Washington Pulse: New Rules Will Govern Retirement Plan Hardship Distributions

The Treasury Department has released proposed rules which—if finalized in present form—will significantly ease access to retirement plan assets for participants who experience financial hardship. The changes are a direct result of the Bipartisan Budget Act of 2018 (BBA), enacted in February of this year.

Treasury also took this opportunity to propose related changes that stem from several other laws previously enacted and related guidance. Like most proposed regulations, these are subject to a public comment period, and the potential for a public hearing. It’s generally hoped that they will be adopted with little—if any—change, since some of the provisions included in the regulations are or will be effective before the close of the 60-day comment period that will end January 14, 2019.


The Role of Hardship Distributions

Participants may generally access their retirement assets only after a specified event or events occur (e.g., separation form service, attainment of normal retirement age). Distributions due to hardship are also available in many plans, and are intended to serve as a last resort resource for participants who experience difficult financial circumstances.


How is the Need for a Hardship Distribution Now Determined? 

Two conditions must be met. First, there must be “immediate and heavy financial need.”  Second, a distribution from the plan must be considered necessary to satisfy that financial need.

Determining financial need can currently be based on “all relevant facts and circumstances.” An option—one intended to simplify this determination for plan administrators, and actually used by most plans—makes use of six “safe harbor” expense reasons, any one of which will be deemed to meet the condition of “immediate and heavy financial need.”  These currently include medical care, principal residence purchase, education expense, preventing eviction or foreclosure, funeral expense, and repair of damage to a principal residence.

In addition, it must be determined that a hardship distribution is necessary to meet this need. Current rules require that the amount distributed not exceed the actual need, and that there are no alternative financial resources outside of the plan available to satisfy that need. The determination of whether the need can be satisfied with non-plan resources currently can be based on “all relevant facts and circumstances.”  To satisfy this facts-and-circumstances condition, an employer is permitted to rely on an employee’s “representation” that the need cannot be met with other financial resources, unless the employer “has actual knowledge to the contrary.”

There is also a safe harbor for determining the necessity of the hardship distribution. If the employee has taken all available plan distributions and loans, and is required to cease making deferrals and employee contributions to the plan for at least six months, then a hardship distribution can be “deemed necessary to meet immediate and heavy financial need.”

To sum up, if a hardship distribution is sought for one of the six above-described safe harbor reasons, and a need for the distribution is established either by facts-and-circumstances or by safe harbor means, then granting a hardship distribution will generally be considered justified.


How are the Rules Changing?

BBA made significant statutory changes relative to hardship distributions, both broadening the employee account types available, and eliminating the requirement that available plan loans be taken before granting a hardship distribution. BBA also directed the Treasury Department to make specific revisions to existing regulations governing these distributions. In general, with some exceptions, they are to be effective beginning in 2019 plan years. Together, BBA and the proposed regulations would yield the following important changes.

  • Balances in an employee’s account in addition to employee deferrals may now be distributed for hardship reasons, including qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), employer ADP safe harbor and QACA safe harbor contributions, and earnings on all these amounts; plans may, but will not be required, to include these amounts in hardship distributions; effective for 2019 plan years.
  • Available plan loans need not be taken before seeking a hardship distribution, but whether to impose the requirement will remain a plan option.
  • There is no longer a requirement to suspend employee deferrals and employee contributions for at least six months; all plans must conform to this change (this will also apply to qualified reservist distributions).


Clarifications, Timing of the Proposed Changes

The BBA statutory change and directive to the Treasury Department for regulations revisions raised questions as well as providing answers. Following are some much-awaited clarifications, as well as timing details.


Suspension of Employee Deferrals for Hardship Recipients

  • As of the first day of 2019 plan years, a suspension of employee deferrals and employee contributions is not required when granting a hardship distribution; this must take effect for distributions on, or after, 1/1/2020.
  • In transition, participants whose employee deferrals and employee contributions are under a six-month suspension can resume deferring as early as the start of 2019 plan years, even if that results in a shortened suspension period; this will be a plan option, the IRS granting a transition period leading up to the mandatory change January 1, 2020, in recognition of the timing of these regulations’ release.


