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

DOL posts lifetime income illustration and fact sheet
Workers participating in defined contribution plans, like 401(k) plans or similar savings plans, are responsible for managing their retirement savings while employed and during their retirement years.

As described in an advance notice of proposed rulemaking (ANPRM), the Department of Labor is considering proposing a rule that pension benefit statements include the participant’s account balance as a single sum as well as an estimated lifetime income stream of level payments using both the participant’s current account balance and the projected account balance at retirement. For married participants, the statement also must include joint and survivor lifetime income payments.

Using assumptions described in the ANPRM (noted below), this calculator illustrates an annuitization approach to estimate the monthly lifetime income streams based on both the participant’s current account balance and on the projected value of the account balance at retirement. For both balances, the calculator develops two level lifetime payments: one for the life of the participant (with no benefits to any survivors) and the second for the joint lives of the participant and the spouse with a fifty percent survivor’s benefit for the spouse’s lifetime.

This calculator uses a simplified computation (e.g., annual contributions, mid-year retirement). Depending on the comments received in response to the ANPRM, the next version of the calculator may provide a more precise computation (e.g., monthly contributions, retirement in a specified month).

For a copy of the fact sheet, click here. For the calculator, click here.

DOL issues ANPRM on pension benefit statements
The Department of Labor (DOL) has issued an advanced notice of proposed rulemaking (ANPRM) regarding the pension benefit statement requirements under section 105 of the Employee Retirement Income Security Act of 1974 (ERISA), as amended. The ANPRM describes certain rules the Department is considering as part of the proposed regulations.

The rules being considered are limited to the pension benefit statements required of defined contribution plans. First, the Department is considering a rule that would require a participant’s accrued benefits to be expressed on his pension benefit statement as an estimated lifetime stream of payments, in addition to being presented as an account balance. Second, the Department also is considering a rule that would require a participant’s accrued benefits to be projected to his retirement date and then converted to and expressed as an estimated lifetime stream of payments. This ANPRM serves as a request for comments on specific language and concepts in advance of proposed regulations.

Comments are due on or before 60 days after publication in the Federal Register. The ANPRM is scheduled was published on May 8, 2013.

Federal Reserve: Early withdrawals from retirement accounts during the great recession Three economists at the Federal Reserve released a paper titled Early Withdrawals from Retirement Accounts During the Great Recession which shows that for every dollar workers contributed to their pension and individual retirement accounts in 2010, taxpayers younger than 55 took nearly half – 45 cents – as a taxable distribution.

“For families headed by someone younger than age 55, about 45 percent of total new contributions to retirement accounts in 2010 were offset by early withdrawals, but that number was 30 percent in 2004, and some of that increase is attributable to declining contributions. The analysis here of factors associated with early withdrawals in 2010 suggests that propensities to receive cash-outs or to take taxable withdrawals is higher for lower-income families, because lower-income families are much more likely to experience the sorts of shocks that lead to withdrawals and slightly more likely to take a withdrawal when they experience those shocks. These findings may help to explain why the observed cross-section distribution of retirement account balances—even within the covered population, and relative to contributions—is skewed towards higher income families.”

Read the entire paper here.

IRS PLR extending 60-day rollover period because of bank error
The Internal Revenue Service (IRS) has issued a private letter ruling (201319034) dealing with the 60-day rollover period.

The ruling concludes:

The information and documentation submitted by Taxpayer A is consistent with the assertion that the failure to accomplish a timely rollover of Amount 1 was due to a mistake by Bank D. Therefore, pursuant to section 408(d)(3)(l) of the Code the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from IRA B.

Read the entire letter here.

SEC, FINRA issue investor alert on pension or settlement income streams
The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) recently issued an investor alert entitled Pension or Settlement Income Streams – What You Need to Know before Buying or Selling Them.

The investor alert informs investors about the risks involved when selling their rights to an income stream or investing in someone else’s income stream. The alert urges investors considering an investment in pension or settlement income streams to proceed with caution.

