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Posts Tagged ‘DOL’

Regulatory roundup

August 31st, 2015 No comments

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

DOL releases additional research papers on investment advice rule
The Department of Labor (DOL) has released the following three research papers on the conflict of interest proposed rule.

Comments on a review of a White House report on conflicted investment advice

Financial advice markets: A cross-country comparison

Effective disclosures in financial decision making

IRS issues minimum funding guidance for cooperative, small-employer charity pensions
The Internal Revenue Service (IRS) has released Notice 2015-58, providing guidance on minimum funding requirements and related rules applicable to defined benefit pension plans maintained by groups of cooperatives and related entities and groups of charities.

The guidance applies requirements established by the Cooperative and Small Employer Charity Pension Flexibility Act (CSEC Act, P.L.113-97). The CSEC Act provides a number of rules relating to the minimum funding requirements for certain defined benefit plans maintained by groups of cooperatives and related entities and groups of charities.

To read the entire notice, click here.

EBRI Notes: Improving retirement security through a qualifying longevity annuity contract
A new Employee Benefit Research Institute (EBRI) analysis models two scenarios under which qualifying longevity annuity contracts (QLACs) could be utilized as part of a 401(k) plan. The first scenario would attempt to convert 15 percent of the 401(k) balance with the current employer to a QLAC premium while simultaneously attempting to partially mitigate the risk of purchasing the product when interest rates are low. The second proposal assumes some plan sponsors would be willing to convert the accumulated value of their 401(k) contributions to a QLAC purchase at retirement age on either an opt-in or opt-out basis for the employees.

The full report entitled “How much can qualifying longevity annuity contracts improve retirement security?” is published in the August 2015 EBRI Notes and is available for download here.

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DOL guidance on worker misclassification may have benefit program implications

August 28th, 2015 No comments

The Department of Labor’s (DOL) Wage and Hour Division recently issued guidance on the classification of workers as employees or independent contractors under the Fair Labor Standards Act (FLSA) that may have implications for employer-sponsored benefit programs (in addition to an employer’s compensation and related policies and practices). Administrator’s Interpretation No. 2015-1 focuses on the FLSA’s pertinent definitions and considers the “economic realities” factors that various courts (including the U.S. Supreme Court) have applied to determine whether a worker is economically dependent on the employer (and thus an employee) or in business for himself or herself (and thus an independent contractor).

In general, the DOL concludes that “most workers” are employees under the broad definitions of the FLSA.

Employers should review the DOL’s new guidance for the effects it could have on their retirement, health, and other benefit programs (separate from but in addition to the worker classification issue), particularly in light of the DOL’s heightened enforcement and investigation activities, or as individuals file suits to claim rights to pay and benefits as employees. Misclassification of workers could raise numerous concerns, such as retirement or health plan coverage, contributions to those programs, or nondiscrimination testing issues, along with employer liability for retroactive pay and taxes as well as other penalties.

For additional information about the DOL’s guidance, please contact your Milliman consultant.

DOL proposes overtime pay rule

August 28th, 2015 No comments

The Department of Labor’s (DOL) Wage and Hour Division has issued a proposed rule that calls for more than a doubling of the annual salary threshold – from the current $23,660 to $50,440 (to be adjusted annually) – for “white-collar” employees to remain exempt from receiving overtime compensation when working more than 40 hours per week. The proposed rule under the Fair Labor Standards Act (FLSA) makes no changes to the “duties” test for employees falling into this category (primarily executive, administrative, professional, computer, and outside sales employees), but seeks comments on this issue.

The proposed rule, which the DOL estimates could entitle more than 4.5 million currently exempt white-collar workers to overtime pay in the first year that the rule is implemented, also would:

• Increase the total annual compensation requirement needed to qualify for the FLSA’s highly compensated employee exemption, from the current $100,000 to $122,148 (with yearly adjustments);
• Establish a mechanism for automatically updating the salary threshold levels using either a fixed percentage of earnings of full-time salaried workers or changes based on the Consumer Price Index; and
• Permit nondiscretionary bonuses and incentive payments to count toward the salary threshold requirement (but not discretionary bonuses, board or lodging, medical or life insurance payments, retirement plan contributions, or other fringe benefits).