Provisions Related to “Deemed Immediate and Heavy Financial Need” Safe Harbors

To simplify determining whether a participant or beneficiary has an “immediate and heavy financial need,” regulations identify six “safe harbor” expenses that satisfy this condition. These proposed regulations add a seventh qualifying expense, and contain the following clarifications and revisions.

  • Federal disaster declarations: this provision would add a new safe harbor to the existing six safe harbors described previously, for “expenses and losses—including loss of income—incurred by the employee” in FEMA-declared disasters; effective for distributions on, or after, January 1, 2018.
  • Repair of damage of principal residence: the Tax Cuts and Jobs Act of 2017 (TCJA) eliminated an income tax deduction for certain personal casualty losses for tax years 2018 through 2025, except in the case of disasters declared by the Federal Emergency Management Agency (FEMA). One of the six current hardship distribution safe harbors is for repairing damage to a principal residence. Due to its dependence on the TCJA-eliminated tax code provision, this safe harbor would have been unavailable during these years, except in the case of FEMA-declared disasters. These regulations propose to retain the principal residence repair safe harbor reason uninterrupted, declaring the TCJA provision inapplicable in the case of hardship distributions.
  • Primary beneficiary safe harbor: this change would align the regulations with an earlier law change that—plan permitting—includes the hardship of an employee’s primary beneficiary—for medical, educational or funeral expenses—whether or not that is the employee’s spouse; effective for distributions on, or after, August 17, 2006.


A Simpler Standard for “Distribution Necessary to Satisfy a Financial Need”

In addition to the requirement that there be an “immediate and heavy financial need,” a hardship distribution must be found “necessary to satisfy…” that financial need. Currently, satisfying this second requirement can be “…based on all the relevant facts and circumstances…”—a potentially challenging determination—or under a safe harbor that requires suspension of employee deferrals and employee contributions, and taking available plan loans.

  • The regulations propose “one general standard” to determine that a hardship distribution is “necessary to satisfy financial need.” To satisfy this standard—which is optional for 2019 plan years, mandated as of January 1, 2020—employers will no longer be required to suspend employee deferrals and employee contributions or have employees take available loans.
  1. Under this single standard, a hardship distribution must not exceed an employee’s need, other available plan distributions must have been taken, and “the employee must represent that he has insufficient cash or other liquid assets to satisfy the financial need.” (Current regulations anticipate a participant potentially being required to liquidate an illiquid asset, such as property).
  2. Currently, a plan administrator may rely solely on such employee representations “unless the plan administrator has actual knowledge to the contrary.” Going forward—effective January 1, 2020—a plan administrator must obtain such representation.
  • In transition, the above-described employee representation is not required for hardship distributions before January 1, 2020 (this delay is described as being due to the timing of these proposed regulations).

Limitations to the Expanded Account Sources Eligible for Hardship Distribution

Before BBA, employee elective deferrals—but not QNECs, QMACs, employer safe harbor 401(k) contributions—or their earnings—were eligible for hardship distribution. (The only exception was for certain pre-1989 amounts.)  While BBA expanded the funds eligible for hardship distribution, not all impacts were initially clear.

  • While hardship distributions may—for 2019 and later plan years—include these account sources, this is proposed as a plan option, not a requirement.
  • Unexpectedly, the broadening of hardship-eligible accounts appears to include the 401(k) safe harbor plan design known as qualified automatic contribution arrangement, or QACA, in which employer contributions may require a vesting period; such unvested amounts—of course—may not be distributed.
  • While earnings in 401(k) plans may be included in hardship distributions, this is not true of 403(b) plans, because BBA did not modify an equivalent 403(b)-governing statute.
  • QNECs and QMACs in annuity-based 403(b) accounts can be distributed due to hardship, while those in 403(b)(7) custodial accounts cannot.


