Archive for the ‘Benefit News’ Category

Regulatory roundup

December 16th, 2014 No comments

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

Treasury issues final rule on “myRA” savings bonds
The Treasury Department’s Bureau of the Fiscal Service has issued a final rule on the savings bond only available for Roth individual retirement accounts established under the “myRA” retirement savings program that the President announced in his 2014 state of the union address. The new electronic savings bond pays interest at a variable rate equal to the weighted average yield of all outstanding Treasury notes and bonds with four or more years to maturity, and thus carries no principal risk. This is the bond that has been available only to federal employees invested in the “G Fund” of the Thrift Savings Plan.

Although the push for myRA accounts has been directed at employees with no employer-sponsored plan, the fact sheet released when the program was announced states that myRAs are “for savers who either do not have access to an employer-sponsored retirement savings plan or are looking to supplement a current plan.” Worker eligibility requirements include annual incomes of less than $129,000 for individuals ($191,000 for couples).

The final rule, which is effective starting on Dec. 15, 2014, sets forth the requirements applicable to the retirement savings bonds issued to the designated Roth IRA custodian for the myRA program on behalf of program participants. Thus, it addresses registration, crediting, limitations on additions, interest, and redemptions; it does not provide guidance on any employer role.

Treasury submission to OMB and comment request on new information collection
The Treasury Department is seeking the Office of Management and Budget’s (OMB) approval for an information collection to inform its administration of a new federal program being launched this year that aims to enable more low- and moderate-income individuals to save for retirement.

As part of its work to launch the program, the Treasury is exploring several approaches for enabling eligible individuals to open and put savings into the retirement accounts, including the option of encouraging individuals to open and fund the accounts when they file their federal tax forms. The Department contracted with the Center for Social Development (CSD) at Washington University in St. Louis to assist with research on this topic. CSD currently administers an annual privately-funded survey, the Household Financial Survey (HFS), through which it gathers savings information from low- to moderate-income tax filers immediately after they have filed their tax forms. This national survey is integrated into the no-cost version of Intuit’s TurboTax tax preparation software, and it reaches a significant sample of people who could be eligible for the accounts.

The information collected through the Treasury-funded Retirement Savings Module of the HFS will provide baseline characteristics, needs, and practices of a segment of the population targeted by the federal program.

For more information, click here.

First-time adoption of International Accounting Standards for EOS benefits

December 10th, 2014 No comments

In many countries in the Middle East it is a legal obligation to provide an end of service (EOS) severance benefit when an employee leaves an employer. Analysis by Milliman indicates that a significant proportion of companies could be underreporting when accounting for the cost of these benefits. The growing trend toward accounting for EOS benefits under International Accounting Standards provides for the transparent representation of these long-term costs. Employers should be aware that the impact of moving to the international standards will depend on how reserves were established previously. This paper by Milliman consultants Danny Quant, Joanne Gyte, and Simon Herborn offers some perspective.

Regulatory roundup

December 8th, 2014 No comments

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

House approves tax extenders bill with multiemployer pension plan provisions
On December 3, the House of Representative voted 404-17 to approve the “Achieving a Better Life Experience Act” (ABLE Act, H.R.647) which would allow for the creation of savings accounts to enable certain disabled beneficiaries to help pay for qualified expenses, effective for tax years beginning in 2015. Following the vote, the House combined the bill with the tax extenders legislation (H.R.5771) before sending it to the Senate.

Of interest to some employers are two provisions included in the ABLE Act:

• The IRS would be authorized to certify “professional employer organizations” (PEOs). Such PEOs would pay an annual fee of $1,000, satisfy certain requirements (including posting a bond to ensure they satisfy employment tax withholding and payment obligations and submitting audited financial statements), and assume sole responsibility for the customer’s employment taxes. The provision generally would be effective for wages paid by a certified PEO for services performed by an employee after 2015, and the IRS would be required to establish the PEO certification program by July 1, 2015. (The Joint Committee on Taxation estimates this provision would increase revenues by $8 million over 10 years.)