The proposed rule will not take effect until it is issued in final form, which the DOL is expected to do in 2016.

Employers should begin considering how the proposed changes to the salary threshold will affect their compensation practices and the benefits offered to employees. Some retirement plans, for example, take into account only base pay, possibly raising the specter of nondiscrimination testing failures if “includable compensation” excludes overtime and bonus payments when non-highly compensated participants become newly eligible for overtime (for example, see this blog post). Similarly, employers that offer different health benefits plans based on workers being classified as “salaried” or “hourly” could experience employees (and their dependents) potentially being covered under a plan that had been limited to staff according to their FLSA exempt/nonexempt status.

For additional information about the DOL’s proposed rule on overtime pay, please contact your Milliman consultant.

Regulatory roundup

August 10th, 2015 No comments

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

DOL posts agenda for public hearing on proposed conflict-of-interest rule
The Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) will hold a public hearing from August 10-13, if necessary, to consider issues attendant to adopting a regulation concerning its proposed conflict of interest rule and related proposed prohibited transaction exemptions.

For more information, click here.

IRS issues corrections to suspension of benefits under the Multiemployer Pension Reform Act
The Internal Revenue Service (IRS) has issued two corrections to the temporary regulations and a correction to the proposed regulation that were published in the Federal Register on Friday, June 19, 2015. The temporary regulations relate to 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”).

The first correction affects Section 1.432(e)(9)-1T. To view the correction to the temporary regulation, click here.

The second correction affects the pages 35207, 35210, and 35215 of the temporary regulations. To view the correction to the temporary regulation, click here.

The third document corrects the notice of proposed rulemaking, notice of proposed rulemaking by cross-reference to temporary regulations. Numerous pages are corrected. To view the correction to proposed rule, click here.

 

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

July 30th, 2015 No comments

Smith-SuzanneThe U.S. 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 that 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 OK if the plan’s definition of compensation passes nondiscrimination testing.

Nondiscrimination testing on compensation is done by comparing the average includable compensation for highly compensated employees (HCEs) to the average includable 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 Includable Compensation 95%
NHCE Average Includable 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 includable compensation will exceed 3%—and thus fail the test.

2016 example: Plan excludes overtime pay and bonuses from plan compensation

HCE Includable Compensation 95%
NHCE Includable 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 definitions 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 DOL 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 five-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 five-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.

The 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 the PBGC). The proposed rule also makes some technical changes.

To read the entire proposed rule, click here.

IRS updates guidance and FAQs for preapproved retirement plan
The IRS has updated its guidance and frequently asked questions (FAQs) for employers adopting preapproved retirement plans. The guidance and FAQs were updated after the IRS 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 preapproved plans (that is, master and prototype and volume submitter plans)

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

To read the FAQs, click here.

The guidance is available at the following links:

Types of preapproved retirement plans

Deadline extended for preapproved defined benefit plans

Preapproved plan submission procedures

DOL web page houses comment letters related to conflicts of interest rule
The U.S. 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.

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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 preapproved plans
The Internal Revenue Service (IRS) published Revenue Procedure 2015-36, providing IRS 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 preapproved plans, i.e., master and prototype (M&P) and volume submitter (VS) plans.

To read the IRS’s official statement, click here.

DOL releases Field Assistance Bulletin related to defined contribution plans
The U.S. 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 selections for defined contribution (DC) 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 to 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 U.S. Joint Committee on Taxation (JCT) released the report “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.