Special Relief for Hurricanes Florence and Michael

In addition to the ongoing relief in federally-declared disaster situations already described, these proposed regulations would offer “expedited access to plan funds” for victims of 2018 Hurricanes Florence and Michael. Relief similar to that in IRS Announcement 2017-15—regarding California wildfires—is being provided.

  • A plan may add a hardship distribution feature after the fact (by retroactive amendment), and will have temporary relief from having to follow normal hardship administrative procedures.
  • Plan administrators must, however, make a good-faith effort to comply with administrative procedures, and as soon as practicable’ obtain required documentation.
  • Timing for relief eligibility is determined by the variable, FEMA-specified dates for the areas of the country affected by these identified hurricanes.
  • Procedural relief is provided through March 15, 2019, and plans must be amended for any specially-granted hurricane-related relief no later than the timing to amend for these proposed hardship regulations.


Plan Amending

While it is possible—if unlikely—that some provisions or their effective dates could change as a result of public comments, what is known for certain is that all plans offering hardship distributions will have to be amended. Deadlines will differ depending on whether a plan uses a pre-approved document or an individual-designed document (IDD). Pre-approved plan amending will be tied to either the sponsor’s plan year or taxable year—the year the amendment is adopted or effective—and IDDs will amend by a deadline tied to IRS issuance of its Required Amendments list.


How Will the Industry Respond?

Perhaps the question could just as readily be “How has the industry responded?  Given the 2019 plan year effective date for BBA’s provisions on hardship distributions, administrative decisions had to be made, even without available guidance. These decisions had potential impacts on system programming, employee communications, and other dimensions of plan administration. For example, would employers be given the option to continue requiring the current six-month suspension of employee deferrals after granting a hardship distribution, or would this be eliminated completely?

This is but one example, added to which is the fact that some elements of the proposed regulations were entirely unanticipated. The inclusion of QACA contributions as an account type eligible for hardship distribution was generally not expected. And there was the question of how 403(b) plans should be handled compared to 401(k) plans.  Most of these and other answers are now known, though perhaps belatedly. Going forward, those who administer the plans affected by these regulations at least have a road map. Hopefully there will not be any significant detours on the road from these proposed regulations to the final guidance.


Ascensus will continue to monitor the status of these regulations, and the industry’s response to them. Visit for the latest developments.


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IRS Issues Tax Relief for California Wildfire Victims

The IRS has issued News Release CA-2018-13, announcing tax-related deadline relief for certain areas in the State of California suffering damage from recent wildfires. The relief, based on Treasury Regulation 301.7508A-1(c)(1)), applies to various tax-related acts whose deadlines can be extended due to a disaster declaration. These include completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under the above-described regulation.

The announced deadline relief currently applies to Butte, Los Angeles, and Ventura counties. For those covered by this guidance, covered tax-related deadlines falling on or after November 8, 2018, and before April 30, 2019, are extended to April 30, 2019.

The automatic relief applies to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area that is injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster areas are required to call the IRS disaster hotline at 866-562-5227 to request relief.


IRS Issues Proposed Amendments to Retirement Plan Hardship Rules

The IRS released proposed amendments in REG-107813-18 to defined contribution retirement plan hardship distribution regulations. These amendments have been drafted to reflect statutory changes contained in the Bipartisan Budget Act of 2018 and the application of hardship rules related to modifications made by the Tax Cuts and Jobs Act.

While the summary introducing these proposed amendments specifically identifies 401(k) plans, it further notes that these amendments “would affect participants in, and beneficiaries of, employers maintaining, and administrators of, plans that contain cash-or-deferred-arrangements, or provide for employee or matching contributions.” This would also include certain 403(b) plans.

The general categories identified in the proposed regulation for changes include the following.