Anyone receiving a monthly pension or regular distributions from a settlement following a personal injury lawsuit may be targeted by salespeople offering an immediate lump sum in exchange for the rights to some or all of the payments the person would otherwise receive in future. Typically, recipients of a pension or structured settlement will sign over the rights to some or all of their monthly payments to a factoring company in return for a lump-sum amount, which will almost always be significantly lower than the present value of that future income stream.

The investor alert contains a checklist of questions before selling away an income stream:

• Is the transaction legal? Federal law may restrict or prohibit retirees from ‘assigning’ their pension to someone else.
• Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream and compare this rate to alternatives such as a bank loan.
• What is the reputation of the company offering the lump sum? Check the factoring company’s record with the Better Business Bureau, and research the firm on the Internet and with a financial professional.
• Will the factoring company require life insurance? The factoring company may require you to purchase a life insurance policy, which will add to your transaction expenses and reduce your payout.
• What are the tax consequences? The lump-sum payment you collect may be taxable.

For a copy of the Investor Bulletin, click here.

JTC summarizes tax reform proposals/ways & means working with retirement incentives
The Joint Committee on Taxation (JCT) issued Report to the House Committee on Ways and Means on Present Law and Suggestions for Reform Submitted to the Tax Reform Working Groups (JCS-3-13). The 568-page document summarizes current law, key tax reform proposals, and formal submissions to the House of Representatives Ways and Means Committee working groups on tax reform. Among the tax incentives that are discussed, those dealing with the employer-sponsored retirement system are discussed specifically.

Download a copy of the report here.

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

DOL posts tips on using the fee and investment information from your retirement plan
The U.S. Department of Labor (DOL) posted tips on comparing investment options in a 401(k) or similar retirement plan.

To read the entire article, click here.

PBGC updates e-4010 filing instructions to reflect guidance on MAP-21
The Pension Benefit Guaranty Corporation (PBGC) has updated the e-4010 instructions to reflect its guidance on the effect of the Moving Ahead for Progress in the 21st Century Act (MAP-21) on 4010 reporting. In addition, a few other minor modifications were made to the application.

To read the updated e-4010 instructions, click here.

IRS issues corrections to proposed rule on shared responsibility for multiemployer plans
The Internal Revenue Service (IRS) has issued corrections to the proposed regulation providing guidance under section 4980H of the Internal Revenue Code with respect to the shared responsibility for employers regarding employee health coverage.

The most important correction is made to the section on large employer members participating in multiemployer plans.

Read the correction here.

FASB education session: Fair value measurement disclosures of employee benefit plans
The Financial Accounting Standards Board (FASB) has scheduled an education session following its board meeting on March 20, 2013, to discuss the following topics:

1. Revenue recognition.
2. Fair value measurement disclosures of private company employer securities held by employee benefit plans.
3. Application of asset- or entity-based guidance to nonfinancial assets in an entity.

The session will start at approximately 9:00 a.m. EDT. The meeting will be videocast.

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

Federal Reserve report shows DB and DC plan assets dip slightly in 4th quarter
On March 7, the Federal Reserve released its report, Flow of Funds Accounts for the United States, for the fourth quarter of 2012. The report shows that U.S. corporate defined benefit (DB) and defined contribution (DC) plans had combined assets of $6.584 trillion as of December 31, down 0.27% or $18 billion from the third quarter.

Corporate defined benefit plans had $2.332 trillion in assets as of December 31, and defined contribution plans had $4.252 trillion. DB plan assets dipped 0.51% over the previous quarter, while defined contribution assets dipped just 0.14%.

The entire report can be accessed here.

DOL issues field assistance bulletin on ERISA’s annual funding notice requirements
The Department of Labor (DOL) has issued Field Assistance Bulletin 2013-1, which provides guidance to the Employee Benefits Security Administration’s national and regional offices on compliance by plan administrators of single-employer defined benefit pension plans with section 40211(b)(2) of the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, 126 Stat. 405. This section of MAP-21 amended the annual funding notice requirements of section 101(f) of ERISA to require additional disclosure of the effect of segment rate stabilization on the funding of single-employer defined benefit plans. This memorandum also includes a supplement to the model annual funding notice that plan administrators of such plans may use to comply with these new requirements.

