The SECURE Act has now made it significantly more attractive and less restrictive for employers to offer annuities within their defined contribution (DC) retirement plans. This provision presents a growth opportunity for the annuity industry. In this article, Milliman actuary Ian Laverty highlights those opportunities and provides an overview of the fiduciary and portability changes created by the SECURE Act.
Congress has approved two bills to fund the federal government for the remainder of fiscal year (FY) 2020, which ends September 30, 2020. The president will sign the bills.
One of the bills, the “Further Consolidated Appropriations Act, 2020” (H.R.1865), cleared the House on December 17 by a vote of 297-140. It covers “domestic” spending items and includes provisions directly or indirectly affecting benefit programs sponsored by employers. The Senate approved the measure on December 19 by a vote of 71-23.
In the retirement arena, H.R.1865 includes provisions from the “Setting Every Community Up for Retirement Enhancement (SECURE) Act,” which cleared the House in May. The bill calls for:
- Simplification of the 401(k) safe harbor rules
- An increase, from age 70-1/2 to age 72, in the required beginning date for mandatory distributions
- A requirement that 401(k) plans enable participation by part-time workers who satisfy a specified employment service rule
- A requirement that defined contribution (DC) plan (and IRA) distributions generally be made to nonspouse beneficiaries within 10 years of the death of the account holder
- Permission for DC plans, including 403(b) or governmental 457(b) plans, to make direct trustee-to-trustee transfers of lifetime income investments to another employer-sponsored retirement plan (or IRA)
The bill also includes provisions targeting specific retirement plan types, such as “open” multiple employer plans (MEPs) for unrelated employers; Pension Benefit Guaranty Corporation (PBGC) premiums paid by cooperative and small employer charity (CSEC) pensions; retirement account rules for church-controlled organizations; special rules for individuals when certain natural disasters strike; funding rules for community newspapers; and tax credits for small-employer plan start-up costs. In addition, the bill significantly increases the penalties for retirement plan filings and for employers failing to file withholding notices, and includes “administrative improvements” to plan adoption and filing dates, disclosures, and nondiscrimination requirements for “closed” pension plans.
In the health benefits area, the bill permanently repeals the 40% excise tax (the “Cadillac” tax) on “high-cost” employer-sponsored health plans and the annual health insurance tax (HIT) on health insurers. H.R.1865 extends the fee supporting the Patient-Centered Outcomes Research Institute (PCORI) through FY2029 and similarly extends the fees on health insurers and self-insured health plans of $2 per average number of lives covered.
The bill also includes one-year tax “extenders” (through 2020) for the tax credit for employers that provide certain paid family leave, the Work Opportunity Tax Credit for hiring individuals from targeted groups, and the Indian Employment tax credit for businesses that employ American Indians or their spouses. It also extends the credit for health insurance coverage for certain individuals receiving Trade Adjustment Assistance or pension benefits paid by the PBGC.
A forthcoming Client Action Bulletin will provide further details, including the effective dates of the various provisions in H.R.1865. For additional information about the bill’s provisions affecting employer-sponsored retirement or health benefit programs, contact your Milliman consultant.
Milliman’s 2020 key administrative dates and deadlines for calendar-year defined contribution (DC) retirement plans is now available. The annotated list includes relevant 2020 administrative dates encountered by most defined contribution plans (401[k], 403[b], profit sharing, etc.), with deadlines for quarterly benefit statements, participant disclosures, and safe harbor notices. The calendar also provides short descriptions of the actions required to meet each deadline.
To download the calendar, click here.
The Internal Revenue Service (IRS) has issued a proposed rule that would amend the life expectancy and distribution period tables used to calculate required minimum distributions (RMDs) from qualified retirement plans, profit-sharing and stock bonus plans, IRAs and annuities, 403(b) and 457 plans, and certain other tax-favored employer-provided retirement arrangements. The IRS proposes to apply the updated tables after it issues the rule in final form and no sooner than for distributions beginning on or after January 1, 2021. Therefore, RMDs for 2020 are generally not affected and cannot be calculated using the new proposed tables.
The proposed updated tables reflect longer life expectancies for males and females than under current tables, thereby resulting in smaller RMDs and longer payout periods.
For more perspective, read this Milliman Client Action Bulletin.
By year-end 2019, sponsors of calendar-year single-employer retirement plans must adopt necessary and discretionary plan amendments to ensure compliance with the statutory and regulatory requirements of ERISA and the tax code. This Client Action Bulletin looks at key areas—including administrative compliance issues—that defined benefit (DB) and/or defined contribution (DC) plan sponsors should address by December 31, 2019.
Actuaries calculate retirement plan liabilities by taking a stream of benefit payments, or cash flows, expected to be received from a plan and assigning a measure of current day value to each payment in the stream, expressed as a single cash amount as of a valuation date. Current day value is the concept that money available today has the potential to earn interest. When describing a sum of money to be provided in the future, its value today should be less in order to account for earnings potential. It is the sum of all expected payments, measured at current day value, which defines an actuarial liability. This article by Milliman actuary Reid Earnhardt explains how cash flows and present value are used to calculate the duration of actuarial liabilities.