GASB 73: Implementation and overview

GASB Statement 73 is for accounting and financial reporting for pensions not within the scope of GASB Statement 68, and applies for employer fiscal years beginning after June 15, 2016. GASB 73 applies to retirement plans (both defined benefit and defined contribution) that either do not have any dedicated assets associated with them or have assets that are not in a trust meeting certain requirements. With no assets in an irrevocable trust, the entire total pension liability is shown on the employer’s balance sheet under GASB 73.

Implementation of GASB 73 will result in required enhancements to financial statement disclosures by establishing a single framework for the presentation of information about pensions, which will enhance the comparability of pension-related information reported by employer and non-employer contributing entities. Milliman’s Jack Chmielewski provides perspective in this PERiScope article.

Retirement income considerations

The latest issue of Milliman’s Benefit Perspectives features two articles that focus on 401(k) plans and retirement income. “Helping employers in their retirement: 401(k) decisions, decisions, decisions!” by Jinnie Olson explores options employers can implement to help employees access retirement savings. A second article, “Helping 401(k) plan participants calculate withdrawal rates in retirement,” by Matt Kaufman, focuses on calculating withdrawal rates in retirement.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

DOL issues ERISA fiduciary advisor
The Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) has published the ERISA Fiduciary Advisor. The ERISA Fiduciary Advisor provides information and answers to a variety of questions about who is a fiduciary and their responsibilities under the Employee Retirement Income Security Act (ERISA). This Advisor was developed by the EBSA in its continuing effort to increase awareness and understanding about basic fiduciary responsibilities when operating a retirement plan.

For more information, click here.

IRS issues draft Instructions for Forms 1094-C and 1095-C
The IRS released draft Instructions for 2016 Form 1094-C and 1095-C with new revisions. On Form 1094-C, line 22, box B is designated “Reserved.” The Qualifying Offer Method Transition Relief is not applicable for 2016. In Part III, column (b), “Section 4980H” was inserted before “Full-Time Employee Count for ALE Member” to remind filers that the section 4980H definition of “full-time employee” applies for purposes of this column, not any other definition that an ALE Member may use for other purposes. On Form 1095-C, the language “Do not attach to your tax return. Keep for your records.” was inserted under the title of the form to inform the recipient that Form 1095-C should not be submitted with the return.

To download the draft instructions, click here.

IRS issues draft Instructions for Forms 1094-B and 1095-B
The IRS released draft Instructions for 2016 Form 1094-B and 1095-B with new revisions. The language “Do not attach to your tax return. Keep for your records.” was inserted on the Form 1095-B under the title of the form. Form 1095-B, Part I, lines 2 and 3, and Part IV, columns (b) and (c) were updated to reflect the rule that a taxpayer identification number (TIN) may be entered. Form 1095-B, line 9 is now reserved. The heading to Part II was revised to read “Information about Certain Employer-Sponsored Coverage” to clarify that Part II will be blank or some individuals with employer-sponsored coverage. Other minor clarifying changes were made to Form 1095-B.

To download the draft instructions, click here.

IRS revises Form 8717
The Internal Revenue Service revised 2016 Form 8717 (Determination Letter Request User Fee) and Form 8717-A (Opinion or Advisory Letter Request User Fee). The new form has been revised so that it does not contain specific user fee amounts. One must now enter the appropriate user fee when completing line 5 of the Form and the IRS has indicated that the amounts and number of forms submitted on line 5 of Form 8717 revised in August 2014) should not be used. One should now use the following fee schedule to determine the user fee for employee plan determination letter requests mailed to the IRS on or after February 1, 2016.

Revenue Procedure 2016-8 changed the fee schedule shown on lines 5a and 5b of Form 8717-A. Do not use the applications and fee schedule shown on lines 5a and 5b of Form 8717-A (Rev. August 2014) to determine the appropriate user fee. Instead, use the following updated schedule to determine the user fee for Form 8717-A mailed to the IRS on or after February 1, 2016.

For more information, click here.

IRS proposes deferred compensation rule for governmental and tax-exempt entities

The IRS has issued a long-awaited proposed rule on nonqualified deferred compensation plans (NDCPs) maintained by tax-exempt organizations (other than churches and certain church-controlled entities) and state and local governments. The proposed rule provides guidance for plan sponsors in determining when amounts are includible in employees’ incomes, the amounts that are includible, and the types of arrangements that are not subject to the requirements of tax code section 457. The proposed rule, which plan sponsors may rely upon immediately, also aligns the requirements for 457(f) plans with section 409A NDCPs. However, this Client Action Bulletin focuses on what many plan sponsors and participants may consider the most significant portion of the proposed rule: the expanded definition of a “substantial risk of forfeiture” (SROF) in 457(f) plans.

