M&A and nonqualified deferred compensation plans due diligence considerations

With merger and acquisition (M&A) momentum showing no signs of slowing down, companies should review their current nonqualified deferred compensation plans (NDCPs) to assess whether such plans can withstand the rigors of an M&A due diligence test, particularly with respect to compliance with Internal Revenue Code Section 409A. For companies in the midst of an M&A process, a careful examination and comparison of each of the respective companies’ NDCPs is recommended prior to closing the deal so that each side knows exactly what they will be getting into ( as well as what they will be getting out of the NDCPs) when the change in control occurs. This article by Milliman’s Dominick Pizzano and White & Case’s Henrik Patel provides more perspective.

Corporate pensions likely to miss 2018 investment return assumptions

Milliman has released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In November, these pensions experienced a $7 billion increase in funded status resulting from a robust investment gain of 0.72%. This brings the PFI’s year-to-date investment performance to a loss of 1.49%, making it likely these plans will miss the expected return assumption for 2018.

It’s looking likely that the Milliman 100 plans will miss their target investment returns for the third time since the financial crisis. On the other hand, interest rates have been rising for most of the year, primarily contributing to the year-to-date funded status improvement of $121 million. All eyes are now focused on where interest rates will end up at year-end.

Pension plan liabilities improved marginally, by $1 billion, in November, as the benchmark corporate bond interest rates used to value those liabilities increased one basis point, from 4.40% to 4.41%. The funded ratio of the Milliman 100 PFI increased slightly, from 93.2% at the end of October to 93.7% as of November 30.

Looking forward, under an optimistic forecast with rising interest rates (reaching 5.06% by the end of 2019 and 5.66% by the end of 2020) and asset gains (10.8% annual returns), the funded ratio would climb to 110% by the end of 2019 and 127% by the end of 2020. Under a pessimistic forecast (3.76% discount rate at the end of 2019 and 3.16% by the end of 2020 and 2.8% annual returns), the funded ratio would decline to 87% by the end of 2019 and 80% by the end of 2020.

To view the complete Pension Funding Index, click here. To see the 2018 Milliman Pension Funding Study, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.

2019 key administrative dates and deadlines for calendar-year multiemployer defined benefit plans

Milliman’s 2019 multiemployer defined benefit calendar with key administrative dates and deadlines is now available on our website. The calendar lists relevant 2019 administrative dates encountered by most multiemployer defined benefit plans, including deadlines for governmental filings and participant disclosures. The calendar also provides short descriptions of the actions required to meet each deadline.

To download the calendar, click here.

Milliman adds Timber Operators Council – Woodworkers, IAM Defined Contribution Plan and Trust as a retirement services client

Milliman today announced it has added the Timber Operators Council – Woodworkers, IAM Defined Contribution Plan and Trust as a defined contribution client. The plan includes over 4,300 participants and $150 million in assets.

“We chose Milliman because of its flexibility and ability to undertake many of the administrative tasks associated with the plan,” says Rodger Glos, co-chairman of the board of trustees. Noel Willet, who also co-chairs the board, adds, “Bringing the plan into a daily valuation environment will be of great benefit to both the participants and our administrator.”

Milliman will provide recordkeeping and compliance services for the plan.

We felt the Timber Operators Council would be a great client from our first meeting – they were collaborative and interested in the details commonly overlooked during the interview process. We are grateful for their vision and the trust they have placed in Milliman to operate their plan. Further, it’s a plan with some unique complexities, and our team did a great job demonstrating how to problem-solve and transition their plan.

For information on Milliman’s employee benefit services, click here.

Regulatory roundup

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

IRS releases specifications for electronic filing of Form 8955-SSA
The Internal Revenue Service (IRS) released Publication 4810, “Specifications for Electronic Filing of Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits.” The purpose of this publication is to provide the specifications for electronically filing Form 8955-SSA with the IRS. The publication must be used to prepare current and prior year Form 8955-SSAs.

To download the publication, click here.

403(b) preapproved plan program FAQs posted
The IRS has posted FAQs related to 403(b) preapproved plan programs on eligible adopting employers and reliance on letters. Questions include:

• Who can adopt a 403(b) prototype or volume submitter specimen plan?
• What is an IRS opinion or advisory letter for a 403(b) preapproved plan?
• To what extent can an adopting employer rely on a 403(b) prototype plan’s opinion letter?
• To what extent can an adopting employer rely on a 403(b) volume submitter plan’s advisory letter?

To access the FAQ, click here.

Two summary reports by Employee Plans Compliance Unit posted
The IRS posted two new reports from the Employee Plans Compliance Unit (EPCU): “Updating Frozen Defined Benefit Plans for Current Law and Other Compliance Issues” and “Nonqualified 401(k) Plans.”

During the Frozen Plan Amendments project, the EPCU looked at whether sponsors of frozen defined benefit plans had amended their plans for the Economic Growth and Tax Relief Reconciliation Act of 2001.

The EPCU Nonqualified 401(k) Plans project began in February 2013. The unit sent contact letters to a sample of plan sponsors that showed their 401(k) plans were nonqualified. The unit wanted to learn whether they made a mistake when selecting pension feature codes 2J and 3C on their Form 5500 series returns to describe their plan’s characteristics. Responses showed that 87% of plan sponsors in the sample made filing errors showing that their plans were not qualified 401(k) plans. A 401(k) plan must be a qualified plan.

IRS releases notice delaying the overhaul of the Form W-4 until 2020
The IRS published Notice 2018-92. This notice provides interim guidance for the 2019 calendar year on income tax withholding from wages and from retirement and annuity distributions. This notice provides that certain withholding rules in Notice 2018-14, 2018-7 I.R.B. 353, that applied for 2018 will remain in effect for the 2019 calendar year or, in the case of one such rule, until April 30, 2019. Also, the IRS and the Department of the Treasury intend to develop regulations under sections 3401 and 3402 of the Internal Revenue Code, as amended by section 11041 of the Tax Cuts and Jobs Act.

To read the entire notice, click here.

2019 key administrative dates and deadlines for calendar-year single-employer defined benefit retirement plans

Milliman’s 2019 Key Administrative Dates and Deadlines for Calendar-Year Single-Employer Defined Benefit Retirement Plans is now available. The calendar lists relevant 2019 administrative dates encountered by most single-employer defined benefit plans, including deadlines for quarterly contributions, determination letter applications, and funding notices. The calendar also provides a short description of the actions required to meet each deadline.

To download the calendar, click here.