  • Deemed Immediate and Heavy Financial Need
  • Distribution Necessary to Satisfy Financial Need
  • Expanded Sources for Hardship Distributions
  • Relief for Victims of Hurricanes Florence and Michael

The IRS is providing a 60-day comment period as described in the proposed regulation document.


Watch news for additional developments.

Tax-Related Deadline Relief for Hurricane Michael Victims in Alabama

The IRS has released News Release AL-2018-006 describing tax-related deadline relief for victims of Hurricane Michael in certain areas of Alabama. The news release describes the relief provided in Treasury Regulation 301.7508A-1(c)(1)) that applies to various tax-related acts whose deadlines can be extended by a disaster declaration. This includes completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under the above-described regulation.

Currently, the announced deadline relief applies to the Alabama counties of Geneva, Henry, Houston, and Mobile. Under this guidance, covered tax-related deadlines that fall on or after October 10, 2018, and before February 28, 2019, are extended to February 28, 2019.

The automatic relief applies to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who was injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster areas are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.


Defining a Service Culture

Interview with Rick Irace, Chief Operating Officer

How would you describe the Ascensus service philosophy?

Our retirement plan service team rallies around four key concepts:

  1. Trust is the most important factor. Particularly among smaller, start-up plans, our services must be transparent and understandable and delivered through language and concepts that clients readily understand. Many clients chose us because our values resonate with those of their organizations. That’s an expression of trust.
  2. Keep a client-based perspective. While client goals have always been a key aspect of the dialogue, we need to understand client needs today in greater depth than ever before.
  3. Consult with employees on a personal level, considering their complete picture. We recognize that plan participants’ lives also revolve around non-financial factors, such as their family, health, and home. When we help them make decisions about their savings strategy, we need to take a more holistic approach. Our view must be broader than simply the financial returns that our savings plans can provide.
  4. Focus on simple, intuitive interactions. Platforms should focus on the needs of their end users: advisors, plan sponsor clients, and employees. Our digital experiences and approaches to plan design and relationship management are simple by design. It helps that Ascensus has a broad range of investment options, offered through an open architecture platform and via simplified savings tools that help clients to track their progress on the road to retirement readiness through tangible benchmarks.

How does Ascensus present itself to the market? 

It’s a service culture. Every activity is completed with the client in mind. We prioritize quality and integrity as core values. We encourage our team to be bold. From the top down, we are an entrepreneurial culture and our team believes and executes proactively with this in mind.

Of course, we have different levels of service. Our elite advisors and TPAs benefit from additional support and access, just as in any customer loyalty program. These clients get dedicated service teams, additional levels of consultation, greater access to our senior leadership, early access to product roadmaps, and strategic account managers that act as trusted advocates for the advisor or TPA inside of Ascensus.

Describe Ascensus’ expertise servicing startup plans.

We have a broad range of experience, but we do have a “sweet spot” with smaller plans and massive expertise supporting new plans. We offer an attractive price point for startups and we use our scale to deliver quality client service and a solid investment lineup. Startup plans have access to the same open architecture as everyone else.

We are particularly adept at plan establishment and onboarding and we can take many of the administrative burdens off the shoulders of new plans. Small business owners are incredibly busy and we take them through the startup process step-by-step online, working with their advisors and TPAs. Most of what we do is automated, so there is very little paperwork. We use a dedicated service team that stays with new clients throughout their first year, including through discrimination testing and the filing of their Form 5500 with the Department of Labor.

What sets Ascensus apart from other companies that work with start-up plans?

We have deep expertise, onboarding 5,000 plans per year. And recordkeeping isn’t a means to some other end for us. We’re not an investment firm looking to drive investment flows; we take a consultative, educational approach. We help small firms to understand that many goals that they thought might elude them–like providing an employer match to workplace savers–may in fact be achievable.

Connect the dots between technology, expertise, service, and retention.

We use a series of metrics to judge all of these elements. Does the technology work?  Are clients satisfied with our expertise? We measure client satisfaction in several ways and consistently score high on surveys for service, onboarding, and overall satisfaction. As of September 2018, our Net Promoter Scores for these areas hovered around 91%.