• Certain civil penalties under the tax code would be adjusted for inflation, beginning in 2015, including for failures to file a tax return or to pay tax; failures to file certain information returns, registration statements, and other statements; and failures to file correct information returns and payee statements. (The Joint Committee on Taxation estimates this provision will increase revenues by $115 million over 10 years.)

IRS extends submission deadlines
The IRS released Announcement 2014-41. This announcement extends to June 30, 2015, the deadline for submitting on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans for the plans’ second six-year remedial amendment cycle. This announcement also provides a two day extension (from Saturday, January 31, 2015, to Monday, February 2, 2015) for Cycle D on-cycle submissions (primarily individually designed plans including multiemployer plans).

For more information, click here.

DOL report to Congress finds EBSA has not provided guidance and oversight of use of limited-scope audits
The Department of Labor’s Office of Inspector General (OIG) has issued its Semiannual Report to Congress on the DOL’s activities, accomplishments, and concerns for the six-month period ending September 30, 2014. During this reporting period, the Office of Inspector General (OIG) issued 19 audit and other reports that identified needed improvements in Department of Labor (DOL) programs and operations.

Of interest to employee benefit practitioners was that an audit of the Employee Benefits Security Administration’s (EBSA’s) oversight of the use of limited-scope audits for employee benefit plans found that EBSA has not provided the guidance and oversight needed to adequately protect more than $1 trillion of plan assets invested in complex trust arrangements and hard-to-value assets held and certified by custodians.

To read the entire report, click here.

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Regulatory roundup

December 1st, 2014 No comments

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

PBGC issues final rule on treatment of rollovers from DC to DB plans
The Pension Benefit Guaranty Corporation (PBGC) is publishing a final rule that makes it easier for participants in 401(k) plans with rollover options to get lifetime income by moving their funds into traditional pensions. The agency hopes to encourage people to get lifetime income by removing potential barriers to moving their benefits from defined contribution (DC) plans to defined benefit (DB) plans. The final rule removes the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits. When PBGC first proposed the rule in April it was well-received from various organizations in the pension and retirement community.

Under the final rule, benefits earned from a rollover generally would not be affected by PBGC’s maximum guarantee limits. For a plan terminating in 2015, the agency’s maximum guaranteed benefit for a 65-year-old retiree will be just over $60,000 a year.

Also, rollover amounts generally would remain untouched by PBGC’s five-year phase-in limits. Normally, benefit increases from changes to a plan in the five years before it ends are partially guaranteed. Under the new proposal, these restrictions generally would not apply.

To read the entire final rule, click here.

IRS issues notice amending two safe harbor explanations for eligible rollover distributions
The Internal Revenue Service (IRS) has released Notice 2014-74, which amends the two safe harbor explanations in Notice 2009-68, 2009-2 C.B. 423, that can be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (Code) that certain information be provided to recipients of eligible rollover distributions.

Amendments to the safe harbor explanations reflected in this notice relate to the allocation of pretax and after-tax amounts, distributions in the form of in-plan Roth rollovers, and certain other clarifications to the two safe harbor explanations. The amendments to the safe harbor explanations (and attached model notices) may be used for plans that apply the guidance in section III of Notice 2014-54, 2014-41 I.R.B. 670, with respect to the allocation of pretax and after-tax amounts.

Notice 2014-74 will be published in Internal Revenue Bulletin 2014-50 on December 8, 2014. To read the entire notice, click here.

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IRS issues final and proposed rules for hybrid pension plans

November 25th, 2014 No comments

The Internal Revenue Service (IRS) has published a final rule covering tax-qualified cash balance (hybrid) pension plans, providing guidance on the key issue of “market rate of return.” Sponsors of hybrid plans have waited for four years for this guidance since the agency delayed the effective date of an October 2010 final rule following practitioners’ concerns that the IRS had incorrectly interpreted the statutory definition. In general, the final rule applies to plan years that begin on or after January 1, 2016.

The IRS also published a companion proposed rule to facilitate the transition for plan sponsors to adopt requirements, allowing for an election to apply the proposed rule to amendments adopted earlier than January 1, 2016. The IRS seeks comments on the proposal by December 18, 2014.

