ERISA section 4042(a)(4) provides that the PBGC “may institute proceedings . . . to terminate a plan whenever it determines that the possible long-run loss of the corporation with respect to the plan may reasonably be expected to increase unreasonably if the plan is not terminated.” The PBGC investigates potential candidates for involuntary termination under its early warning program. The PBGC recently issued guidance listing examples of situations that would trigger such an investigation. Some examples relate to corporate transactions (e.g., transferring the plan to a weaker sponsor or controlled group following a controlled group breakup) whereas others relate to the financial deterioration of the plan sponsor (e.g., downgrading of a plan sponsor’s credit ratings or a downward trend in cash flow). View a full list of the early warning triggers.
The Puerto Rico Department of the Treasury recently issued Tax Policy Circular Letter No. 16-07 (the “Circular“), which announced applicable qualified retirement plan limits for 2017, as required by the Puerto Rico Internal Revenue Code of 2011 (the “PR Code“). For plans qualified in Puerto Rico and for those plans dual qualified in the United States and Puerto Rico, only the limits on annual benefits, annual contributions, and plan compensation have changed for 2017. The applicable plan limits are as follows: Annual Benefit Limit (All Defined Benefit Plans): $215,000 (increased from $210,000 for 2016). Annual Contribution Limit (All Defined Contribution Plans): $54,000 (increased from $53,000 for 2016). Annual Compensation Limit (All Plans): $270,000 (increased from $265,000 for 2016). Compensation Limit for a Highly Compensated Employee: $120,000 (unchanged). Elective Deferrals Limit (Dual Qualified Plans or Federal Government Thrift Plans): $18,000 (unchanged). Elective Deferrals Limit (Puerto Rico-Only Plans): $15,000 (unchanged). Catch-up Contribution… Continue Reading
In Notice 2016-80, the IRS published the first Required Amendments List, which lists statutory and administrative changes in plan qualification requirements that (i) are first effective in the plan year in which the list is published and (ii) may require a plan amendment. This year’s list included just one item, which related to restrictions on accelerated distributions from underfunded single-employer, collectively-bargained defined benefit plans due to an employer’s bankruptcy. The deadline for adopting any required amendments described in this year’s Required Amendments List is December 31, 2018. View Notice 2016- 80.
The following non-exhaustive list describes year-end action items and the annual notices for retirement plans that generally must be distributed within a reasonable time prior to the start of the plan year. For calendar year plans, providing the notices outlined below by December 1 will meet this requirement in most cases. Safe Harbor 401(k) Notice: For 401(k) plans that are designed to comply with the safe harbor requirements of the Internal Revenue Code. Automatic Enrollment Notice: For any plan that includes automatic enrollment provisions. Qualified Automatic Contribution Arrangement Notice: For plans that are designed to comply with the Internal Revenue Code’s qualified automatic contribution provisions. Eligible Automatic Contribution Arrangement Notice: For plans that are designed to comply with the Internal Revenue Code’s eligible automatic contribution provisions. Qualified Default Investment Alternative (“QDIA”) Notice: For plans with participant-directed investments that include a QDIA in which a participant’s account will be invested if… Continue Reading
The IRS recently announced cost-of-living adjustments for 2017. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2017: Compensation limit in calculating a participant’s benefit accruals: increased to $270,000. Elective deferrals to 401(k) and 403(b) plans: remains unchanged at $18,000. Annual additions to a defined contribution plan: increased to $54,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,000. Annual benefit limit for a defined benefit plan: increased to $215,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: increased to $175,000. Compensation dollar limit for defining a “highly compensated employee”: remains unchanged at $120,000. The full list of 2017 plan limits can be found in IRS Notice 2016-62.
The DOL has issued the first of several FAQs addressing the DOL’s new fiduciary rule, which was finalized in April 2016 (the “Rule”). The Rule, which will generally become effective on April 10, 2017, prohibits parties that provide fiduciary investment advice to plan sponsors, plan participants, and IRA owners from receiving payments that create conflicts of interest, unless the parties comply with a prohibited transaction exemption (“PTE”). The FAQs generally address how the Rule will be implemented and clarify a number of issues related to the new “best interest contract” and “principal transactions” PTEs. View the FAQs. View the DOL’s announcement of the FAQs.
The PBGC issued a final rule implementing relief for penalties resulting from late payment of premiums. The final rule implements the changes reflected in the proposed rule published in April.Under the final rule, if the plan sponsor corrects the delinquency before being notified by the PBGC, the plan would be responsible for a monthly penalty of 0.5 percent of the late premium amount and, if the plan corrects the delinquency after being notified by the PBGC, it would be responsible for a monthly penalty premium of 2.5 percent. These penalties are reduced from 1 percent and 5 percent, respectively. In addition, if the sponsor has a good payment history and pays promptly after receiving the PBGC notice, the PBGC will waive 80 percent of the 2.5 percent penalty payment. Read the final rule.
IRS Issues Final Regulations to Facilitate Partial Lump-Sum Payments under Defined Benefit Pension Plans
Many defined benefit pension plans either do not offer lump-sum payments (other than small cash out amounts) or offer either a full lump-sum payment or an annuity form of payment. For those plans that offer an all-or-nothing lump-sum payment, the government believes participants who elect the lump sum may face a greater risk of outliving their retirement savings. The IRS has issued final regulations permitting a plan to explicitly split the accrued benefit into a portion payable as a lump sum and the balance payable in the form of an annuity without requiring the annuity portion to be subject to the Code Section 417(e) actuarial conversion requirements. The final regulations contain specific rules on the calculation of the two portions and include a number of examples that illustrate application of these rules. The final regulations are available here.
The IRS recently announced new requirements for determination letter applications for defined benefit plans. Applicants must identify, either in the cover letter to the application or in an attachment, whether the plan contains language which allows participants already receiving annuity payments to accelerate their remaining payments by receiving a lump sum in lieu of a future annuity stream. If the plan does contain such language, also identify whether it satisfies one of the four “Pre-Notice Acceleration” conditions in Notice 2015-49. If the applicant states that such risk transfer language is included in the plan and it satisfies one of the conditions in Notice 2015-49, then the IRS will issue a determination letter with a favorable caveat providing reliance on the risk transfer language. Plans with risk transfer language that don’t meet one of the conditions in Notice 2015-49 will not receive a determination letter unless the risk transfer language is… Continue Reading
Rev. Proc. 2016-37 provides new guidance on changes to the IRS’s determination letter program for individually designed, qualified retirement plans. As previously announced in Notice 2016-03, the five-year remedial amendment cycle for individually designed plans will be eliminated effective January 1, 2017. After that date, individually designed plans may only seek a determination letter for the plan’s initial qualification, upon the plan’s termination, and in “certain other circumstances.” Rev. Proc. 2016-37 states that such “other circumstances” may include significant law changes, new plan design approaches, and the inability of certain plans to convert to pre-approved plan documents. The IRS will consider its current case load and available resources when deciding if and when to permit determination letter requests in these other circumstances. To help plan sponsors remain in operational compliance with the Internal Revenue Code’s various qualification requirements, the IRS will begin issuing an annual Operational Compliance List that identifies… Continue Reading