saving rates necessary for stylized earners to achieve income-specific retirement income replacement rate targets, net of scheduled Social Security benefits. For very low earners, roughly the poorest quintile of the earning distribution, little savings are necessary on top of Social Security."

Andrew G. Biggs, American Enterprise Institute, via SSRN

Why No Mandatory Retirement Age Exists for Physicians: Important Lessons for Employers

"Lawmakers and professional regulators, perhaps implicitly recognizing the arbitrariness and unfairness in mandatory age retirements, have imposed no such requirements for physicians who are employees. To the contrary, physician-employees may enjoy significant federal and state protections from age discrimination, and health care employers who may be tempted to require physician-employees to retire based on age would be strongly advised against doing so."

Missouri Medicine

Benefits in General

Fighting the Benefits Illiteracy Epidemic

"If employers can begin to empathize with employees' lack of understanding by providing consistent benefits training and education and empowering benefits engagement throughout the year, employees will be able to make more informed benefits decisions for themselves and their families."

HR Daily Advisor

Executive Compensation
and Nonqualified Plans

Prepping Your Clawback Policy for Prime Time

"Policies extending well beyond restatements are still a minority practice (outside of financial services). Now, however, compensation committees are asking, What tools will we need in the event of a scandal, particularly one causing reputational or financial harm short of a restatement? ... The primary area of change is the expansion of what triggers a clawback or forfeiture."

Meridian Compensation Partners, LLC

Equity Plan Participants Average Nearly $100,000 in Vested Stock; Less Than Half Have Ever Sold or Exercised Their Shares

"[T]he average vested value of U.S. workers' equity compensation is $97,711 and the average total value of their equity compensation is $149,835.... 41% of respondents have exercised or sold at least some of their equity compensation during their career. Their main reasons for selling included: Thinking market conditions were favorable (41%), Being fully vested and wanting to cash out (27%), and Wanting to make a large purchase (25%)."

Charles Schwab

Selected Discussions
on the BenefitsLink Message Boards

Match Formula Based on Compensation Bandwidths

"Plan sponsor wants to provide a greater match formula for lower paid participants. For example:

  1. Tier 1 -- if you make < $45,000 your match is 100% on 5%
  2. Tier 2 -- if you make > $45,000 < $75,000 your match is 75% on 5%
  3. Tier 3 -- if you make > $75,000 < $125,000 your match is 50% on 5%
  4. Tier 4 -- if you are a HCE your match is 25% on 5%

Let's assume the match is based on plan year comp (not funded per pay period) so at the end of the year you know which category each participant is in. If the plan passes BRF for both current availability and effective availability, then is this acceptable (pending ACP testing)? Is this type of match formula possible within the regulations? Our document allows for us to write in tiers, but I'm not sure that the tier section would cover compensation bandwidths."

BenefitsLink Message Boards

Ex-Spouse Is Entitled to Benefit But Won't Sign QDRO

"I have been divorced for 6 years. As part of our divorce settlement which was filed with the courts as part of our divorce paperwork, my ex is entitled to more than $100,000 from my teaching pension. In Pennsylvania, it is a state funded pension and can be taken out as lump sum (which I would have to do) or as a monthly benefit. Our mediator had a QDRO drafted by an independent company that specializes in drafting QDROs for Pennsylvania teachers. My ex refused to sign saying that it was not the correct amount and has refused to since. The mediator does not know how this will impact the QDRO. The pension system thinks he will be entitled to it, but hasn't faced this before. Help, please. Retirement is two years away..."

BenefitsLink Message Boards

Profit-Sharing Contributions Conditioned on Investment Direction for Deferrals?

"An individual-account retirement plan allows Section 401(k) contributions, provides matching contributions, and allows (but does not mandate) a non-elective contribution. Rather than set a default investment, the plan's sponsor would prefer to provide that a proper investment direction is a condition for a participant to share in a non-elective contribution. This would not be an exercise of a fiduciary's discretion; rather, the plan's sponsor would express the provision in the plan's governing document. In this employer's circumstances, excluding a few people from a non-elective contribution would not result in a failure under Internal Revenue Code Section 410(b) or Section 401(a)(4). Is there some other tax-qualification condition a plan might not meet because of this provision? Is there an ERISA mandate a plan might not meet because of this provision?"

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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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