Tag Archives: Department of Treasury

Regulatory roundup

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

Comments requested regarding potential expansion of determination letter program for individually designed plans
The IRS released Notice 2018-24, requesting comments on the potential expansion of the scope of the determination letter program for individually designed plans during the 2019 calendar year, beyond provision of determination letters for initial qualification and qualification upon plan termination.

In reviewing comments submitted in response to this notice, the Department of the Treasury, the IRS will consider the factors regarding the scope of the determination letter program set forth in section 4.03(3) of Revenue Procedure 2016-37, 2016-29 I.R.B. 136. The Treasury Department and the IRS will issue guidance if they identify any additional types of plans for which plan sponsors may request determination letters during the 2019 calendar year. Comments are due to the IRS by June 4, 2018.

For more information, click here.

PBGC releases data tables for single-employer and multiemployer pension plans
The Pension Benefit Guaranty Corporation (PBGC) has published the first installment of tables for the 2016 Data Book. Information in the claims and summary tables has been updated.

For more information, click here.

IRS issues tax withholding and estimated tax publication
The IRS released Publication 505, Tax Withholding and Estimated Tax, for use by employees to determine how much income an employer should withhold for tax payments.

The publication had been referenced by IRS as a key resource for employees to use when deciding on allowance amounts to apply on Form W-4, Employee’s Withholding Allowance Certificate. Form W-4, used by employers in calculating withheld tax amounts, was updated to reflect changes under the new tax law (Pub. L. 115-97). Forms W-4 are completed by employees to inform employers of marital status and the number of withholding allowances to be claimed for federal income tax purposes. The amount of one withholding allowance on an annual basis increased to $4,150 in 2018 from $4,050 in 2017.

For more information, click here.

Guidance for multiemployer plan alternative terms and conditions to satisfy withdrawal liability
The PBGC has issued guidance on alternative terms and conditions that multiemployer plans can use to satisfy withdrawal liability claims. The guidance describes the types of information PBGC finds helpful in evaluating plan proposals, and the factors the agency considers in its evaluation.

For more information, click here.

IRS issues final rule on mortality tables for defined benefit plans

The Treasury Department and the Internal Revenue Service (IRS) released a final rule updating the mortality assumptions that single-employer defined benefit (DB) pension plans must use to calculate the actuarial liabilities for minimum funding requirements, benefit restrictions, and the Pension Benefit Guaranty Corporation (PBGC) variable-rate premiums. The updated mortality tables are also used to calculate lump-sum distributions to plan participants in DB plans that offer such one-time payments. The final rule generally is applicable for plan years beginning on or after January 1, 2018, but also provides a limited one-year transition period (to January 1, 2019), in certain circumstances.

The IRS concurrently released Notice 2017-60, with two mortality tables. The first is a sex-distinct table for the above-mentioned one-year 2018 transition period. The second is a unisex table (blended as 50% female mortality rates and 50% male mortality rates) that must be used for the calculation of certain optional forms of payments, such as lump-sum distributions, beginning with the 2018 plan years. Also released was Revenue Procedure 2017-55, providing instructions to obtain IRS approval of plan-specific mortality tables.

Although the final rule is aimed at single-employer DB plans, its mortality assumptions are also used to determine “current liability” for multiemployer pension plans and cooperative and small employer charity (CSEC) plans. This Client Action Bulletin provides more perspective on the final rule.

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.

Proposed Form 5500 revisions seek new retirement plan details

ERISA-covered retirement plan sponsors would be required to provide significantly detailed information about their plans when filing the Form 5500 (Annual Return/Report of Employee Benefit Plan), under a proposed rule from the U.S. Department of Labor (DoL), along with a separate proposed rule issued jointly by the DoL, Treasury/Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC). (For simplicity, this Client Action Bulletin [CAB] refers to both sets of rules as the DoL’s proposed rule.)

The DoL’s proposal, which affects only ERISA-covered plans, would amend the reporting and disclosure requirements applicable to all employee benefits, but this CAB focuses on the key revisions applicable to defined contribution (DC) and defined benefit (DB) retirement plans, including certain small plans (with fewer than 100 participants) with new requirements to file certain information. (See CAB 16-5 for the proposed rule’s effects on group health plans.)

The DoL seeks comments on the proposed rule by December 5, 2016; if adopted, the DoL anticipates applying the new requirements to plan years starting in 2019 (i.e., forms filed in 2020). The IRS, however, proposes that retirement plan sponsors answer certain compliance-related questions about the plans for the 2016 plan year when filing the Form 5500 in 2017.

Regulatory roundup

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

Treasury Department denies Central States Pension Plan application
The Department of the Treasury issued its long awaited letter to the Central States, Southeast and Southwest Areas (Central States) Pension Plan. The letter denies the Central States plan its application to reduce benefits under Multiemployer Pension Reform Act (MPRA).

To read the entire letter, click here.

Final rule on additional limitation on suspension of benefits applicable to multiemployer plans
The Internal Revenue Service (IRS) released a final rule that provides guidance relating to a limitation that governs the application of a suspension of benefits under any plan that includes benefits directly attributable to a participant’s service with any employer that has withdrawn from the plan in a complete withdrawal, paid its full withdrawal liability, and, pursuant to a collective bargaining agreement, assumed liability for providing benefits to participants and beneficiaries equal to any benefits for such participants and beneficiaries reduced as a result of the financial status of the plan.

The final rule affects active, retired, and deferred vested participants and beneficiaries under any such multiemployer plan in critical and declining status as well as employers contributing to, and sponsors and administrators of, those plans. These regulations were effective on May 5, 2016.

For more information, click here.

GAO publishes retirement security report
The Government Accountability Office (GAO) released “Retirement security: Low defined contribution savings may pose challenges” (GAO-16-408). The report focuses on recent trends in defined contribution (DC) plan participation and account savings, and how much households could potentially save in DC plans over their careers. In addition, the report explores how key individual and employer decisions affect plan saving.

To download the entire report, click here.

Regulatory roundup

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

Withdrawal of proposed nondiscrimination rules
The Department of the Treasury and the Internal Revenue Service (IRS) announced that they will withdraw certain provisions of proposed regulations published on January 29, 2016, relating to nondiscrimination requirements applicable to qualified retirement plans under § 401(a)(4).

The provisions of the proposed regulations that will be withdrawn are the provisions that would modify § 1.401(a)(4)-2(c) and § 1.401(a)(4)-3(c). These provisions were intended to address certain qualified retirement plan designs that take advantage of flexibility in the existing nondiscrimination rules to provide a special benefit formula for selected employees without extending that formula to a classification of employees that is reasonable and established under objective business criteria.

For more information, click here.

New PBGC multiemployer data tables
The Pension Benefit Guaranty Corporation (PBGC) released the “2013 PBGC data tables: Multiemployer supplement” containing 10 charts that illustrate zone status over time (participant); zone status over time (plans); direction of zone status changes; zone status and tests for declining status; and administrative expenses (across various parameters).

To download the tables, click here.

GASB releases pension guidance addressing issues raised by stakeholders during implementation
The Governmental Accounting Standards Board (GASB) issued guidance addressing practice issues raised by stakeholders during implementation of the GASB’s pension accounting and financial reporting standards for state and local governments. GASB Statement No. 82, Pension Issues, addresses:

• Presentation of payroll-related measures in required supplementary information
• Selection of assumptions and the treatment of deviations from guidance in Actuarial Standards of Practice for financial reporting purposes
• Classification of payments made by employers to satisfy plan member contribution requirements.

The statement is designed to improve consistency in the application of the pension standards by clarifying or amending related areas of existing guidance.

For more information, click here.