Our relationship managers, empowered with custom-built predictive analytics, continuously assess how well we’re serving our plan sponsor clients and what kinds of questions or issues are most prevalent. This enables us to be a step ahead, proactively consulting with our clients, financial advisors, and TPA partners to ensure their plans stay on track.

How do you keep associates positive and engaged?

I truly believe that there is a clear value chain between satisfied employees and satisfied clients. At Ascensus, we put associates first. There is an entrepreneurial spirit inside the company–an opportunity to be bold, think bold, and make changes if one discovers a better way to service clients.

To recognize associates’ expression of our core values, we bestow a peer-to-peer I-Client award every month. From top to bottom, everyone knows what our core goals are.  By helping our clients and their employees to save for life’s most important moments, I believe that our firm serves a noble purpose. And this belief is widely held from the C-suite, throughout the organization.


Ascensus’ Annual Savings Trends Report Reveals How Individuals Are Saving for Their Financial Futures

Proprietary Data Offers Valuable Insights into How Americans Are Contributing to 401(k)s, 529 College Savings Plans, Health Savings Accounts, and ABLE Accounts

Dresher, PA — Ascensus—whose technology and expertise helps millions of people save for retirement, education, and healthcare—has released its annual savings trends report, Inside America’s Savings Plans. As the nation’s largest independent recordkeeping services provider and government savings facilitator, Ascensus offers a unique, comprehensive perspective into how Americans are saving for the future.

The report provides insight into the savings behaviors of 401(k), 529, health savings, and ABLE account holders on the Ascensus platform and reveals how key elements of plan design can impact savings outcomes.

This represents the first annual report in which Ascensus has incorporated data on ABLE savings behaviors; the firm will continue to share insights into the development of this new market as more Americans begin to invest in these specialized accounts to support beneficiaries living with disabilities or blindness.

The following trends reflect how savers are leveraging and engaging with tax-advantaged savings vehicles administered by Ascensus.

Savers are beginning to recognize the importance of starting to save early in their adult lives.

  • Retirement savers ages 25 to 34 are most likely to be on track to meet their retirement goals.
  • More than half of all new 529 accounts are opened when beneficiaries are aged five or younger.

Account owners and plan sponsors alike are seeing value in making saving automatic.

  • Automatic features continue to boost retirement plan participation rates. Plans designed with automatic enrollment features see an average participation rate of 80%, which is 10 percentage points higher than participation in plans without automatic enrollment.
  • 529 and ABLE account owners leverage automatic savings to make the contribution process more regular and easier to manage.
  • By pairing HSAs with high deductible health plans and enabling payroll direct deposit, employers help employees build a health savings foundation.

Savers are making progress toward their goals but are still facing an overall savings deficit.

  • 401(k) account balances across all generations and income ranges are relatively low compared to what most experts suggest will be required to cover retirement goals.
  • The average 529 account balance for beneficiaries ages 16 to 17 would cover slightly more than half of a “two plus two” college education, consisting of two years at a community college followed by another two at a public university.1

“Our analysis offers some preliminary answers as to how and when individuals are saving for a more secure financial future,” states David Musto, president at Ascensus. “But at its core, it confirms that there’s no one-size-fits-all approach to planning for what matters most—retirement, education, and healthcare.”

“Employers, state governments, and financial advisors continue to play an integral role in encouraging individuals to make the most of the savings tools available to them,” concludes Musto.

For additional trends and insights from Ascensus, visit


About Ascensus
Ascensus is the largest independent recordkeeping services provider, third-party administrator, and government savings facilitator in the United States. The firm delivers technology and expertise to help millions of people save for what matters most—retirement, education, and healthcare. For more information about Ascensus, visit View career opportunities at

1Average Published Undergraduate Charges by Sector, 2017-18. Source: The College Board, Annual Survey of Colleges.

