Tag Archives: IRS

Regulatory roundup

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

 

Report on DOL’s fiduciary conflict-of-interest rule
The Congressional Research Service has released “Department of Labor’s 2016 Fiduciary Rule: Background and Issues.” The report explores the DOL’s rule as it applies to pensions, individual retirement accounts, and investments.

To download the report, click here.

IRS updates procedures for multiemployer pension suspension applications
The Internal Revenue Service (IRS) has revised the procedures for multiemployer pension plans applying to suspend benefits to avoid insolvency. IRS Revenue Procedure 2017-43 clarifies that multiemployer plans that are in critical or declining status and applying for a benefit suspension must project withdrawal liability payments as part of the projection of a plan’s available resources. It also specifies who should be provided sample notices as part of the application.

For more information, click here.

Regulatory roundup

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

IRS issues memo on the application of section 409A to back-to-back arrangement
The Office of Chief Counsel of the Internal Revenue Service (IRS) has issued a memorandum (No. 201725027) on the application of section 409A to back-to-back arrangement. According to the memo, “Treas. Reg. Section 1.409A-3(i)(6) provides that the amount of the payment under the ultimate service recipient plan may not exceed the amount of the payment under the intermediate service recipient plan. Therefore, the USR Plan fails to meet the requirements of section 409A because the USR Plan provision providing for a payment to Taxpayer in the event of a Participant’s separation from service before vesting is an impermissible payment event.”

For more information, read the entire memo here.

Higher-paid workers more likely to have access to retirement benefits
According to data published by the Bureau of Labor Statistics (BLS), “Sixty-six percent of private industry workers had access to employer-provided retirement plans in March 2016. Having access means employers offered the benefit, regardless of whether employees chose to participate. Forty-nine percent of private industry workers participated in retirement plans in March 2016. That results in a take-up rate—the percentage of workers with access to a plan who participate in the plan—of 75 percent. Access, participation, and take-up rates were all higher for workers in higher wage groups than for workers in lower wage groups.”

To learn more about the BLS’s data, click here.

Regulatory roundup

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

Guidance for remedial amendment period for 403(b) plan
The Internal Revenue Service (IRS) issued Revenue Procedure 2017-18 providing the last day of the remedial amendment period for § 403(b) plans, for purposes of section 21 of Rev. Proc. 2013-22, 2013-18 I.R.B. 985.

According to the guidance, the last day of the remedial amendment period described in section 2 of this revenue procedure and in section 21 of Rev. Proc. 2013-22 is March 31, 2020. A plan that does not satisfy the requirements of § 403(b) in form on any day during the remedial amendment period (that is, the period beginning on the later of January 1, 2010, or the plan’s effective date, and ending on March 31, 2020) will be considered to have satisfied those requirements if, on or before March 31, 2020, all provisions of the plan that are necessary to satisfy § 403(b) have been adopted and made effective in form and operation from the beginning of the remedial amendment period.

To read the revenue procedure, click here.

Final Rule to adjust for inflation civil monetary penalties
The Department of Labor (DoL) published a final rule to adjust for inflation the civil monetary penalties assessed or enforced in its regulations, pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990 as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Inflation Adjustment Act).

The Inflation Adjustment Act requires the DoL to annually adjust its civil money penalty levels for inflation no later than January 15 of each year. The Inflation Adjustment Act provides that agencies shall adjust civil monetary penalties notwithstanding Section 553 of the Administrative Procedure Act (APA). Additionally, the Inflation Adjustment Act provides a cost-of-living formula for adjustment of the civil penalties. Accordingly, this final rule sets forth the DoL’s 2017 annual adjustments for inflation to its civil monetary penalties, effective January 13, 2017.

To read the final rule, click here.

Summary and audit indicators: 403(b) Universal Availability Requirement
The IRS has updated its webpage 403(b) Universal Availability Requirement. A common error occurs when employees, working less than full-time, are automatically excluded from making elective deferrals under the 403(b) plan. A plan that wants to apply the statutory exclusion for part-time employment must determine eligibility for the 403(b) elective deferrals based on whether the employee is reasonably expected to normally work less than 20 hours per week and has actually never worked more than 1,000 hours in the applicable 12-month period.

To visit the webpage, click here.

