Tag Archives: Regs and guidance

Required minimum distributions: IRS proposes updated tables

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.

2020 key administrative dates and deadlines for calendar-year single-employer defined benefit retirement plans

Milliman’s 2020 key administrative dates and deadlines for calendar-year single-employer defined benefit retirement plans is now available. The calendar lists relevant 2020 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.

DoL proposes new voluntary electronic disclosure rule for retirement plans

The U.S. Department of Labor (DoL) released a proposed rule that, if finalized, will provide an additional “safe harbor” for plan administrators to use electronic media to furnish retirement plan information to participants and beneficiaries. The proposed rule would allow for such disclosures via an internet posting for plan participants and beneficiaries with valid electronic addresses. However, participants and beneficiaries would to be able to request paper disclosures and entirely opt out of electronic delivery.

The proposed safe harbor does not apply to employee welfare benefit plans, such as disability or group health plans. The DoL intends to study the application of this new safe harbor to disclosures required for such plans. The proposed rule states that commenters should feel free to respond to the 21 questions contained in the proposed rule for both retirement and welfare benefit plans.

For more perspective, read this Milliman Client Action Bulletin.

Proposed rule to discontinue publishing interest rates for DB pension plans that still use PBGC legacy lump sum rates

The Pension Benefit Guaranty Corporation (PBGC) issued a proposed rule to modernize the actuarial assumptions used to calculate the lump sum present value of certain guaranteed benefits in the defined benefit (DB) plans that undergo distress or PBGC-initiated, involuntary terminations.

Upon plan termination, PBGC becomes the appointed statutory trustee and is responsible for paying guaranteed benefits. The present value of each participant’s guaranteed benefit using these proscribed interest rates is then calculated. If the resulting present value is $5,000 or less, it is deemed to be “de minimis” and can be paid to the participant as a lump sum in lieu of an annuity.

PBGC believes that most DB plans no longer use these legacy interest rates. Since 2000, DB plans have been amended to use Internal Revenue Code Section 417(e)(3) variable interest rates to convert an annuity to an accelerated form of payment, such as a lump sum. This proposed rule would only affect those plans that continue to use PBGC legacy interest rates.

Use of lump sum assumptions by PBGC
Before 1994, plans under Section 417(e)(3) were required to use these legacy interest rates to determine the minimum permissible lump sum equivalent of an annuity benefit. This was changed by the Retirement Protection Act of 1994 (RPA 94), which amended Section 417(e)(3) to no longer require the use of PBGC lump sum interest rates for distributions in plan years beginning on or after January 1, 2000.

Since 2000, PBGC began publishing two separate tables of lump sum interest rates so as not to affect private sector plans that chose to continue to use PBGC’s legacy interest rates. They are known as Appendix B with PBGC’s interest rates for lump sums, and Appendix C providing the legacy interest rates for use by the private sector. To date, the tables have always been identical.

Proposed regulatory changes
Under the new proposed rule, PBGC would adopt the interest and mortality assumptions from Section 417(e)(3) of the Code and discontinue publication of PBGC’s legacy interest rates. The interest rate assumption in Section 417(e)(3) is defined as the minimum present value spot segments rates and is published monthly by the Internal Revenue Service (IRS).

For the few private-sector plans that elect to continue to use PBGC’s lump sum interest rates, the proposed rule would require the publishing of a final set of interest rates. These final rates would be equal to the average immediate and deferred rates for the 120-month period ending in July 2019, rounded to the nearest quarter-percent, to be used for valuation dates on or after the final rule’s effective date. The proposed rule would provide an immediate rate of 1.5% for discounting benefits for the period between the annuity starting date and each future payment date and a deferred rate of 4% for discounting benefits during the period leading up to the annuity starting date.

Request for comments
Because PBGC has incomplete information on private-sector plan use of its legacy interest rates, it is soliciting comments on which private sector plans use these rates and for what purpose, and whether setting the legacy interest rates at a 120-month average would cause any undue burden. (It is anticipated, but has not yet been confirmed, that this change in actuarial assumptions will not constitute a “cut back” in accrued benefits under IRC Section 411(d)(6). It is expected that IRS will issue a comment to this effect.) Comments must be submitted on or before November 29, 2019, to be assured of consideration.

Employer actions
Employers that are still using PBGC’s legacy interest rates should review their plan documents and carefully analyze how this proposed change would affect their plans going forward. We suggest that plan sponsors also review any non-qualified plans that may reference these legacy rates and assess the impact. Those that find using the final set of interest rates PBGC is proposing would have an undue burden on their plans should consider commenting on the proposed rule before the November 29 deadline.

Please contact your Milliman consultant for further information.

COLAs for retirement, Social Security, and health benefits for 2020

The Internal Revenue Service (IRS) has announced the cost-of-living adjustment (COLA) figures for retirement plan benefits for 2020. The Social Security Administration announced its 2020 changes in October based on the Consumer Price Index for the quarter ended September 2019 from the U.S. Bureau of Labor Statistics. The 2020 adjusted figures for high-deductible health plans (HDHPs) and health savings accounts (HSAs) included in this Client Action Bulletin were released by the IRS earlier this year and are provided here for convenience.

2020 key administrative dates and deadlines for calendar-year multiemployer defined benefit plans

Milliman’s 2020 multiemployer defined benefit calendar with key administrative dates and deadlines is now available on our website. The calendar lists relevant 2020 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.