This Client Action Bulletin discusses final and proposed rules for hybrid pension plans.

Regulatory roundup

November 24th, 2014 No comments

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

PBGC annual report shows improvement in single-employer program and deterioration in multiemployer program
The Pension Benefit Guaranty Corporation (PBGC) has released its Annual Report, which showed that PBGC’s deficit increased to about $62 billion in fiscal year 2014, which was largely due to the declining condition of a few multiemployer plans. The financial condition of the single-employer program improved with a deficit of about $19.3 billion, down from $27.4 billion in the previous year.

The increase in PBGC’s deficit in the report is consistent with the estimates included in the FY 2013 Projections Report that was released in June. The projections report found that the insolvencies of a minority of multiemployer plans have become both more likely and more imminent.

To read the entire report, click here.

IRS updates rollover chart
The Internal Revenue Service (IRS) has updated its “Rollover Chart” for 2014. It’s a one-page summary in the form of a table, listing the eight kinds of plans and IRAs that can make rollover-eligible distributions, and the corresponding eight kinds of plans and IRAs into which those distributions can (or cannot) be rolled over. The chart was updated November 17, 2014, to reflect revised rollover rules.

To view the chart, click here.

Joint Committee on Taxation publishes analysis of the Tax Reform Act of 2014
The U.S. Joint Committee on Taxation (JCT) has released a Discussion Draft prepared by the Chairman of the House Committee on Ways and Means. This document provides a technical explanation, estimated revenue effects, distributional analysis, and macroeconomic analysis of the Tax Reform Act of 2014. The draft proposes to reform the Internal Revenue Code. Provisions related to pension and retirement begin on page 101, and include:

• Changes to rules for individual retirement arrangements
• Repeal of exception to 10% penalty for first-time home purchases and elimination of first-time home purchase as a qualified distribution from a Roth IRA
• Termination of new simplified employee pensions
• Termination for new SIMPLE 401(k) plans
• Modification of required distribution rules for pension plans
• Reduction in age for allowable in-service distributions
• Modification of rules governing hardship distributions
• Extended rollover period for the rollover of plan loan offset amounts in certain cases
• Coordination of contribution limitations for 403(b) plans and governmental 457(b) plans
• Application of 10% early distribution tax to governmental 457 plans; and inflation adjustments for employer-sponsored retirement plan dollar limitations on benefits and contributions

To read the entire draft, click here.

Regulatory roundup

November 17th, 2014 No comments

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

Federal Reserve research on actuarial liabilities and funding status of pensions in the Financial Accounts of the United States
Last year, in its September 2013 release, the Financial Accounts of the United States (formerly known as Flow of Funds accounts) changed the treatment of defined benefit (DB) pensions from a cash accounting basis to an accrual accounting basis. Under accrual accounting, pension plans’ liabilities are set equal to the present value of future DB benefits that plan participants have accumulated to date, which are calculated using standard actuarial methods.

As a result of this change, the Financial Accounts now provide a measure of the funding status of private and public DB pension plans. The accounting change also had other important effects on the balance sheets—and corresponding financial flows—of the private and public pensions sectors, the nonfinancial business sector, the government sector, and the household sector. A new FEDS Notes paper discusses the accounting changes and their main effects in the Financial Accounts, including the new measures of funding status of private and public DB pension plans.

To read the entire paper, click here.

Cycle D filing deadline looms

November 14th, 2014 No comments

The deadline for trustees of multiemployer pension (defined benefit) plans and annuity (defined contribution) plans to submit determination letter requests to the Internal Revenue Service (IRS) is fast approaching. Under the second go-round of the IRS’s five-year staggered determination letter filing cycle, all multiemployer plans must file by January 31, 2015, under Cycle D if they wish to have the IRS formally opine on the tax-qualified status of their retirement plans. This filing requires the restatement of the plan to incorporate amendments required over the past five years, since the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) went into effect. The deadline applies to all multiemployer plans, including off-calendar-year plans that filed under Cycle E in the first iteration of the five-year program.

While there are fewer amendments to be incorporated into this restatement than the first time around and the process is more familiar, attention to the process should begin as soon as possible, if it hasn’t already started, with plan counsel and consultants participating as needed.

