Retirement Plans Newsletter

August 12, 2020

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[Official Guidance]

Text of IRS Announcement 2020-14: Changes to User Fees for Certain Letter Ruling and Determination Letter Requests (PDF)

"Rev. Proc. 2021-4, effective on January 4, 2021, will reflect increased user fees for the following types of letter ruling and determination letter requests currently listed in Appendix A of Rev. Proc. 2020-4:

  • Letter ruling request for Five-Year Automatic Extension of the Amortization Period: current $1,000, effective Jan. 4, 2021: $6,500.
  • Form 5300 (Application for Determination for Employee Benefit Plan): current $2,500; effective Jan. 4, 2021: $2,700.
  • Form 5307 (Application for Determination for Adopters of Modified Volume Submitter Plans): current $800; effective Jan. 4, 2021: $1,000.
  • Form 5310 (Application for Determination for Terminating Plan): current $3,000; effective Jan. 4, 2021: $3,500.

Internal Revenue Service [IRS]

[Guidance Overview]

Editor's PickIRS CARES Act Guidance for DB Plan Funding and AFTAP Provides Little Relief

"Notice 2020-61 addresses many of the outstanding implementation issues, but makes few concessions for other deadlines that coordinate with the contribution due date.... Interest calculation clarified ... No extension on Form 5500 filing due date ... PBGC filing due date also unchanged ... No extension for deducting contributions ... Some credit balance election due dates extended ... 2020 AFTAP likely still necessary ... Written election required ... Elections for noncalendar-year plans ... Interaction of lookback AFTAP with certified AFTAP ... Additional guidance still needed on liquidity requirements."

Mercer

[Guidance Overview]

IRS Issues CARES Act Guidance for Single-Employer DB Plans

"Many plan sponsors are considering taking advantage of the extended due date for the 2020 calendar year required contributions.... [1] Contribution amounts will be increased ... [2] An amended Form 5500 filing will be required.... [3] The audit report may need to be updated ... [4] The contribution deadline applies to excess contributions ... [5] AFTAP certification for 2020 may be lower ... [6] Prefunding Balance elections are also delayed ... [7] A Plan Sponsor may use the prior year AFTAP certification for any plan year occurring in 2020 ... [a] The election can be used for a 2019 plan year ... [b] Plan Sponsors must make the election ... [c] Election by the Plan Sponsor is a recertification ... [d] Presumptive AFTAP for the following year is based on the actual AFTAP."

Findley

[Guidance Overview]

IRS Provides Updated Model 402(f) Notices -- for SECURE Act Changes That Do Not Necessitate a 402(f) Notice!

"[T]he new 402(f) Notices ... update the two safe harbor explanations provided ... in IRS Notice 2018‑74, to reflect ... [1] The new exception to the 10 percent early withdrawal tax for in-service qualified birth or adoption distributions; and [2] The increase in age ... for required minimum distributions for employees born after June 30, 1949. Although [Notice 2020-62] contemplates coronavirus-related distributions, the 402(f) Notices do not reflect any changes in connection with those distributions."

Hall Benefits Law

[Guidance Overview]

Editor's PickText of IRS Pub. 5411: Retirement Plans Reporting and Disclosure Requirements (PDF)

16 pages, rev. Jul. 2020. "This Retirement Plans Reporting and Disclosure Requirements guide was prepared by the IRS as a quick reference tool for certain basic reporting and disclosure requirements for retirement plans under the Internal Revenue Code and provisions of [ERISA] administered by the IRS. ... The [DOL] and the [PBGC] reviewed the parts of the guide that concerns provisions the agencies jointly administer. This guide should be used in conjunction with the DOL Reporting and Disclosure Guide for Employee Benefit Plans."

