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Will the proposed overtime pay changes affect your retirement plan compensation?

July 30th, 2015 No comments

Smith-SuzanneThe Department of Labor (DOL) announced a proposed rule on July 6, 2015, that would change who qualifies for overtime pay.

Today, only 8% of salaried workers qualify for overtime pay ─ those workers who earn less than $23,660. The proposed rule will extend overtime pay to salaried workers who earn less than about $50,440 next year. The proposed change is estimated to cover 4.6 million workers, more than the current regulations.

What does this mean for the retirement plans of employers who will be affected by this proposed rule?

While many employers use gross compensation or total pay for retirement plan purposes, some employers provide retirement benefits only on base pay, excluding additional pay such as overtime, bonuses, or premiums for shift differentials.

Generally, excluding overtime pay for retirement plan purposes is okay if the plan’s definition of compensation passes nondiscrimination testing.

Nondiscrimination testing on compensation is done by comparing the average includible compensation for highly compensated employees (HCEs) to the average includible compensation for non-highly compensated employees (NHCEs). If the HCE average percentage exceeds the NHCE average percentage by more than a de minimis amount, the plan will fail the test. A de minimis amount is generally thought to be no more than 3%, but there is no formal guidance so plan counsel should be involved.

2015 Example: Plan excludes overtime pay and bonuses from plan compensation.

HCE Average Includible Compensation 95%
NHCE Average Includible Compensation 93%
PASS

Because the HCE average inclusion percentage exceeds the NHCE average inclusion percentage by no more than 3%, the plan passes the test.

But what happens next year if many of the NHCE participants are suddenly eligible for overtime pay? The increase in excludable overtime pay will cause the NHCE inclusion ratio to drop, and the disparity between HCE and NHCE includible compensation will exceed 3%– and thus fail the test.

2016 Example: Plan excludes overtime pay and bonuses from plan compensation.

HCE Includible Compensation 95%
NHCE Includible Compensation 86%
FAIL

Because the HCE average inclusion percentage exceeds the NHCE average inclusion percentage by more than 3%, the plan fails the test.

Failed testing is never good. More complex testing would have to be done, and the plan may have to take corrective action if the complex testing doesn’t pass.

Employers with salaried workers who would qualify for overtime under the proposed changes will want to check their retirement plan compensation definition and keep an eye on what happens with the proposed overtime regulations.

Interested parties can submit comments on the proposed rule at www.regulations.gov (RIN: 1235-AA11) on or before September 4, 2015. The department is expected to make a final rule next year.

Regulatory roundup

July 28th, 2015 No comments

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

IRS announces changes to determination letter program for qualified retirement plans
The Internal Revenue Service (IRS) has issued Announcement 2015-19, describing important changes to the determination letter program for qualified retirement plans.

The changes outlined will eliminate the staggered 5-year determination letter remedial amendment cycles for individually designed plans and will limit the scope of the determination letter program for individually designed plans to initial plan qualification and qualification upon plan termination. The announcement also provides a transition rule with respect to the remedial amendment period for certain plans currently on the 5-year cycle.

The IRS is requesting comments on specific issues relating to the implementation of these changes to the determination letter program.

To read the entire announcement, click here.

PBGC issues proposed rule to amend annual financial-actuarial information reporting
The Pension Benefit Guaranty Corporation (PBGC) is proposing to amend its regulation on annual financial and actuarial information reporting to codify provisions of the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Highway Transportation and Funding Act of 2014 (HATFA-14) and related guidance that affect reporting under ERISA section 4010.

PBGC is proposing to limit the reporting waiver under the current regulation tied to aggregate plan underfunding of $15 million or less to smaller plans and to add reporting waivers for plans that must file solely on the basis of either a statutory lien resulting from missed contributions over $1 million or outstanding minimum funding waivers exceeding the same amount (provided the missed contributions or funding waivers were previously reported to PBGC). The proposed rule also makes some technical changes.

To read the entire proposed rule, click here.