Washington Pulse: DOL Opens Door to Wider MEP Availability; But How Much?

Advocates of expanding access to retirement plans through a multiple employer plan (MEP) approach have been hoping for a relaxation of existing rules that govern these cooperative arrangements. Now, the Department of Labor (DOL) has obliged—at least to a degree. But if MEP proponents were looking for a magic bullet to significantly expand worker coverage and saving within employer plans, that outcome—at least as it can be influenced by MEPs—will only be determined with time and employers’ response to the following guidance.


DOL Responds to President’s Executive Order

On October 23, 2018, the DOL published in the Federal Register much-anticipated proposed regulations on “association retirement plans,” new terminology for arrangements that have historically been called MEPs. Not only is the terminology new, but the regulations relax somewhat prior DOL guidance that restricted the ability of several employers to join together in a commonly-administered plan. A key objective in such arrangements is to share expense, labor, and responsibility, yet retain the ability of each participating employer to tailor plan features to its own needs.

These proposed regulations are a response to President Trump’s August 2018, Executive Order directing the DOL and Treasury Department to craft and issue guidance intended to increase participation in employer-sponsored retirement plans. Central to this were the Order’s instructions to provide guidance that would ease restrictions on employers wishing to participate in a MEP. Notably, the new guidance applies only to ERISA-governed defined contribution plans. No effective date is proposed, and public comments are being accepted through December 24, 2018.


Treasury Guidance is Still Missing

Not yet responding to the Order is the Treasury Department. Current Treasury regulations as they apply to MEPs do not insulate an employer from undesirable consequences—including plan disqualification—for compliance failures by one or more participating employers. This remains a missing piece to the MEP puzzle, much-desired protection against a so-called “bad apple” employer that could threaten an entire plan. But given the prominence of MEPs in Trump administration priorities, predictions of Treasury regulations being issued “in the near future” could mean just that.


What’s the Attraction of a MEP?

Why would an employer choose participation in a MEP, rather than having its own plan that covers only its own employees? There are numerous reasons, which may include the following.

  • One plan audit, covering all participating employers
  • Common Form 5500, Annual Return/Report of Employee Benefit Plan, covering all participating employers
  • Delegation of plan administration duties to the plan sponsor
  • Less fiduciary liability for participating employers
  • Potential for reduced investment fees, based on pooling of plan assets to achieve more bargaining power


Will High MEP Expectations be Met?

While some expect the new DOL guidance to lead to more employers thinking seriously about establishing and participating in a retirement plan, some expectations may not be fully met. The following examples show why.

  • Investment fees have been declining, even for small plans, for various reasons (e.g., increased scrutiny of fees and sales charges)
  • Recordkeeping has become very automated. The industry’s largest recordkeepers have wrung much—if not all—of the “scalable” efficiencies and savings out of the system.
  • MEPs often allow each participating employer to have different provisions (e.g., eligibility, vesting, entitlement to allocations), there could be more complexity in MEP plan administration.
  • Withdrawal from a MEP arrangement is an administrative process, not a mere declaration. It generally involves spinning-off that employer’s portion to form a stand-alone plan, which is not free of time and expense.


Defining “Employer” is Key

The Employee Retirement Income Security Act (ERISA) defines an “employee pension benefit plan” as a “plan …established or maintained by an employer or employee organization…that … provides retirement income…”  ERISA Sec. 3(4) provides examples of an employee organization; e.g., “any labor union.”

But it is not the definition of employee organization—rather, the definition of employer—that has been at the heart of the debate over which groups or associations can sponsor a MEP. ERISA Sec. 3(5) recognizes the ability of “a group or association of employers” to “act[ing] directly as an employer” for plan purposes. If conditions are met, the group or association may sponsor a plan in which certain other employers may choose to participate. If conditions are not met, the de facto result is each employer having to sponsor its own plan.