Read the entire bulletin here.

IRS issues guidance/transition relief for employers on work opportunity tax credit (Notice 2013-14)
The Internal Revenue Service (IRS) has issued Notice 2013-14 providing guidance on § 309 of the American Taxpayer Relief Act of 2012, Pub. L. No. 112-240, enacted on January 3, 2013, and transition relief for employers claiming the Work Opportunity Tax Credit (WOTC) under §§ 51 and 3111(e) of the Internal Revenue Code (the Code), as extended by the Act.

Section 309 of the Act amended § 51 to extend the WOTC through December 31, 2013, for taxable employers and for qualified tax-exempt organizations. Specifically, this notice provides employers that hire members of targeted groups additional time beyond the 28-day deadline in § 51(d)(13) of the Code for submitting Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to designated local agencies (DLAs).

Notice 2013-14 will be published on March 25 in Internal Revenue Bulletin 2013-13. To read the guidance, click here.

IRS releases draft Form 5300 and instructions (Revised February 2013)
The IRS released a draft revised 2012 Form 5300 and its instructions. Form 5300, the Application for Determination for Employee Benefit Plan, is generally used to request an IRS determination that an individually designed retirement plan meets the requirements for tax qualification.

The revised draft form and the instructions have undergone revisions in the format and the information required. Some of the revisions were made under Announcement 2011-82, 2011-52 I.R.B. 1052, which eliminated demonstrations regarding coverage and nondiscrimination requirements and limited Form 5307, Application for Determination for Adopters of Modified Volume Submitter (VS) Plans applications.

For a copy of the revised draft Form 5300, click here. Also, the instructions are available here.

PBGC/GAO testified on multiemployer pension plans at House Committee summary available
On Tuesday, March 5, the Subcommittee on Health, Employment, Labor and Pensions, chaired by Rep. Phil Roe (R-TN), held a hearing entitled, “Challenges Facing Multiemployer Pension Plans; Reviewing the Latest Findings by PBGC and GAO.” Pension Benefit Guaranty Corporation (PBGC) Director Joshua Gotbaum and Charles Jeszech, with the Government Accountability Office (GAO), both testified.

To watch video footage of the hearing, click here.

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

IRS posts retirement plans FAQs about required minimum distributions
The Internal Revenue Service (IRS) has posted on its website frequently asked questions and answers regarding required minimum distributions.

The questions cover the types of plans that require minimum distributions and how calculations are made, as well as different rules that may apply to 403(b) plans.

To read the entire FAQ, click here.

IRS expands voluntary worker classification settlement program (IR-2013-23)
The IRS has expanded its Voluntary Classification Settlement Program (VCSP) by modifying several eligibility requirements thus making it possible for many more interested employers, especially larger ones, to apply for this program. The program allows taxpayers to voluntarily reclassify their workers as employees for future tax periods for employment tax purposes.

For a copy of IR-2013-23, click here.

Target date retirement funds: Tips for ERISA plan fiduciaries
The U.S. Department of Labor has posted on its website “Target Date Retirement Funds – Tips for ERISA Plan Fiduciaries,” which assists plan fiduciaries in selecting and monitoring target date funds (TDFs) and other investment options in 401(k) and similar participant-directed individual account plans.

Read the entire article here.

JCT publishes general explanation of tax legislation enacted in the 112th Congress
The Joint Committee on Taxation has published “General Explanation of Tax Legislation Enacted in the 112th Congress,” which as the title indicates provides an explanation of tax legislation enacted in the 112th Congress. The explanation follows the chronological order of the tax legislation as signed into law. For each provision, the document includes a description of present law, an explanation of the provision, and the effective date.

The 261-page report ranges from an explanation of the provisions relating to the extension of the Highway Trust Fund to revenue provisions of the American Taxpayer Relief Act of 2012 (Pub. L. No. 112-240).