IRS updates guidance and FAQs for pre-approved retirement plan
The IRS has updated its guidance and frequently asked questions (FAQs) for employers adopting pre-approved retirement plans. The guidance and FAQs were updated after the Service issued:

• Rev. Proc. 2015–36, which sets forth the procedures for issuing opinion and advisory letters regarding the acceptability under §§ 401, 403(a), and 4975(e)(7) of the Internal Revenue Code (Code) of the form of pre-approved plans (that is, master and prototype and volume submitter plans)

• Announcement 2015-16, on the issuance of opinion and advisory letters for pre-approved defined contribution plans for the second six-year cycle, deadline for employer adoption, and opening of determination letter program for pre-approved plan adopters.

To read the FAQs, click here.

The guidance is available at the following links:

Types of pre-approved retirement plans

Deadline extended for pre-approved defined benefit plans

Preapproved plan submission procedures

DOL web page houses comment letters related to conflicts of interest rule
The Department of Labor (DOL) has a web page containing submitted comment letters on the fiduciary definition, conflicts of interest rule, which was re-proposed on April 14, 2015. The comment period closed on July 21, 2015.

To read the comment, click here.

Categories: Benefit News Tags: , , ,

Regulatory roundup

July 20th, 2015 No comments

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

IRS releases Revenue Procedure concerning pre-approved plans
The IRS published Revenue Procedure 2015-36, providing procedures of the Internal Revenue Service for issuing opinion and advisory letters regarding the acceptability under §§ 401, 403(a), and 4975(e)(7) of the Internal Revenue Code (Code) of the form of pre-approved plans (that is, master and prototype (M&P) and volume submitter (VS) plans).

To read the IRS’ official statement, click here.

DOL releases Field Assistance Bulletin related to defined contribution plans
The Department of Labor (DOL) has issued Field Assistance Bulletin (FAB) 2015-02, Selection and Monitoring under the Annuity Selection Safe Harbor Regulation for Defined Contribution Plans. The FAB provides clarification of plan sponsors’ fiduciary obligations concerning annuity product selection for defined contribution plans.

The purpose of the FAB is to provide guidance regarding these issues, including the application of ERISA’s statute of limitations to claims relating to annuity selection, and assist the Employee Benefits Security Administration’s national and regional offices in responding to questions from employers and other interested parties.

To read the entire FAB, click here.

JCT issues present law and background information on federal excise taxes
The Joint Committee on Taxation released the report entitled “Present law and background information on federal excise taxes” (JCT Report JCX-99-15). The document provides a description of present-law federal excise taxes, and when applicable, background information on trust funds financed with excise tax revenues.

The document contains information on excise taxes relating to employee pension and benefit plans and excise taxes related to healthcare.

To entire report can be downloaded here.

Regulatory roundup

July 14th, 2015 No comments

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

SEC guidance on the terms ‘spouse’ and ‘marriage’ following United States v. Windsor
The Securities and Exchange Commission (SEC) is publishing interpretive guidance to clarify how the Commission will interpret the terms “spouse” and “marriage” in response to the Supreme Court’s ruling in United States v. Windsor.

In light of the Supreme Court decision on Windsor, the Commission will read the terms “spouse” and “marriage,” where they appear in the federal securities statutes administered by the Commission, the rules and regulations promulgated thereunder, releases, orders, and any guidance issued by the staff or the Commission, to include, respectively, (1) an individual married to a person of the same sex if the couple is lawfully married under state law, regardless of the individual’s domicile, and (2) such a marriage between individuals of the same sex. This guidance is consistent with Windsor.

For more information, click here.

Senate Finance Committee releases memo from tax reform working group
The Senate Finance Committee’s Tax Reform Working Group released a memorandum on July 8 that provides an overview of the data related to retirement plan access and participation. The report addresses current law, the questions the group sought to address based on some shortcomings identified with current law, and some concepts and proposals the group has identified that seek to address these shortcomings.

The Savings and Investment Working Group has jurisdiction over the tax treatment of capital gains and dividends, financial products, defined benefit pension plans, and private retirement savings accounts.

