Category Archives: Defined contribution

Mall of America selects Milliman for retirement services

Milliman has announced it has added Mall of America® as a defined contribution client. Mall of America is a privately held corporation located in Minnesota.

“We chose Milliman for their reputation as a trusted service provider that values their clients. Partnering with Milliman provides our HR team the support and assistance to bring the best retirement plan and service to our team members,” says Sue Amundson, Human Resources Director at Mall of America.

Milliman will provide recordkeeping, administration, communication, and compliance services for the Mall of America Employee Retirement Savings Plan. Channel Financial is the independent investment adviser providing consulting services for the Plan and assisted with the recordkeeper search.

Our mission at Milliman is to serve our clients to protect the health and financial well-being of people everywhere, and we strongly believe in providing superior service and value that exceeds our client’s expectations. We look forward to a long-standing relationship with Mall of America.

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

Hurricane Irma victims: Hardship and loan relief available

Good news: the Internal Revenue Service (IRS) announced that 401(k) plans and similar defined contribution (DC) employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Irma and members of their families. Similar relief was provided to victims of Hurricane Harvey. Plans will be allowed to make loans and hardship distributions before they are formally amended to provide for these features. This relief applies to 401(a), 403(a), 403(b), and certain 457(b) plans. Defined benefit (DB) plans and money purchase plans cannot make hardship distributions unless they contain either employee contributions that are separately accounted for or rollover amounts.

Loans and hardship distributions will provide the financial resources needed to those suffering in the wake of the hurricanes. Announcement 2017-13 states that both current and former employees are able to take loans or hardship distributions if their principal residences on September 4, 2017, were located in the Florida counties identified for individual assistance by the Federal Emergency Management Agency (FEMA) because of the devastation caused by Hurricane Irma, or whose places of employment were located in one of these counties on that applicable date, or whose lineal ascendant or descendant, dependent, or spouse had principal residences or places of employment in these counties on that date.

Plans can ignore the reasons that normally apply to hardship distributions, thus allowing the funds to be used, for example, for food and shelter. If a qualified plan requires certain documentation before a distribution is made, the plan can relax this requirement and still be considered qualified. The amount available for a hardship distribution is still limited to the maximum amount available under the IRS Code. In addition, there are no post-distribution contribution restrictions required as there normally are in plans, if the distribution is being made for hurricane relief. Employees still have to pay income taxes on hardship distributions and may have to pay the 10% early penalty tax. Loans, if not repaid, but rather defaulted, become taxable income to the participant.

There is a window of time in which employees can take advantage of this relief. The distributions must be taken from a qualified plan on or after September 4, 2017, but no later than January 31, 2018. Employers need to amend their retirement plans to provide for loans or hardship distributions generally by December 31, 2018.

Why this relief is important does not need debating, but the significant impact it may have on retirement plans and employee retirement accounts remains to be seen. It is challenging for employees to save money and, with an unforeseeable emergency in front of them, employees will turn to where they have most if not all of their savings. Employees may also stop saving for the future indefinitely because of their need for current income to survive now. All of this can’t help but compromise their future retirements.

Should 401(k) sponsors continue offering employer stock?

There are several valuable reasons why companies include employer stock in 401(k) plans. However, increased risk of litigation has caused many employers to reconsider the decision to offer employer stock as an investment option. In her article “Employer stock in a 401(k) plan,” Milliman’s Kara Tedesco outlines initiatives for plan sponsors to consider when deciding to maintain or discontinue their employer stock offering.

DC plan considerations for M&As

This blog post is the second in a series of six that will highlight considerations for and the impacts of employee benefit plans on mergers and acquisitions (M&A) transactions. Click here for additional blogs in this series. To learn how Milliman consultants can help your organization with the employee benefits aspects of M&As, click here.

Buyers and sellers alike face a number of issues, oftentimes complex, leading up to and following a corporate merger or acquisition. If both entities are sponsors of a defined contribution (DC) plan, many decisions have to be taken into account and given adequate consideration. When possible, the future of the plans involved should be decided before the transaction because options are limited afterward. Be sure to have a game plan in place to complete DC plan due diligence before closing.

There are generally two types of acquisitions—an asset purchase or a stock purchase. The choices associated with them have significantly different impacts to plan participants. Here’s a look at each.

ASSET PURCHASE CONSIDERATIONS
With an asset purchase, a buyer is only “buying” the assets or a portion of the assets of the seller. The buyer will generally not have the responsibility for the seller’s DC plan. That means any employee who is hired by the buyer would simply be terminated by the seller and receive any distribution option available under the seller’s plan. The seller, and for that matter the DC plan, would continue to remain in existence. (Note: This often results in a partial plan termination in which all affected participants must be given 100% vesting.)

STOCK PURCHASE OPTIONS
If the transaction is a stock purchase, the buyer can choose several options: maintain the seller’s plan, terminate the seller’s plan, or merge the two plans. Here’s a look at the implications of each.

1. Seller’s plan is maintained
If the decision is to maintain the seller’s DC plan, several issues need to be considered:

  • What is the additional cost for the maintenance of and reporting on two separate plans?
  • Will there be participants in each plan or will one plan be “frozen” and one plan “active”?
    • If both plans are active, how will transfers between the two groups be handled?
    • Will the benefits offered between the two plans be the same or different? If different, how will the differences be communicated?
    • What are the nondiscrimination testing implications?

