Category Archives: Benefit News

Regulatory roundup

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

Final Rule lowering rates of penalty charged for late payment of pension premiums
The PBGC is lowering the rates of penalty charged for late payment of premiums by all pension plans, and providing a waiver of most of the penalty for plans with a demonstrated commitment to premium compliance.

The penalty for late payment of a premium is a percentage of the amount paid late multiplied by the number of full or partial months the amount is late, subject to a floor of $25 (or the amount of premium paid late, if less). There are two levels of penalty, which heretofore have been 1 percent per month (with a 50 percent cap) and 5 percent per month (capped at 100 percent). The lower rate applies to “self-correction” — that is, where the premium underpayment is corrected before PBGC gives notice that there is or may be an underpayment.

This final rule cuts the rates and caps in half (i.e., to ½ percent with a 25 percent cap and 2½ percent with a 50 percent cap, respectively) and eliminates the floor. The rulemaking also creates a new penalty waiver that applies to underpayments by plans with good compliance histories if corrected promptly after notice from PBGC. PBGC will waive 80 percent of the penalty assessed for such a plan.

For more information, click here.

Notice extends temporary nondiscrimination relief for closed defined benefit plans
The Internal Revenue Service (IRS) released Notice 2016-57, extending the temporary nondiscrimination relief for closed defined benefit plans provided in Notice 2014-5 and 2014-2, through 2017.

The temporary nondiscrimination relief for closed plans that is provided in Notice 2014-5 is hereby extended to plan years beginning before 2018 if the conditions of Notice 2014-5 are satisfied. This extension is provided in anticipation of the issuance of final amendments to the § 401(a)(4) regulations. Those regulations are expected to be effective for plan years beginning on or after January 1, 2018, and are expected to permit plan sponsors to apply the provisions of the regulations that apply specifically to closed plans for certain earlier plan years.

To read Notice 2016-57, click here.

To read and review Notice 2014-5, click here.

DoL Extends deadline for public comments on Form 5500 modernization proposal
The Department of Labor (DoL) announced a two-month extension of the comment period on the Form 5500 modernization proposals. A range of stakeholder groups asked for an extension of time to submit comments given the scope and significance of the proposed forms revisions and regulatory amendments. The DoL, IRS, and the Pension Benefit Guaranty Corporation (PBGC) decided to extend the public comment period on the proposed forms revisions and regulatory amendments from the original Oct. 4, 2016, deadline to the new Dec. 5, 2016, deadline.

For more information, click here.

Proposal to expand missing participant program
The PBGC administers a program to hold retirement benefits for missing participants and beneficiaries in terminated retirement plans and to help those participants and beneficiaries find and receive the benefits being held for them. The program is currently limited to single-employer defined benefit pension plans covered by the pension insurance system under title IV of the Employee Retirement Income Security Act of 1974 (ERISA).

The PBGC proposes to make changes to its existing program and, as authorized by the Pension Protection Act of 2006, to establish similar programs for multiemployer plans covered by title IV, certain defined benefit plans that are not covered by title IV, and most defined contribution plans. The proposed rule is needed to implement amendments to section 4050 of ERISA.

To read the proposed rule, click here.

For an overview of the proposed missing participants program for defined contribution and other terminated plans, click here.

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Regulatory roundup

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

Actions to better address potential noncompliance for Roth individual retirement arrangement conversions
The Treasury Inspector General for Tax Administration (TIGTA) recently released “Actions can be taken to better address potential noncompliance for Roth individual retirement arrangement conversions.” The report notes that for tax year 2011, IRS records show that approximately 400,000 taxpayers converted more than $10 billion in assets from traditional to Roth Individual Retirement Arrangements (IRA). This TIGTA audit was initiated to assess whether the IRS has sufficient processes in place to address taxpayers who underreport taxes due when converting assets to Roth IRAs.

To read the entire report, click here.

DoL posts comments on agencies’ proposed rule – Form 5500
The Department of Labor (DoL) has made 23 comment letters received to date regarding the proposed rule that would amend Form 5500 and its schedules available on its website.

To access the comments, click here.

Improvements to claims process could help people make better informed decisions about retirement
The Government Accountability Office (GAO) released “Social Security – Improvements to claims process could help people make better informed decisions about retirement benefits” (GAO-16-786). Many eligible individuals claim Social Security retirement benefits at the earliest eligibility age, even though they would receive higher benefits if they waited until older ages. In order to make an informed decision about when to claim, people need to understand how various Social Security rules and other factors affect benefit amounts. GAO was asked to examine these issues.

To read the entire report, click here.

Regulatory roundup

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

Study reveals accumulation potential of 401(K) by looking at consistent participants’ balances
The average 401(k) plan account balance of workers who participated consistently in one 401(k) plan increased significantly over the four-year period ending at year-end 2014, according to new data published today by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).

The study, “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2010–2014,” examines the accounts of about 8.8 million “consistent participants” – those who remained active in the same 401(k) plan for the four-year period covering year-end 2010 through year-end 2014. It finds that average account balances increased during this period for consistent participants in all age cohorts.