Milliman adds Jacobs Management Corporation as retirement services client

I’m happy to announce that Milliman has added Jacobs Management Corporation as a defined contribution client. Jacobs Management Corporation is a privately held corporation which includes FLW, LLC, a premier tournament fishing organization; The J.R. Watkins Company, America’s original apothecary manufacturer; Larson Boats, best known for their experience in quality boat manufacturing; Marquis Yachts, a builder of luxury and sport yachts; and Jacobs Trading Company, a recognized leader in the closeout trading industry.

David Mahler, Vice President-Treasurer at Jacobs Management Corporation, says, “We chose Milliman for their reputation as a trusted service provider who values commitment to client service. In addition, the website is user friendly and includes robust tools to assist participants in planning for retirement. Partnership with providers is critical, and Milliman’s unique ability to design services and systems to meet the needs of all of our companies was a strong factor in our decision making.”

At Milliman we believe most plan sponsors want strong service and a commitment to the industry, not just a low-cost or product-oriented sales pitch. Our focus is to provide superior service and value that exceeds our clients’ expectations. Jacobs Management Corporation recognized this when they chose Milliman as their provider, and we look forward to an enduring relationship with them.

Milliman will provide recordkeeping, administration, communications and compliance services for the Jacobs Group 401(k) Plan. Advanced Capital Group, headquartered in Minneapolis, assisted with the recordkeeper search and is the independent investment advisor providing consulting services for the plan.

For more information about Milliman’s employee benefit services, click here.

Record-low interest rates drive another increase in the pension funding deficit

Wadia_ZorastMilliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In July, these pension plans experienced a $5 billion decrease in funded status due to a $29 billion increase in in pension liabilities that eclipsed a strong month for asset returns. The funded status for these pensions was essentially flat, shifting from 75.6% to 75.7%.


Everyone is thinking about records this week with the Olympics underway, but a record-low discount rate is not something these pensions will be applauding. The discount rate’s plunge to 3.33% blew away the prior record of 3.41% from January of 2015. Year-to-date, these low rates have contributed to a $186 billion increase in pension liabilities.

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.58% by the end of 2016 and 4.18% by the end of 2017) and asset gains (11.2% annual returns), the funded ratio would climb to 80% by the end of 2016 and 92% by the end of 2017. Under a pessimistic forecast (3.08% discount rate at the end of 2016 and 2.48% by the end of 2017 and 3.2% annual returns), the funded ratio would decline to 73% by the end of 2016 and 66% by the end of 2017.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

CBO report offers considerations to improve the financial condition of PBGC’s multiemployer program
The Congressional Budget Office (CBO) released the report “Options to Improve the Financial Condition of the Pension Benefit Guaranty Corporation’s Multiemployer Program.” The 35-page report projects future claims on the program and losses to its beneficiaries and analyzes potential policy changes.

According to the report, some options, such as providing federal funding to PBGC, would be effective at helping plans that are facing insolvency in the near term. Other options, such as restricting plans’ investments in risky assets, would help prevent currently well-funded plans from becoming underfunded in the future but would have a limited effect on plans facing insolvency in the near term.

To download the entire report, click here.

Correcting required minimum distribution failures
The IRS has published information on correcting required minimum distribution failures on its website. Plan sponsors can use the Employee Plans Compliance Resolution System (Rev. Proc. 2013-12, as modified) to voluntarily correct the mistake of not making required minimum distributions (RMDs) under Internal Revenue Code Section 401(a)(9) to affected participants and beneficiaries.

For more information, click here.

IRS releases draft instructions for 2016 Forms 1094-C and 1095-C
The IRS released the draft instructions for the 2016 Form 1094-C and Form 1095-C. IRS 1094-C and 1095-C are filed by applicable large employers. The new draft C Form instructions generally follow the final 2015 instructions, but contain some important clarifications and additions.

To download the draft instructions, click here.