Previous guidance defining “employer” for MEP purposes has relied heavily on DOL Advisory Opinions*. In these, the agency has considered not only the provisions of ERISA, but also the Internal Revenue Code, and judicial review. These opinions date back to at least 1980, and—as a whole—have generally been considered restrictive.

The most recent and familiar is Advisory Opinion 2012-04A.  It’s instructive for its illustration of past DOL rulings. The arrangement proposed under Advisory Opinion 2012-04A would have allowed unrelated employers to participate in a single 401(k)/profit sharing MEP, their only common links being the investment advisory firm, and a shell corporation formed to sponsor the plan. The DOL found the proposal unacceptable, inasmuch as the applicants met neither the criteria of being an “employee organization,” nor the meaning of “employer” under ERISA. The DOL noted the fact that the participating employers would have no “substantial common ownership, control, or organizational connections” sufficient to treat them as one employer.


How the New Regulations Redefine “Employer”

The preamble to the proposed regulations states that their purpose “is to clarify which persons may act as an employer …in sponsoring a multiple employer defined contribution pension plan.”  The regulations describe a “bona fide group or association of employers,” and “bona fide professional employer association” as meeting the ERISA definition of “employer,” and thus—if these regulations are made final—entitled to act as an employer for MEP purposes.


What is a Bona Fide Group of Employers?

The elements necessary to be considered a bona fide group or association of employers are as follows (quotations indicate regulations language).

  • “The primary purpose of the group or association may be to offer and provide MEP coverage to its employer members and their employees,” and must have “at least one substantial business purpose…” (as for this purpose, it “is not required to be a for-profit activity,” and the regulations do not require a business purpose in-common among the participating employers).
  • Each participating employer must employ at least one person covered under the plan (see Special Rules for Owner-Employees, below).
  • The group must have an organizational structure, with bylaws or other indications of a formal structure.
  • The plan must be controlled by participating members (not a coordinating organization or service provider).
  • The group must have a “commonality of interest,” which can be satisfied by 1) being in the same trade, industry, line-of-business, or profession; or 2) having “a principal place of business in the same region”. A region may be as large as a single state, or can be a “metropolitan area” that spans state borders. (Region as a definition of commonality is a significant expansion of conditions that can enable creation of a MEP).
  • Only employees, former employees, or their beneficiaries may participate in the plan.
  • The group of employers cannot be “a bank or trust company, insurance issuer, broker-dealer, or other financial services firm (including pension recordkeepers and third-party administrators)…”.


What is a Bona Fide Professional Employer Organization?

A professional employer organization—also known as a PEO—generally provides personnel that perform human resource functions for client businesses on a contract basis. A PEO can be considered a “bona fide” PEO for MEP purposes based on facts and circumstances, or by meeting the conditions of a ”Certified PEO” (the latter is a certification granted by the IRS).

Facts-and-circumstances conditions for a “bona fide” PEO are as follows.

  • The PEO organization performs substantial business functions for its member clients (may include a combination of payroll, income tax withholding and reporting, recruiting, hiring and firing, employment policies, human resource functions, regulatory compliance, executing benefit plan obligations, etc…).
  • The PEO has “substantial control over the functions and activities of the MEP.
  • Employer-clients of the PEO must be acting directly as an employer for at least one employee participating in the MEP.
  • Participation must be limited to current and former employees of the PEO and its client-employers, and their beneficiaries.


Special Rules for Owner-Employees

A noteworthy element of President Trump’s August Executive Order was its DOL directive to consider how sole proprietors, working owners, and other “entrepreneurial workers with nontraditional employer-employee relationships” might be included in MEP arrangements. These proposed regulations state that “a working owner of a trade or business without common law employees may qualify as both an employer and as an employee …”and thus be eligible to participate in a MEP as defined in these regulations.

Such person must have an ownership interest in the trade or business, have income from providing personal services, and meet minimum work time or earnings tests in order to qualify for MEP participation.  (It is noteworthy that in doing so, an owner-only employer—generally exempt from ERISA—would be opting to participate in an ERISA-governed plan.)