New mortality assumptions proposed for defined benefit retirement plans

The Treasury Department and the Internal Revenue Service (IRS) released a proposed rule on December 29, 2016, to update the mortality assumptions that tax-qualified defined benefit (DB) pension plans use to calculate the contributions required under the minimum funding standards of Internal Revenue Code section 430. The proposed effective date is for plan years beginning on or after January 1, 2018; no immediate action by plan sponsors is necessary with regard to the proposed tables, which are expected to increase the plan’s actuarial liabilities and annual benefit accrual costs (i.e., “target liability” and “target normal cost,” respectively).

Once finalized, the mortality tables will also be used to develop pension obligations for reporting to the Pension Benefit Guaranty Corporation (PBGC), and Treasury and the IRS will publish a blended version of the tables to be used to calculate “non-level” optional forms of pension payments (e.g., lump-sum distributions) under tax code section 417(e).

The proposed rule adopts base mortality tables derived from the most recent study of the Society of Actuaries (SOA) Retirement Plans Experience Committee, with 2006 being the central year of the mortality experience, and mortality improvement rates from the SOA’s most recent mortality improvement study (MP-2016). The proposed rule offers three choices for selecting mortality tables: “static” tables, “generational” tables, and “plan-specific substitute” tables.

The table below illustrates the increases in actuarial liabilities for sample lives (comparing 2017 vs. 2018 “static” tables at an interest rate of 4%):

Age Male Female
45 (deferred to 65*) 2.8% 6.2%
55 (deferred to 65*) 2.8% 5.9%
65 (in pay status) 3.5% 4.6%
75 (in pay status) 7.2% 4.8%
*The pension benefit commences at age 65.

Plan sponsors should not draw any conclusions of the financial impact on actuarial liabilities or possible increases in cash contributions for a specific pension plan. The benefit formulas, plan demographics, status (“frozen,” “partially frozen,” “open”), and other complex variables are unique to a given plan and must be carefully evaluated.

The IRS seeks public comments on the proposed rule by March 29 and will hold a public hearing in April for plan participants, plan sponsors, pension actuaries, and other interested parties to express their views before issuing a final rule.

For additional information about the proposed revised mortality tables, please contact your Milliman consultant.

Regulatory roundup

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

IRS updates 2017 revenue procedures
In an Internal Revenue Bulletin, the Internal Revenue Service (IRS) published various revenue procedures, revised for 2017, for issuing letters, rulings, determination letters, and technical advice on specific issues related to employee benefits.

To read the bulletin, click here.

PBGC posts 2017 premium filing instructions
The Comprehensive Premium Filing Instructions for 2017 Plan Years has been approved by Office of Management and Budget (OMB) and is now available on the website of the Pension Benefit Guaranty Corporation (PBGC).

To read the filing instructions, click here.

PBGC issues RFI for approving certain alternative methods for computing withdrawal liability
The PBGC is requesting information from the public on issues arising from arrangements between employers and multiemployer plans involving an alternative “two-pool” withdrawal liability method.

PBGC seeks information from the general public and all interested stakeholders, including multiemployer plan participants and beneficiaries, organizations serving or representing retirees and other such individuals, multiemployer plan sponsors and professional advisors, and contributing employers, unions, and other interested parties, about these arrangements, including the various forms they may take, the terms and conditions that apply to new and existing contributing employers who enter into such arrangements, and the benefits and risks these arrangements may present to multiemployer plans and their participants, employers, the multiemployer pension insurance program, and other stakeholders in the multiemployer system.

For more information, click here.

FAQ update on preapproved plan adopting employers
The IRS has updated a series of frequently asked questions (FAQ) providing guidance to employers adopting preapproved retirement plans.

To learn more, click here.

 

Regulatory roundup

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

Proposed rule on mortality tables for determining present value under DB plans
The Internal Revenue Service (IRS) issued proposed regulations prescribing mortality tables to be used by most defined benefit (DB) pension plans. The tables specify the probability of survival year-by-year for an individual based on age, gender, and other factors. This information is used (together with other actuarial assumptions) to calculate the present value of a stream of expected future benefit payments for purposes of determining the minimum funding requirements for the plan.

These mortality tables are also relevant to determining the minimum required amount of a lump-sum distribution from such a plan.

To read the entire proposed rule, click here.

Updates to determination letter instructions for DB plans with risk transfer language
The IRS updated its posting regarding determination letter instructions for DB plans with risk transfer language.

To read the updated information, click here.