To access the entire general explanation, click here.

PBGC creates link to alert when regulations are under OMB review
The Pension Benefit Guaranty Corporation (PBGC) has added a feature to its laws and regulations that make it easier for practitioners to see which PBGC information collection requests are under Office of Management and Budget (OMB) review.

The site announces that proposed nonmaterial changes to the 4010 filing requirements, primarily to reflect the Moving Ahead for Progress in the 21st Century Act (MAP-21), are currently undergoing review. The site will be updated whenever OMB receives a PBGC information collection request for review.

IRS posts 403(b) fix-it guide
The IRS has posted on its website a 403(b) Fix-it Guide. To access the guide, click here.

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

DOL issues advisory opinion on swaps
The Employee Benefits Security Administration of the U.S. Department of Labor (DOL) has released an advisory opinion on the fiduciary status of those who clear swaps for retirement plans and the prohibited transaction provisions of ERISA, as permitted by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In Advisory Opinion 2013-01A, the DOL examined the relationship between clearing members and plans in swap transactions, where the plan has defaulted on its obligations under a cleared swap.

The letter states the DOL intends to defer to the Congressional understanding of how Clearing Members would operate and interprets ERISA so as to not impair or impinge upon the swaps framework. Furthermore, the department has “conferred with officials of the CFTC regarding this letter. They have authorized us to state that they concur with our description of ‘cleared swap’ transactions conducted pursuant to provisions of the CEA, and that they do not believe the conclusions reached in this letter are inconsistent with the CEA or the CFTC’s regulation of cleared swap transactions under the CEA. To the extent issues raised by this interpretation affect current practice in the futures or swaps marketplace or relevant provisions or restrictions of the CEA, as amended by the Dodd-Frank Act, the Department is prepared to examine such issues in the context of providing additional regulatory guidance or future prohibited transaction relief.”

To read the entire advisory opinion, click here.

IRS requests comments on modifications to method of determining applicable federal rates
The Internal Revenue Service has issued Notice 2013-04 requesting comments regarding what modifications the Treasury Department should make to its method of determining adjusted applicable federal rates under section 1288(b) of the Internal Revenue Code and the adjusted federal long-term rate under section 382(f) of the Internal Revenue Code. The notice provides interim guidance describing the modifications to the method that will be in effect pending the issuance of further guidance.

Notice 2013-04 will be published in Internal Revenue Bulletin 2013-9 on February 25, 2013.

For more information, click here.

IRS issues 2013 covered compensation tables (Revenue Ruling 2013-02)
The IRS has issued Revenue Ruling 2013-02, which provides tables of covered compensation under § 401(l)(5)(E) of the Internal Revenue Code (Code) and the income tax regulations thereunder, for the 2013 plan year.

Read more…

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

PBGC multiemployer pension plan reports
On January 29, 2013, the federal ERISA agencies sent to Congress several reports on multiemployer pension plans insured by the Pension Benefit Guaranty Corporation (PBGC). They provide information on the financial health of multiemployer plans and the PBGC’s multiemployer insurance program, but make no recommendations.

Federal law requires the administration to issue two reports on the multiemployer pension system. First, ERISA requires an evaluation every five years to determine whether current PBGC insurance premium levels support the multiemployer benefits guarantee. Second, the Pension Protection Act of 2006 (PPA) mandated a study on the effects of the law on multiemployer plans, including the impact on small employers. These two reports were due to Congress in 2011.

Read the reports on multiemployer plans and the effects of the PPA here.

This report discusses PBGC’s insurance of multiemployer plans.

The 2012 Exposure Report examines the future solvency of its insurance programs. According to the report, PBGC is expected to collect $1.3 billion in premiums from multiemployer plans over the next decade, but the agency estimates its potential new obligations could increase by $37.6 billion. Read the entire report here.

For more information and charts, click here.