Internal Revenue Service [IRS]

Using a Plan Administration Expense Account as Part of a Governmental Agency's 457(b) or 401(a) Plan

"Reimbursements of plan expenses already paid by the employer need to be carefully documented and must be made soon after they have been paid -- paid years ago can't be reimbursed. Amounts that are held in a separate account (unallocated) from participant accounts must be properly utilized or reallocated back to participant accounts by plan year-end. Even though the category of expense (e.g., plan audit fees) may be clearly administrative, the amount of the payment or reimbursement must be reasonable and appropriate to the services provided. Like any other fiduciary decision, procedural prudence dictates that each payment and reimbursement be carefully considered, by the right persons, and properly documented."

Best Best & Krieger LLP

District Court Finds 401(k) Participants Proved No Harm from Lack of Stable Value Fund

"A more than four-years-long lawsuit arguing American Airlines should have offered a stable value fund in its 401(k) plan rather than the AA Credit Union Fund has ended with a federal judge granting summary judgment to American Airlines." [Ortiz v. American Airlines, No. 16-151 (N.D. Tex. Aug. 5, 2020)]

planadviser

Treasury Department Letter Denying Application for Benefit Suspension by American Federation of Musicians and Employers Pension Fund (PDF)

"After reviewing the Application and consulting with PBGC and DOL, Treasury has determined that the suspension described in the Application fails to satisfy the requirement set forth in MPRA 'that the proposed benefit suspensions, in the aggregate, be reasonably estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency.' Specifically, Treasury has determined that the mortality rate assumption and the new entrant assumption are not reasonable under the standards in the regulations. Treasury's key findings are described [in this letter]."

U.S. Department of the Treasury

Treasury Department Letter Approving MPRA Benefit Reductions Proposed by Bricklayers and Allied Craftsmen Local 7 Pension Fund (PDF)

"In consultation with the [DOL] and the [PBGC], Treasury has determined [1] that the Plan is eligible to reduce benefits ... [2] that the Application satisfies the requirements of ... section 432(e)(9) of the Internal Revenue Code ... Pursuant to Code section 432(e)(9)(H), no reduction of benefits can take effect before a vote of the participants and beneficiaries of the Fund with respect to the proposed reduction."

U.S. Department of the Treasury

Treasury's Rejection of MPRA Benefit Cut Applications Perplexes Actuarial Firm

"[T]he Segal leaders say it is not abnormal for stressed union benefit cut applications to be denied under MPRA's rules. In fact, ... it took until 2016 for the first proposal to win approval by the Treasury. What they say is different in this case is that the Treasury staff has seemingly decided to simply change their expectations for how benefit cut plans are generated -- not based on any actual piece of legislation, regulation, interpretation or guidance."

planadviser

Fiduciary Update, August 2020

"[This article] looks at recent developments on cases, decisions, and settlements alleging the overpayment of fees and the retention of underperforming investments in 401(k) plans. [It] also provides perspective on why ESG investments are getting increased attention, the latest in participant suits filed to recover cyberlosses, and more."

CAPTRUST

[Opinion]

Proposed Changes to DOL Regs on ESG and Other Investments by Fiduciaries: What You Should Know and How The Wagner Law Group Responded

"The proposed rule ... goes beyond its stated objectives to affect how fiduciaries make all investment decisions.... In addition, the Proposed Rule would require fiduciaries to consider 'available alternative investments' in making investment decisions, without guidance as to what this would mean, and without recognizing that the best practice of comparing investment alternatives is not universally applicable to all circumstances.... The Proposed Rule does not define ESG Factors."

The Wagner Law Group

Executive Compensation
and Nonqualified Plans

More North American Companies Expressing Interest in ESG Measures for Executive Pay Programs

"Just over a quarter of survey respondents (27%) currently include ESG metrics in their executive incentive plans either as a separate performance measure, a modifier or both. Another 2% plan to include ESG measures in their plans next year, while an additional 27% are considering adding them over the next three years."

Willis Towers Watson

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SECURE Act -- Removal of Employer Safe Harbor Notice Requirement

"Per the SECURE Act, safe harbor nonelective plans no longer need to provide the annual safe harbor notice every year. So, for plan that provided notice in 2018 for 2019, no notice will be provided in 2019 for 2020. Does that make the safe harbor nonelective contribution optional because no notice was provided that it is indeed being contributed?"

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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2020 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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