Tag Archives: IRS

Regulatory roundup

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

Modifications to 2020 Form 5500 Series proposed

The Pension Benefit Guaranty Corporation (PBGC) requested that the Office of Management and Budget (OMB) extend approval (with modifications) of its collection of information for annual reporting. PBGC is proposing modifications to the 2020 Schedule R (Retirement Plan Information) and its related instructions. The proposed modifications to Schedule R affect multiemployer defined benefit (DB) plans covered by Title IV of ERISA. PBGC is also proposing minor modifications to the Form 5500 Series to improve the accuracy of reported information.

For more information, click here.

IRS extends temporary nondiscrimination relief for closed DB plans through 2020

The Internal Revenue Service (IRS) issued Notice 2019-49, which extends the temporary nondiscrimination relief for closed DB plans that is provided in Notice 2014-5, 2014-2 I.R.B. 276, by making that relief available for plan years beginning before 2021 if the conditions of Notice 2014-5 are satisfied.

The IRS and the Department of the Treasury expect that the final regulations making amendments to the § 401(a)(4) regulations will include a number of significant changes in response to comments received.

However, it is anticipated that the final regulations will not be published in time for plan sponsors to make plan design decisions based on the final regulations before expiration of the relief provided under Notice 2014-5 (as last extended by Notice 2018-69). Accordingly, the IRS and the Treasury have determined that it is appropriate to extend the relief provided under Notice 2014-5 for an additional year.

For more information, click here.

Retirement plan considerations related to expanded determination letter program

Earlier this year, the Internal Revenue Service (IRS) released Revenue Procedure (Rev Proc) 2019-20 announcing an expansion of the determination letter program for certain retirement plans. The determination letter program, previously restricted in 2017 (Rev Proc 2016-37), will be expanded on September 1, 2019. This action opens the program up to statutory hybrid plans to apply during a 12-month window, and also allows certain merged plans indefinitely. Milliman’s Carrie Vaughn offers more perspective in this Multiemployer Review article.

Updated mortality tables proposed for pension plans

On May 22, the Society of Actuaries (SOA) released an exposure draft that includes new mortality tables that private-sector defined benefit pension plan sponsors and their actuaries consider in measuring retirement plan obligations. The proposed new tables, referred to as “Pri-2012” in the exposure draft, are generally designed to replace the tables known as “RP-2006.” The RP-2006 tables currently serve as the mortality basis for funding valuations and lump sum calculations, as well as for many companies’ accounting valuations.

The SOA indicates that most plan sponsors that update their mortality assumptions from the RP-2006 tables to the Pri-2012 tables “will experience only a small change in their pension liabilities, usually within plus or minus 1%.” The SOA also notes that the pension liability change will vary depending on a plan’s demographics and other assumptions (e.g., the discount rate) that are used to compute pension liabilities. According to the SOA, significant indicators of mortality are the participants’ “collar type”—white or blue—and income level, with the collar type being a stronger predictor of longevity than a plan’s benefit amount.

The total data set for the study included a substantial amount of multiemployer plan experience. However, the SOA found no significantly different mortality experience for participants in multiemployer versus single-employer plans, and thus did not produce separate Pri-2012 tables for multiemployer plans.

With regard to measuring retirement plan obligations under the Financial Accounting Standards Board’s accounting standards, employers that historically have chosen to use the most recent mortality tables published by the SOA will consider applying the Pri-2012 tables for measurement dates that occur after the SOA publishes the final version of the study, which is expected in the fall of 2019. At that time, the SOA also will likely and concurrently release an updated mortality improvement scale to succeed the currently used MP-2018 scale to estimate how mortality rates will change in the future.

Looking ahead, the IRS has already released the required mortality tables to measure pension obligations for 2020 funding valuations and to calculate lump sums for stability periods beginning in 2020. Therefore, the Pri-2012 tables will not be used for these purposes until at least 2021.

The SOA’s exposure draft can be found here. The deadline to submit comments on the exposure draft to the SOA is July 31, 2019. For additional information about the exposure draft or to assess the impact on your specific retirement plans, please contact your Milliman consultant.

IRS expands Self-Correction Program for retirement plans

The Internal Revenue Service (IRS) has expanded the Self-Correction Program (SCP) to enable retirement plan sponsors to more easily fix certain common plan document and operational failures, effective beginning April 19, 2019. Revenue Procedure 2019-19 updates the Employee Plans Compliance Resolution System (EPCRS), which covers the SCP, the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP). The expanded SCP permits: self-correction options for specified participant loan failures and possible deemed distribution relief under Internal Revenue Code (IRC) section 72(p); self-correction of certain plan document failures; and additional self-correction opportunities for certain operational failures by a retroactive plan amendment. This Client Action Bulletin provides some more perspective.

Regulatory roundup

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

Updated mortality improvement rates and static mortality tables for defined benefit plans
The Internal Revenue Service (IRS) released updated mortality improvement rates and static mortality tables for defined benefit pension plans for 2020. Notice 2019-26 sets forth the updated mortality improvement rates and static mortality tables that are used for purposes of determining: 1) the minimum funding requirements under § 430(h)(3) for 2020; and 2) the minimum present value under § 417(e)(3) for distributions with annuity starting dates that occur during stability periods beginning in the 2020 calendar year.

For more information, click here.

Proposed overtime rule published
The Wage and Hour Division of the U.S. Department of Labor (DoL) published a proposed rule on overtime pay in the Federal Register. Public comments should be submitted on or before May 21, 2019. Commenters should transmit comments early to ensure timely receipt prior to the close of the comment period.

For more information, click here.

IRS permits lump-sum window option for pension annuitants pending further study

The Internal Revenue Service (IRS) has suspended its four-year regulatory project that was expected to limit a defined benefit (DB) retirement plan’s ability to offer retirees and beneficiaries a short-term opportunity for lump sums in lieu of annuities. Notice 2019-18, released on March 6, states the agency no longer intends to amend the required minimum distribution rules to prohibit lump-sum windows to current annuitants in a DB plan. The IRS, however, notes it will continue to study the issue of retiree lump-sum windows.

The IRS notice supersedes Notice 2015-49 (see Client Action Bulletin 15-8).

Until the IRS issues further guidance, the agency will not assert that a plan amendment providing for a retiree lump-sum window program results in a violation of the minimum distribution rules, but will continue to evaluate whether the plan, as amended, satisfies the other requirements (e.g., nondiscrimination, vesting, maximum benefit limits) of the tax code.

The IRS also will not issue private letter rulings on this matter. However, if a taxpayer is eligible to apply for and receive a determination letter, the IRS will no longer include a caveat expressing “no opinion” regarding the tax consequences of a pension plan document that includes such a window.

Although certain plan sponsors—such as those pursuing means to curtail their DB plan liabilities and obligations through “de-risking” strategies or those considering terminating frozen plans—might find the notice of particular interest, they also should review non-tax considerations for possible implications. In particular, fiduciary responsibilities under ERISA should be contemplated, as well as potential exposure to ERISA-based litigation.

For additional information about the impact of IRS Notice 2019-18 on your DB plan or to discuss lump-sum window options and plan amendments to adopt such changes, please contact your Milliman consultant.