In preparing the filing, trustees must be sure to address any issues that were raised in the prior filing, make sure all necessary amendments have been included, collect all needed documentation (such as copies of relevant collective bargaining agreements), have the appropriate forms and notices prepared (including the Notice to Interested Parties, which must be distributed and posted on time), and, if necessary because of the presence of nonunion participants, have the required nondiscrimination testing performed.

Plan counsel should also determine if there have been any issues with the adoption of amendments or plan administration that might require a filing under the Voluntary Correction Program.

Please contact your Milliman consultant for further information and details on this process.

Revised mortality assumptions issued for pension plans

November 6th, 2014 No comments

The Society of Actuaries (SOA) issued two final reports that update the mortality assumptions that private defined benefit retirement plans in the United States use in the actuarial valuations that determine a plan sponsor’s pension obligations. Affected pension plan sponsors should expect the value of the actuarial obligations to increase, but the rate of increase will depend on the specific demographic characteristics of the plan participants and the types of benefits provided.

The RP-2014 Mortality Tables Report (RP-2014) replaces the RP-2000 Mortality Tables Report (RP-2000), using the incidence of deaths in private plans over the 2004 through 2008 period. The SOA’s companion Mortality Improvement Scale MP-2014 Report (MP-2014) adds a second, complex variable to the RP-2014 tables for “future mortality improvements.” “Improvement” refers to the concept that mortality rates have generally decreased from year to year and this pattern is expected to continue in the future. The new MP-2014 improvement scale varies by both age and year. The SOA concluded that its best estimate for long-term mortality improvement in the United States is an ultimate annual rate of 1% through age 85 and slowly diminishing for higher ages.

The SOA committee that developed the tables recommends consideration of their use, effective immediately, for measuring private pension plan obligations. Their use also will affect the measurement of plan obligations associated with private employer postretirement health and life insurance plans.

Implications of the SOA’s reports include:

• The calculations to comply with the accounting standards for retirement plans (Financial Accounting Standards Board Topic 715) may be affected as early as for fiscal year-end 2014.
• Calculations to comply with single-employer pension plan funding rules of the Internal Revenue Service (IRS) under the 2006 Pension Protection Act will not be affected until the U.S. Department of Treasury formally adopts—possibly not until 2017—a replacement for the current statutory tables (based on the RP-2000 Mortality Table). Minimum required cash contributions and, where applicable, lump-sum payments, will likely increase when the Treasury adopts a replacement mortality table.
• Although the SOA’s analysis acknowledged statistically significant structural differences in the underlying mortality rates produced for public and private plans, and therefore eliminated from the final RP-2014 report the data from “three extremely large public plans,” the SOA still states that “it would not necessarily be inappropriate or inconsistent for actuaries to consider…the RP-2014 tables as suitable mortality benchmarks for a specific public plan.”
• Public and multiemployer pension plans are not required to adopt these new tables. However, as these plans’ actuaries review the mortality assumption they currently use, they may find that information presented in the new tables may influence the plans’ assumptions as RP-2014 and MP-2014 become widely accepted. If the plans’ mortality assumptions are reviewed on a regular basis, the timing of the next review is not likely to be affected.

Actuarial calculations using the two-variable approach embodied in the RP-2014 and MP-2014 tables will be more complex when compared to current typical calculations using the RP-2000 table. And although pension obligations could increase, the effects will differ. For example, the obligations associated with a cash balance plan will likely only modestly change, while certain postretirement health insurance obligations may be the most dramatically affected.

Please contact your Milliman consultant for more details on how your defined benefit pension plan will be affected by the SOA’s new mortality table and mortality improvement scale.

Year-end compliance issues for single-employer retirement plans

November 5th, 2014 No comments

By year-end 2014, sponsors of calendar-year single-employer retirement plans must act on necessary and discretionary amendments and perform a range of administrative procedures to ensure compliance with statutory and regulatory requirements. This Client Action Bulletin looks at key areas that such employers and sponsors of defined benefit (DB) or defined contribution (DC) plans should address by December 31, 2014.