PBGC guidance on reportable events, funding-related determinations, missed quarterly contributions, and post-2012 PY guidance
Technical Update 13-1 provides PBGC guidance for plan years beginning after 2012 on compliance with the reportable events requirements of section 4043 of ERISA and PBGC’s regulation on Reportable Events and Certain Other Notification Requirements (29 CFR part 4043).

This technical update addresses two topics:

• Funding-related determinations for purposes of waivers, extensions, and the advance reporting threshold test
• Missed quarterly contributions

Regarding funding-related determinations for purposes of waivers, extensions, and the advance reporting threshold test, this technical update provides in general that for purposes of the reportable events regulation, a plan’s unfunded vested benefits (UVBs) and the value of its assets and vested benefits are determined for a plan year beginning after 2012 in the same manner as for variable-rate premiums (VRPs) for the preceding plan year.

Regarding missed quarterly contributions, this technical update provides in general that for purposes of the reportable events regulation, if a required quarterly contribution for a plan year (the “current year”) beginning after 2012 is not made in timely manner to a plan, and financial inability to make the contribution is not the reason for not making the contribution, the reporting requirement under § 4043.25 of the reportable events regulation:

(1) Is waived if the plan has fewer than 25 participants for the plan year preceding the current year (the “prior year”).
(2) If the plan has at least 25 but fewer than 100 participants for the prior year, the requirement will be considered satisfied if a simplified notice is filed with PBGC by the time the first missed-quarterly reportable event report not made in timely manner for the current year would otherwise be due.

For more information, click here.

DOL issues notice providing changed to DFVC program
The Department of Labor (DOL) has issued a notice describing changes to the department’s Delinquent Filer Voluntary Compliance (DFVC) program. Administrators of employee benefit plans subject to Title I of ERISA who fail to file annual reports on a timely basis can be subject to civil penalties under section 502(c)(2) of ERISA. The DFVC program is intended to encourage delinquent plan administrators to comply with their annual reporting obligations under ERISA through the assessment of reduced civil penalties.

The notice also describes an existing online penalty calculator and Internet-based payment system for the DFVC program.

The notice is intended to be a comprehensive update and restatement of the DFVC program that incorporates the changes that have been made to it since the 2002 Notice.

The notice was published in the Federal Register on January 29, 2013. To read the entire notice, click here.

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

PBGC Director Joshua Gotbaum to testify on multiemployer pension system
On Wednesday, December 19, at 10:00 a.m., the Subcommittee on Health, Employment, Labor, and Pensions, chaired by Rep. Phil Roe (R-TN), will hold a hearing entitled, “Challenges Facing Multiemployer Pension Plans: Evaluating PBGC’s Insurance Program and Financial Outlook.”

Pension Benefit Guaranty Corporation (PBGC) Director Joshua Gotbaum will testify. The hearing will take place in room 2175 of the Rayburn House Office Building.

Multiemployer defined benefit pension plans are created by collective bargaining agreements. The plans are administered jointly by a board of trustees equally representing employers and union officials. An aging workforce, weak economy, and fewer contributing employers threaten the long-term health of the multiemployer pension system. As a result, the plans are increasingly reliant upon the PBGC for financial assistance, and the agency now faces $7 billion in future obligations.

IRS announces that Form 5500 proposed notices have been eliminated
Beginning January 1, 2013, the Internal Revenue Service (IRS) will discontinue sending these notices:

• CP 213N, Proposed Penalty Notice for Late Filing of Form 5500, Annual Return/Report of Employee Benefit Plan
• CP 213I, Proposed Penalty Notice for Incomplete Filing of Form 5500

The IRS is eliminating proposed penalty notices under the Form 5500 program in an effort to reduce processing costs and notices, and to comply with notice and systems standards. Filers will continue to receive CP 283, Penalty Charged on Your 5500 Return, if a Form 5500 is filed late or is incomplete.

For additional information, click here.

DOL issues proposed rule and amendments to PTE 2006-06 on abandoned plans
The Department of Labor (DOL) issued proposed amendments to three regulations previously published under ERISA that facilitate the termination of, and distribution of benefits from, individual account pension plans that have been abandoned by their sponsoring employers.