Among the proposals cited in the report were enabling the formation of multiple employer plans, creating safe harbors for small businesses to offer retirement plans, allowing part-time workers to enroll in plans, making benefits more portable and addressing leakage. The group also called for clarifying rules for church-sponsored retirement plans.

The entire report can be downloaded here.

SEC Investor Advocate issues annual report
The SEC’s Office of the Investor Advocate has published the report entitled “Report on objectives: Fiscal year 2016.”

To read the entire report, click here.

GAO issues a report on financial literacy in the workplace
The Government Accountability Office (GAO) published a report entitled “Financial literacy: The role of the workplace.” The report provides a summary of the discussion of a forum on financial education in the workplace, which was held on March 17, 2015. The following subjects were discussed:

• The role of the employer in promoting financial literacy
• The effectiveness of such efforts
• How best to serve low-income and other underserved populations
• The federal government’s role in supporting these efforts

To read the entire report, click here.

Bureau of Labor Statistics publishes article on savings and thrift plans
The Bureau of Labor Statistics’ latest edition of Beyond the Numbers looks at the growth in the prevalence of employer-provided savings and thrift plans in private industry in the United States.

To read the entire article, click here.

U.S. Supreme Court rules in favor of same-sex marriages and the Affordable Care Act subsidies

July 3rd, 2015 No comments

The U.S. Supreme Court has handed down decisions on two significant cases that have direct or indirect implications for employer-sponsored retirement and healthcare benefit plans. This Client Action Bulletin summarizes these cases of interest for employers that sponsor such plans.

Regulatory roundup

June 29th, 2015 No comments

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

Supreme Court rules state bans on same-sex marriage are unconstitutional
The U.S. Supreme Court held that the 14th Amendment requires a state to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when a marriage was lawfully licensed and performed out of state.

To read the court’s opinion paper, click here.

Census releases quarterly survey of public pension funds
The U.S. Census released the 2015 1st Quarter Survey of Public Pension Funds. The 100 largest U.S. public employee retirement systems had $3.398 trillion in assets as of March 31, a 1.6% increase from three months earlier, according to the survey. The increase was due primarily to $80.2 billion in earnings on investments and $34.3 billion in contributions, partially offset by $61.8 billion in benefit payments in the first quarter.

To read the entire survey, click here.

SEC establishing retirement project
The U.S. Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (OCIE) is launching a multiyear Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative.

OCIE, through the National Examination Program (NEP), will conduct examinations of SEC-registered investment advisers and broker-dealers (collectively, registrants) under the ReTIRE Initiative that will focus on certain higher-risk areas of registrants’ sales, investment, and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed.

For more information, click here.

Regulatory roundup

June 23rd, 2015 No comments

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

IRS releases temporary and proposed regulations on suspension of MPRA benefits
The Internal Revenue Service (IRS) has released temporary regulations on suspension of benefits under the Multiemployer Pension Reform Act (MPRA). These temporary regulations affect multiemployer pension plans that are projected to have insufficient funds, at some point in the future, to pay the full benefits to which individuals will be entitled under the plans (referred to as plans in “critical and declining status”).

To read the temporary regulations, click here.
To read the proposed regulations, click here.

IRS releases procedures for multiemployer pension plans in critical and declining status
The IRS has released Revenue Procedure 2015-34, which describes procedures for a multiemployer defined benefit plan in critical and declining status to apply for approval of a proposed suspension of benefits under § 432(e)(9).

The revenue procedure provides that the U.S. Department of the Treasury will accept applications beginning June 19, 2015. The revenue procedure is being issued in conjunction with temporary and proposed regulations providing guidance on benefit suspensions. Section 432(e)(9) was amended by Section 201 of the Multiemployer Pension Reform Act of 2014, Division O of the Consolidated and Further Continuing Appropriations Act, 2015, Public Law 113-235 (128 Stat. 2130 [2014]).

To read Revenue Procedure 2015-34, click here.