Pokémon Go to the bank

O'Brien-ShaneIn what has already been deemed the most popular mobile video game of all time by SurveyMonkey, Pokémon Go perfectly illustrates the power of mobile devices in today’s world. The game, released on July 6, has been downloaded over 15 million times and is being used an average of 43 minutes per day on Android devices. In fact the game itself added $8.2 billion to Nintendo’s market value in just five days following its release, so to say that it has gone viral would be a severe understatement. The object of the game is simple: “Catch ‘em all.” The game uses an overlay of Google Maps to track your movement and, as you walk around town, different fictional animals appear on your device. You, the player, try to catch them.

You may be asking yourself, “What does this have to do with the price of tea in China?” Or to be more accurate, “What does this have to do with 401(k) recordkeeping?” Short of creating a similar augmented reality app that requires participants to check their 401(k) balances or enter beneficiaries in order to catch one of the aforementioned creatures, there isn’t an obvious correlation. It all boils down to the underlying principle of gamification, which refers to the ability to use elements of game-playing, including video games, to influence human behavior. The application of this can be seen across many platforms and service providers from fitness trackers to education. In education, certain devices and games can be used to increase engagement in the classroom and help with long-term retention, which is due to the chemical dopamine being released in the students’ brains as they play. Just as gamifying the classroom can have a profound effect on learning, so too can it help employees reach their financial goals.

Money magazine points out that much of how we handle personal finances is already set up like a game, such as earning credit card points or boosting a credit score. This same principle could be applied to preparing employees for retirement, either by gamifying employee training with augmented reality devices that employ similar technology to that of Pokémon Go, or by leveraging mobile apps that give rewards to participants who use them. I’m not suggesting that if companies simply place fantastic, imaginative creatures into their employee benefits platforms, all of their employees’ financial problems will be solved. Rather, I believe it is a way to shift the paradigm of planning for retirement and increase preparedness across multiple generations. A recent study by Employee Benefit Research Institute, an organization focused on providing research and education on employee benefits programs, found that 54% of workers surveyed reported having less than $25,000 saved or invested for retirement. If there is a way to gamify the recordkeeping and administration of employee benefit plans, shouldn’t we make every effort possible to do so in order to help our employees and our clients’ employees be better prepared? The smartphone and mobile gaming revolution has provided businesses with opportunities to do just that.

Take the mobile app SaveUp, for example, which encourages people to save money and pay down debt. It does this by rewarding each person with credits every time they deposit money into a savings account or make a payment on debt. Those credits can in turn be used to enter raffle-style drawings for different prizes every day. These drawings include a monthly $2 million jackpot and a weekly $500 drawing, among other prizes. According to SaveUp’s CEO, these initiatives have led to over $150 million being deposited into savings accounts or used to pay off debt since the company was founded in 2010. Another similar program, called Save to Win, was launched in credit unions throughout Michigan in 2009 and led to almost $9 million in savings that year alone. These extrinsic reward programs encourage positive financial behaviors and have proven to help people become more fiscally responsible as a result.

Gamification will no doubt continue to be a powerful tool, whether it’s used for stimulating young minds, engaging people in their finances, or helping employees prepare for retirement. If personal finance apps such as these can garner even a fraction of the popularity that Pokémon Go has, it stands to reason that we can make serious headway in paying down the trillions of dollars Americans currently owe in debt and save more toward retirement.

Spot rate approach implemented for a plan using a custom bond model

Many defined benefit (DB) plan sponsors have recently changed their pension cost recognition strategy to the spot rate approach. In this article, Milliman’s Chris Jasperson and Christopher Wood explain how the firm helped one company implement this alternative approach. The case was unique because the company used a bond matching method to set its discount rate. Milliman helped it produce a yield curve from its custom bond portfolio. The company then used the custom yield curve to calculate its pension liability and interest cost.

For more perspective on the spot rate approach, read Maria Moliterno’s blog post “Spot rate methodology: Plans are making the switch.”

IRS proposes additional guidance for nonqualified deferred compensation under 409A

Concluding that clarifications and modifications could help taxpayers comply with the requirements applicable to nonqualified deferred compensation plans (NDCPs) under tax code section 409A, the Internal Revenue Service (IRS) issued additional guidance in the form of a proposed rule. Compliance with the 409A requirements enables individuals covered by and employers sponsoring NDCPs to avoid adverse tax treatment of the amounts payable under these arrangements. The proposed rule, which taxpayers may rely upon immediately, is lengthy and complex, covering a diverse range of topics, most of which are beyond the scope of this Client Action Bulletin, which focuses on four key areas that may have the broadest application to NDCP sponsors.