2. Seller’s plan is terminated
The decision to terminate the seller’s plan must take place before the closing of the transaction—otherwise, the buyer assumes responsibility for the seller’s DC plan. Before terminating the plan, consider:

  • Are there outstanding participant loan balances that could default?
  • Who will be responsible for the final audit and 5500 reporting?
  • Will there be a need to identify and locate “lost” participants?
  • Will rollovers into the buyer’s plan be allowed?
  • Will loan rollovers into the buyer’s plan be permitted?

3. Seller’s plan is merged into buyer’s plan
When considering whether to merge the two DC plans, it’s important to complete due diligence before the transaction to prevent issues after the transaction. Review operational issues and address them up-front. If compliance issues are uncovered, review options to determine if remedies exist under the Employee Plans Compliance Resolution System (EPCRS). Then complete a side-by-side review of the design of each plan to compare plan designs. A final plan design incorporates the best of both plans and is a win-win for all participants. Be sure to:

  • Analyze participation levels of the new, larger group and determine whether the merged plan will pass or fail nondiscrimination testing
  • Consider the effective date of the “merged” plan—take into account January 1 dates if safe harbor plan status is needed
  • Determine if participants should be automatically enrolled, if deferral rates should be mapped over, or if reenrollment should be offered
  • Review investment options to determine any fund additions or replacements, finalize the asset mapping strategy, and decide if the merged participants will be defaulted
  • Identify any protected benefits
  • Create comprehensive participant communication
  • Determine how to handle Roth assets of the seller’s plan if the buyer’s plan does not have a Roth provision

BEFORE, DURING, AND AFTER THE TRANSACTION
An abundance of due diligence, careful analysis, and a detailed project plan is paramount. The impact, both to the corporation and the employees, is considerable. Well-informed choices and decisions can go a long way in making the transition a smooth one for all involved.

Milliman adds Holzer Health System as retirement services client

Milliman has added Holzer Health System as a defined contribution client. Holzer Health System is a multi-discipline healthcare system with more than 160 providers and 2,400 employees providing services in over 30 areas of expertise from 15 locations throughout Ohio and western West Virginia.

“We chose Milliman for their reputation of being a trusted service provider who values commitment to client service. In addition to service, the website is user friendly and includes robust tools to assist participants in planning for retirement. Partnership with providers is a critical decision, and Milliman’s unique ability to design services and systems to meet the needs of all our retirement plan participants was a strong factor in our decision making,” says Lisa Halley, vice president of human resources.

Milliman will provide recordkeeping, administration, communications, and compliance services for the Holzer Health System 401(a), 403(b), and 457(b) plans. The Robertson Group at Morgan Stanley headquartered in Columbus, Ohio, is the independent co-fiduciary investment adviser providing consulting services and participant education for the plans.

We look forward to an enduring relationship with Holzer Health System, and we are honored they selected us. At Milliman, our focus is to provide superior service and value that exceeds our client’s expectations. We believe that strong service and a commitment to the industry is what most plan sponsors want and need.

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

A personal touch enhances 401(k) plan

One telecommunications company seeking an upgrade of its 401(k) plan’s design and administration determined that Milliman was able to provide them with the type and quality of services needed. Milliman consultants offered the company a three-pronged solution to address several operational concerns related to its 401(k) plan. The case study entitled “Service is in the eye of the beholder” by Dominick Pizzano highlights the approach.

Here is an excerpt:

(1) Plan design revisions. Milliman’s analysis of their situation revealed that several of the ongoing administrative burdens could be addressed through amending the plan. Suggested revisions included (a) removing the joint and survivor annuity requirements which had been included and continued in the plan even though by law the plan was not a type of plan that required such annuities and neither the firm nor participants had expressed any interest in using these payment options; (b) increasing the 401(k) deferral limit which had never been modified to reflect the higher limit that went into effect with a past law change; and (c) adding a $5,000 mandatory cash-out threshold. Milliman proposed amending the plan to incorporate these revisions.

(2) Implementing a more service-oriented administrative approach. There were several operational areas (e.g., loan applications, withdrawal requests, and qualified domestic relations order determinations) where the previous provider did not assume responsibility. Milliman assured the organization that if they made the switch to Milliman, they would be relieved of such tasks in the future as these services would fall within the scope of Milliman’s responsibility.

(3) The existing 401(k) plan currently offered participants a choice of 34 investment alternatives, many of which were similar in asset composition, expense ratio, and average return so as to be redundant. Analysis of the breakdown by fund indicated that many of these funds were not being used by participants. Accordingly, the current array of funds was creating more confusion than appreciation with participants. Milliman proposed to have its investment consultants analyze the existing funds and replace them with a more concise set of funds that would provide sufficient diversification opportunities for participants by covering each of the investment categories previously provided but doing so with a smaller number of funds carrying lower expense ratios. In conjunction with this smart-sizing of the plan’s investment alternatives, Milliman also proposed to have the plan offer Milliman’s InvestMap as an alternative for those participants who did not want to assume the initial task of designing a unique investment portfolio as well as the ongoing responsibility of monitoring fund allocations. By choosing InvestMap, such participants would have an age-appropriate allocation mix created for them upon their selection with such mix proportionately rebalanced as they approached retirement.