DOL provides flexibility in timing of annual defined contribution plan disclosures

May 15th, 2015 No comments

Sponsors of 401(k) and other participant-directed defined contribution retirement plans will have more flexibility in the timing of providing annual plan and investment disclosures to participants, under a direct final rule from the U.S. Department of Labor (DOL). Instead of disclosing the required information “at least annually,” which the agency had interpreted to mean no more than 365 days after the sponsor provided the prior annual disclosure, sponsors will have up to 14 months to do so. The modification will require disclosures to be made “at least once in any 14-month period, without regard to whether the plan operates on a calendar year or fiscal year basis.”

The change to the timing requirement will ease the administrative burdens faced by many plan sponsors and administrators.

The flexibility provided by the direct final rule is slated to be effective June 17, 2015, and will apply to disclosures made on or after that date, unless the DOL withdraws the rule before then, which would be due to adverse comments received.

The DOL’s direct final rule also announces an immediate, temporary enforcement policy (until June 17), so that plan sponsors and administrators may take advantage of the two-month grace period before the June 17 effective date, as long as they reasonably determine that doing so will benefit participants and beneficiaries. The relief granted by the enforcement policy is in addition to the one-time, 18-month “re-set” opportunity provided by the DOL’s Field Assistance Bulletin 2013-02.

For more information about the DOL’s direct final rule or a related proposed rule, please contact your Milliman consultant.

DOL proposes new “conflict of interest” fiduciary rule

May 11th, 2015 No comments

The U.S. Department of Labor (DOL) has proposed a definition of “fiduciary” that covers individuals who provide investment advice or recommendations for a fee to ERISA-covered and non-ERISA plans and participants (and IRA owners). The proposed rule aims to reduce conflicts of interest that may arise when investment advisers make recommendations that favor their own financial well-being over a client’s best interest. The proposal is the DOL’s second attempt at addressing this concern, having withdrawn a 2010 proposed rule that came under heavy criticism.

This Client Action Bulletin provides an overview of the DOL’s proposed rule and related proposed prohibited transaction exemptions (PTEs) as they apply to plan sponsors and participants (and does not cover the requirements relating to advice given to IRA owners). Although the proposed rule focuses on the defined contribution retirement plan arena, it also has implications for defined benefit plan sponsors and their advisers. In addition, the proposed rule affects a broad range of individual account plans (e.g., 403[b] arrangements), including, potentially, non-retirement programs such as health savings accounts.

Regulatory roundup

May 4th, 2015 No comments

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

IRS provides guidance on changes to the EP determination process
The Internal Revenue Service (IRS) has made changes to the determination letter program for retirement plans. The revised procedures generally apply to Form 5300 series determination letter applications received after February 1, 2015. These changes will improve the program’s efficiency and consistency.

For more information, click here.

ERISA to address pension risk transfers and plan sponsor education and lifetime plan participation
The ERISA Advisory Council has issued two statements:

• Statement on model notices and pension risk transfers
The 2015 council will supplement the work of the 2013 council by focusing specifically on the information that participants need to make informed decisions when faced with lump-sum risk transfers and insurance annuity risk transfers, and best practices for plan sponsors in communicating that information. The goal of the 2015 council is to offer the U.S. Department of Labor (DOL) draft model notices and disclosures that can be used by plan sponsors, participants, and the public.

For more information, click here.

• Statement on model notices and plan sponsor education and lifetime plan participation
The council would like to hear recommendations related to the drafting of model notices concerning lifetime participation in ERISA plans. The council would welcome witnesses and others to submit examples of model notices or other communications, including documents that are currently being delivered to participants. The council would like to hear recommendations related to outreach materials the DOL can provide to plan sponsors on the topic of innovative plan features that may encourage lifetime participation. The council requests testimony as it relates to data security issues.

For more information, click here.

IRS issues correction concerning the failure to comply with Section 409A
The IRS’s chief counsel has issued Memorandum 201518013 regarding the correction of a failure to comply with Section 409A. To read the entire memo, click here.

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