To read the entire study, click here.

Modifications to minimum present value requirements for partial annuity distribution options
The IRS issued a final rule providing guidance relating to the minimum present value requirements applicable to certain defined benefit pension plans. The rule change the regulations regarding the minimum present value requirements for defined benefit plan distributions to permit plans to simplify the treatment of certain optional forms of benefit that are paid partly in the form of an annuity and partly in a single sum or other more accelerated form.

To read the entire final rule, click here.

GAO report explores 401(k) lifetime income options
The Government Accountability Office (GAO) released a report entitled “401(k) plans: DOL could improve use of lifetime income options” (GAO-16-433), presenting the results of a questionnaire the GAO sent to 401(k) plan record keepers. Among other issues, this report examines things, what is known about the adoption of lifetime income options in 401(k) plans, barriers that deter plan sponsors from offering such options, and the defaults that exist for participants who do not choose a lifetime income option.

GAO made seven recommendations to the Department of Labor (DoL), including that it clarify the criteria to be used by plan sponsors to select an annuity provider, consider providing limited liability relief for offering an appropriate mix of lifetime income options, issue guidance to encourage plan sponsors to select a record keeper that offers annuities from other providers, and consider providing RMD-based default lifetime income to retirees. DOL has described actions it would take to address the intent of the recommendations.

To read the entire report, click here.

 

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 nongovernmental employees
The U.S. 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 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, 2016.

To read the entire final rule, click here.

Proposed rule on savings arrangements established by states for nongovernmental 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 Internal Revenue Service (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 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 SEC.

For more information, click here.

Regulatory roundup

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

DOL issues ERISA fiduciary advisor
The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor (DOL) 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 what a fiduciary’s responsibilities are under 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 Internal Revenue Service (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, this language was inserted under the title of the form to inform the recipient that Form 1095-C should not be submitted with the return: “Do not attach to your tax return. Keep for your records.”

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. This language was inserted on the Form 1095-B under the title of the form: “Do not attach to your tax return. Keep for your records.” 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 for 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 IRS 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. 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. The following fee schedule should now be used 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 Internal Revenue Service (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 includable in employees’ incomes, the amounts that are includable, 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.

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 the Pension Benefit Guaranty Corporation (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 Internal Revenue Service (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. These two forms 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.

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.

Regulatory roundup

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

New process for DB plan determination letter applications
The Internal Revenue Service (IRS) published a post on its website highlighting the new process for defined benefit plan determination letter applications.

To read the entire post, click here.

IRS releases draft Form 5300
The IRS issued a draft of the revision for Form 5300, Application for Determination for Employee Benefit Plan. Form 5300 is used to request a favorable determination letter (DL) from the IRS on the qualified status of these plans and the exempt status of any related trust.

Form 5300 has undergone major revisions in format and information required. Many of the revisions reflect the changes affecting individually designed plans described in Announcement 2015-19, and Revenue Procedure 2016-37. The revised form significantly simplifies the information that plan sponsors must provide and is expected to reduce the taxpayer burden in filling out the form.

The IRS expects the final version of Form 5300 to be available by December 2016. If you wish, you can submit comments about the draft Form 5300.

Federal agencies release proposed revisions to improve Form 5500
The Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL), the IRS, and the Pension Benefit Guaranty Corporation (PBGC) are seeking public comments on proposed revisions to modernize and improve the Form 5500 Annual Return/Report filed by private-sector employee benefit plans. The EBSA also published a related notice of proposed changes to its annual reporting regulations under Title I of ERISA.

Form 5500 is the primary source of information about the operations, funding, and investments of private-sector, employment-based pension and welfare benefit plans in the United States.

To read the proposed rule, click here.

 

Regulatory roundup

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

Technical corrections to best of interest rule; class exemption for principal transaction in certain assets
The Department of Labor (DOL) filed technical corrections to the Best Interest Contract Exemption, which was published on April 8, 2016. The Best Interest Contract Exemption allows certain persons that are fiduciaries under ERISA, or the Internal Revenue Code (the Code), or both, by reason of providing investment advice, to receive compensation that may otherwise be prohibited.

The corrections in this document fix typographical errors, make minor clarifications to provisions that might otherwise be confusing, and confirm insurers’ broad eligibility to rely on the exemption, consistent with the exemption’s clearly intended scope and the analysis and data relied upon in the DOL’s final regulatory impact analysis (RIA).

For more information, click here.

Office of Chief Counsel memo regarding testing otherwise excludable employees
The Office of Chief Counsel of the Internal Revenue Service (IRS) released Memorandum 201615013 concerning testing otherwise excludable employees. The taxpayer asked whether certain positions related to the definition of “otherwise excludable employees,” used for purposes of coverage testing under § 410(b)(4)(B) and computing the actual deferral percentage (ADP) under § 401(k)(3), are supportable.

To read the entire memo, click here.