The principal amendments propose to permit bankruptcy trustees to use the DOL’s Abandoned Plan Program to terminate and wind up the plans of sponsors in liquidation under chapter 7 of the U.S. Bankruptcy Code.

Also, the DOL released amendments to Prohibited Transaction Exemption (PTE) 2006-06. Among other things, PTE 2006-06 permits a “qualified termination administrator” (QTA) of an individual account plan that has been abandoned by its sponsoring employer to select itself to provide services to the plan in connection with the plan’s termination, and to pay itself fees for those services.

To read the proposed rule and amendments in their entirety visit the Federal Register, where they were published on December 12.

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

IRS issues 2012 Cumulative List of Changes in Plan Qualification Requirements (Notice 2012-76)
The Internal Revenue Service (IRS) has released Notice 2012-76) containing the 2012 Cumulative List of Changes in Plan Qualification Requirements (2012 Cumulative List) described in section 4 of Rev. Proc. 2007-44, 2007-2 C.B. 54.

The 2012 Cumulative List is to be used by plan sponsors and practitioners submitting determination letter applications for plans during the period beginning February 1, 2013 and ending January 31, 2014.

DOL releases advance copies of 2012 Form 5500 annual report
“The U.S. Department of Labor’s Employee Benefits Security Administration, the Internal Revenue Service and the Pension Benefit Guaranty Corporation (PBGC) today released advance informational copies of the 2012 Form 5500 annual return/report and related instructions. These advance copies of the 2012 Form 5500 are for informational purposes only and cannot be used to file a 2012 Form 5500 annual return/report.

“Pension and welfare benefit plans that are required to file electronically an annual return/report regarding their financial conditions, investments and operations each year generally satisfy that requirement by filing the Form 5500 or Form 5500-SF and any required attachments.

For advance copies of Form 5500, click here.

IRS releases draft of Form 5300 and instructions (revised February 2013)
The IRS has released a draft of the Form 5300 (revised February 2013); also released was the 2011 Form 5300 instructions. Form 5300, the Application for Determination for Employee Benefit Plan, is generally used to request an IRS determination that an individually designed retirement plan meets the requirements for tax qualification under Sections 401(a) and 501(a) of the Internal Revenue Code. The draft contains several revisions.

For Form 5300, click here.
For Form 5300 instruction, click here.

The Internal Revenue Service (IRS), the U.S. Department of Labor (DOL), and the Pension Benefit Guaranty Corporation (PBGC) have released guidance that eases some of the rules applicable to employee benefit plan sponsors and participants affected by Hurricane Sandy.

The newly announced relief is separate from IRS’s tax-related relief available under normal disaster relief guidance (e.g., IRS Revenue Ruling 2003-12, permitting employers to provide tax-free cash or benefits to help employees in a presidential-declared disaster; or IRS announcements postponing tax return filing or payment deadlines for individuals and businesses).

This Client Action Bulletin summarizes the employee benefit plan-related guidance from the federal agencies that applies to plan sponsors and their service providers, as well as participants. Although the guidance offers relief to those directly in the covered disaster areas (thus far, specified counties and tribal nations in Connecticut, New Jersey, New York, and Rhode Island), the agencies’ relief for retirement plan loans and hardship distributions extends to employers that sponsor plans in other parts of the country that have participants with relatives in the disaster areas.

The Department of Labor (DOL) issued a long-awaited final rule on disclosures required of ERISA-covered retirement plan service providers to the plan fiduciary, delaying the application date that was included in the 2010 interim final rule (see Client Action Bulletin 10-16). The final rule also coordinates—and thereby delays—the dates for fee and investment information disclosures to plan participants in 401(k) and other self-directed individual account plans. The final rule is effective on July 1, 2012, and applies to existing and new contracts or arrangements between covered plans and service providers as of that date. A failure to comply with the final rule subjects the service provider to the penalties imposed for violations with the DOL’s prohibited transaction rules, as well as to IRS excise taxes.

For more read the latest Client Action Bulletin.