PBGC releases interim final rule on partitions of eligible multiemployer plans
The Pension Benefit Guaranty Corporation (PBGC) has issued an interim final rule prescribing the application process and notice requirements for partitions of eligible multiemployer plans under Title IV of ERISA, as amended by the Multiemployer Pension Reform Act of 2014 (MPRA).

The interim final rule is published pursuant to Section 122 of MPRA in order to carry out the provisions of Section 4233 of ERISA. PBGC is soliciting public comments on the interim final regulation.

To learn more about the interim final rule, click here.

FASB issues technical corrections and improvements
The Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) No. 2015-10, Technical Corrections and Improvements. The amendments contained in this ASU include items raised to the Board through the codification’s feedback mechanism.

Regarding employee benefits, the ASU contains:

• Amendments to Subtopic 715-30, Compensation—Retirement Benefits—Defined Benefit Plans—Pension (p. 25)
• Amendments to Subtopic 715-80, Compensation—Retirement Benefits—Multiemployer Plans Disclosure (p.26)
• Amendments to Subtopic 718-40, Compensation—Stock Compensation—Employee Stock Ownership Plans (p. 27-33)

To read the entire ASU, click here.

IASB proposed narrow-scope amendments to pension accounting standards
The International Accounting Standards Board (IASB) proposed narrow-scope amendments to pension accounting standards. The proposed changes are included in an exposure draft entitled “Remeasurement on a plan amendment, curtailment or settlement/availability of a refund from a defined benefit plan.”

When a defined benefit plan is amended, curtailed, or settled during a reporting period, the entity needs to update the assumptions about its obligation and fair value of its plan assets to calculate costs related to these changes. The proposed amendments to IAS 19 Employee Benefits specify that the entity is required to use the updated information to determine current service cost and net interest for the period followed by these changes.

To read the entire exposure draft, click here.

Regulatory roundup

June 15th, 2015 No comments

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

IRS issues guidance expanding preapproved determination letter program
The Internal Revenue Service (IRS) has issued Revenue Procedure 2015-36, which expands the scope of the preapproved program to include defined benefit plans containing cash balance features and defined contribution plans containing employee stock ownership plan (ESOP) features and extends the deadline for submitting on-cycle applications for opinion and advisory letters for preapproved defined benefit plans to October 30, 2015.

In addition, this revenue procedure updates Rev. Proc. 2011-49 to reflect changes made to the determination letter program in 2012. Rev. Proc. 2011-49 is superseded.

Revenue Procedure 2015-36 will appear in IRB 2015-25 dated June 22, 2015.

To read the entire Revenue Procedure, click here.

SSA issues final rule on 60-month period of employment requirement for government pension offset exemption
The Social Security Administration (SSA) has issued a final rule that adopts, with clarifying changes, the proposed rule previously published in the Federal Register on August 3, 2007. This final rule revises the SSA’s Government Pension Offset (GPO) regulations to reflect changes to the Social Security Act (Act) made by section 9007 of the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987) and Section 418 of the Social Security Protection Act of 2004 (SSPA). These regulations explain how and when the SSA will reduce the Social Security spouse’s benefit for some people who receive federal, state, or local government pensions if Social Security did not cover their government work.

To read the entire final rule, click here.

IRS updates listing of required modifications for cash balance and employee stock ownership plans
The IRS has published a collection of information packages designed to assist sponsors who are drafting or redrafting plans to conform with applicable law and regulations related to cash balance and employee stock ownership plans.

Document release: ERISA Form 8955-SSA, 2-D Barcode Standards
This document covers only the 2D barcode on ERISA Form 8955-SSA, valid for plan years 2009 to 2011. The 2D barcode is intended to represent the information on the paper form. Barcodes for this form are generated from two sources:

  • The IRS Form 8955-SSA Fill-able PDF produces a barcode after printing the form in Adobe.
  • The approved software vendors for Form 8955-SSA produce a barcode when printing their forms from their software packages.

To read the entire document, click here.

IRS explanation, worksheet (alert guidelines), and deficiency check sheets
The IRS has issued three explanations, worksheets (alert guidelines), and deficiency check sheets:

IRS posts nonqualified deferred compensation audit techniques guide
The IRS has posted a guide on nonqualified deferred compensation audit techniques. The guide provides:

  • An overview
  • Audit potential
  • Compliance focus
  • General audit steps

To access the guide, click here.

