Regulatory roundup

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

DOL files final rule on savings arrangements established by States for non-governmental employees
The Department of Labor (DoL) filed at the Federal Register a final rule entitled “Savings Arrangements Established by States for Non-Governmental Employees.” The final rule describes circumstances in which state payroll deduction savings programs with automatic enrollment would not give rise to the establishment of employee pension benefit plans under the Employee Retirement Income Security Act (ERISA).

The final rule provides guidance for states in designing such programs so as to reduce the risk of ERISA preemption of the relevant state laws. The final rule also provides guidance to private-sector employers that may be covered by such state laws. This rule affects individuals and employers subject to such state laws.

The final rule is effective 60 days after publication in the Federal Register. It is scheduled for publication on August 30, 3016.

To read the entire final rule, click here.

Proposed rule on savings arrangements established by States for non-governmental employees
The DoL filed a proposed rule entitled “Savings Arrangements Established by State Political Subdivisions for Non-Governmental Employees.” The proposed rule would amend a regulation that describes how states may design and operate payroll deduction savings programs, using automatic enrollment, for private-sector employees without causing the states or private-sector employers to establish employee pension benefit plans under ERISA. The proposed amendments would expand the current regulation beyond states to cover programs of qualified state political subdivisions that otherwise comply with the current regulation. This rule would affect individuals and employers subject to such programs.

Written comments should be received on or before 30 days after the date of publication in the Federal Register. Publication is scheduled for August 30, 2016.

To read the entire proposed rule, click here.

New procedure to help people making IRA and retirement plan rollovers
The IRS provided a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for properly rolling these amounts into another retirement plan or individual retirement arrangement (IRA).

IRS Revenue Procedure 2016-47 explains how eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. In addition, the revenue procedure includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver.

To read the entire revenue procedure, click here.
For more information on rollovers and transfers, click here and here.

Guidance for one-participant plan sponsors
One of the most common reasons why a retirement plan becomes an orphan plan is because the plan sponsor no longer exists. The IRS has published some information offering sponsors guidance on how to prevent orphan plans.

For more information, click here.

SEC adopts rules to enhance information reported by investment advisers
The Securities and Exchange Commission (SEC) adopted amendments to several Investment Advisers Act rules and the investment adviser registration and reporting form to enhance the reporting and disclosure of information by investment advisers. The amendments will improve the quality of information that investment advisers provide to investors and the Commission.

For more information, click here.

Not-for-profit reduces payroll using voluntary early retirement program

In his article “Reducing payroll without involuntary terminations,” pension actuary Zorast Wadia discusses how Milliman helped a not-for-profit client reduce its payroll through a voluntary early retirement program (VERP).

Here is an excerpt:

The client considered a VERP that offered numerous types of incentives, including:

• Additional years of service and/or age credits
• Cash payment(s)—for example, one or two weeks of pay for each year of service
• Additional benefits, such as an extension of health coverage
• “Bridge” payments, where employees are paid an annuity from their termination date to a fixed date (such as age 62 or 65). …

…The window was offered to participants who were age 57 or older with early retirement benefits being calculated as if retiring participants were two years older with an additional two years of service. The additional years of service reward participants retiring early with higher benefits while the additional age criteria results in a lower reduction in benefit for most of the participants in the window group who would be retiring early. The client decided against offering an extension of health coverage because this option was deemed too costly.

The client also decided to amend the early retirement provisions in the retirement plan for future retirees. The early retirement eligibility was lowered from age 60 with 20 years of service to age 58 with 10 years of service going forward. The client felt that these changes would allow for a more orderly retirement of the work force and help facilitate work force transitions better in the future. Thus, not only was the client able to continue rewarding its employees with a strong retirement program, it was also able to redesign the retirement program to accomplish its human resource objectives.

Approach 401(k) eligibility provisions strategically

Employers who take a strategic approach to defining eligibility provisions in a 401(k) plan can contain benefit costs, recruit and retain talent, simplify administration, and comply with regulations. In his article “Making participants out of employees via eligibility,” Milliman’s Noah Buck answers six strategic questions that plan sponsors should take into consideration. The excerpt below highlights two of the questions.

To what degree is the plan used to attract and retain talent?
A law firm does not want highly sought-after recruits joining a competing law firm down the road because they can enter the competing firm’s retirement plan sooner. Employers relying partially on their 401(k) plans for recruitment should consider that quicker and easier access to the plan will be more attractive to those in their prospective talent pools.

Are eligibility and entry date provisions cost-efficient with respect to turnover and vesting?
An organization’s turnover rate and average employee tenure are important to consider. A restaurant chain employing high-turnover wait staff will save cost and administrative energy by requiring employees to work six months before entering the plan instead of requiring one month.

It’s also important to consider the plan’s vesting provisions. If the plan has immediate vesting, the employer matching contributions — meant to supplement long-term retirement savings — could be going right out the door to short-term employees who are allowed to enter the plan too quickly. Employers should consider structuring eligibility and plan entry provisions so employer contributions are more likely to stay in-house with longer-term employees.

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.