IRS issues latest Employee Plans News
The IRS has issued the June 10, 2015, edition of its newsletter Employee Plans News. The latest edition contains the following content:

  • Preapproved plan program expanded to include cash balance plans and ESOPs
  • Sample plan language (listings of required modifications) for ESOPs, and cash balance and 403(b) plans
  • Guidance for permanent program for late 5500EZ filers
  • IRS Nationwide Tax Forums begin in July
  • Changes to Forms 5500 for 2014
  • IRS names seven new members to Advisory Committee on Tax Exempt and Government Entities (ACT) panel
  • Updated Voluntary Correction Program fee chart

To read the newsletter, click here.

IRS updates 403(b) fix-it guide
The IRS has updated its 403(b) Plan Fix-It Guide. The document contains charts and explanations that address potential issues in plan administration. It includes how to find, fix, and avoid common plan errors, with hypertext links to online forms and guidance.

To access the fix-it guide, click here.

Regulatory roundup

June 8th, 2015 No comments

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

PBGC releases data tables
The Pension Benefit Guaranty Corporation (PBGC) has released its annual update on pension data. The data tables cover information recently reported by pension plans and the PBGC, comparing them with values for prior years.

The data tables provide researchers, journalists, and others interested in the federal pension insurance program easily accessible, detailed statistics for the single-employer and multiemployer plans that PBGC insures. The tables include the numbers of people and plans that the PBGC protects, the number of people receiving or eligible to receive benefits from the PBGC as well as the benefits paid to them, claims against the PBGC, the funded status of PBGC-protected plans, and other statistics.

To read the latest PBGC data tables, click here.

BLS: Automatic enrollment, employer match rates, and employee compensation in 401(k) plans
The latest Monthly Labor Review article on the U.S. Bureau of Labor Statistics (BLS) website uses restricted-access employer-level micro data from the National Compensation Survey to examine the relationship between automatic enrollment and employee compensation in 401(k) plans.

To read the entire article, click here.

GAO report: Most households approaching retirement have low savings
The U.S. Government Accountability Office (GAO) recently released the report “Most households approaching retirement have low savings” (GAO-15-419). According to this report, many retirees and workers approaching retirement have limited financial resources. About half of households age 55 and older have no retirement savings, such as in a 401(k) plan or IRA. Additionally, many older households without retirement savings have few other resources, such as a defined benefit (DB) plan or nonretirement savings, to draw on in retirement.

To read the entire report, click here.

SEC memo addresses pay ratio disclosure
The Division of Economic and Risk Analysis of the Securities and Exchange Commission (SEC) released a memorandum to assist the SEC in developing final rules regarding pay ratio disclosure. The division analyzed the potential effects on the pay ratio calculation of the exclusion of different percentages of employees. The memorandum states that excluding some employees from the determination of median employee compensation, which some commenters suggested, can affect the calculation of that median and thus change the ratio of the annual total compensation of the principal executive officer (PEO) to the median of the annual total compensation of employees (“pay ratio”).

To read the entire memo, click here.

Categories: Benefit News Tags: , , , ,

U.S. Supreme Court ruling calls attention to the fiduciary duty to monitor 401(k) plan investments

June 3rd, 2015 No comments

The U.S. Supreme Court unanimously held that, although the initial selection of plan investments occurred beyond ERISA’s six-year statute of limitations, a lawsuit by participants in a 401(k) savings plan may proceed on whether the plan fiduciaries breached their continuing duty to monitor and remove imprudent trust investments (Tibble v. Edison Int’l [No. 13-550, 5/18/2015]). In so ruling, the Court found that a lawsuit against plan fiduciaries is filed in timely fashion if the participants’ claim alleging a breach of the continuing duty to monitor occurred within six years. The Court’s ruling may spur lawsuits by participants over plan fees. This Client Action Bulletin provides more perspective.