Broadening employers’ ability to reap the full benefits of MEP participation has been a galvanizing issue for several years. DOL regulations intended to do just that have now been proposed. It remains to be seen whether this guidance will have the intended effect of extending employer plan benefits to more American workers. These regulations stop well short of permitting “open MEPs”—arrangements with no employer-affiliating criteria other than having a common service provider. Yet they may be a step in the right direction. Ascensus will continue to monitor the status of these regulations, and the industry’s response to them. Visit for the latest developments.

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*Advisory Opinions shaping DOL employer/MEP policy have included 80-42A, 94-07A, 96-25A, 2001-04A, 2003-17A, and 2008-07A.


2019 COLA Adjustments for IRAs and Retirement Plans

The IRS issued Notice 2018-83 containing the 2019 IRA and retirement plan limitations as adjusted for cost-of-living. The IRS contribution limit is increasing to $6,000 for 2019, and most of the income limitations associated with Roth IRA eligibility and Traditional IRA deductions increase. Several retirement plan limitations increase as well. The 401(k) deferral limit (IRC Sec. 402(g)) will be to $19,000 for 2019.

2019 IRA Contribution Limitations

  • Traditional and Roth IRA contributions: $6,000 ($5,500 for 2018)
  • Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLA adjustments)
  • IRA deductibility phase-out range for single taxpayers that are active participants in retirement plans: $64,000 to $74,000 (was $63,000 to $73,000 for 2018)
  • IRA deductibility phase-out range for married joint filing taxpayers that are active participants in retirement plans: $103,000 to $123,000 (was $101,000 to $121,000 for 2018)
  • IRA deductibility phase-out range for non-active participants who are married to active participants in retirement plans: $193,000 to $203,000 (was $189,000 to $199,000 for 2018)
  • Roth IRA income limit phase-out range for determining contribution eligibility for married joint filers: $193,000 to $203,000 (was $189,000 to $199,000 for 2018)
  • Roth IRA income limit phase-out range for determining contribution eligibility for single filers and heads-of-households: $122,000 to $137,000 (was $120,000 to $135,000 for 2018)

2019 Retirement Plan Limitations

  • Annual additions under IRC Sec. 415(c)(1)(A) for defined contribution plans: $56,000 ($55,000 for 2018)
  • Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit pension plans: $225,000 ($220,000 for 2018)
  • Annual IRC Sec. 402(g) deferral limit for 401(k), 403(b) and 457(b) plans: $19,000 ($18,500 for 2018)
  • Catch-up contributions to 401(k), 403(b) and 457(b) plans: $6,000 (unchanged)
  • Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $13,000 ($12,500 for 2018)
  • Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,000 (unchanged)
  • IRC Sec. 401(a)(17) compensation cap: $280,000 ($275,000 for 2018)
  • Highly compensated employee definition income threshold: $125,000 ($120,000 for 2018)
  • Top-heavy determination key employee definition income threshold: $180,000 ($175,000 for 2018)
  • SEP plan employee income threshold for benefit eligibility: $600 (unchanged)

Social Security Taxable Wage Base

The Social Security Administration announced in mid-October that the 2019 limitation for the taxable wage base increases from $128,400 to $132,900 for 2019.

Retirement Savings Tax Credit

Taxpayers who make contributions to IRAs and/or salary deferrals under retirement plans may qualify for an income tax credit if their income is under certain amounts. Contributions of up to $2,000 may be eligible for credits that range from 10 to 50 percent of the amount contributed. Eligibility is based on income and tax filing status as provided in the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions. The applicable income limits are subject to cost-of-living adjustments as well.

The maximum income thresholds in all categories for this credit will increase for 2019. For 2019, taxpayers with adjusted gross income that exceeds $64,000 for joint filers, $48,000 for head of household, and $32,000 for all other filers will not qualify for a tax credit. See Notice 2018-83 for the specific income limitations based on tax filing status.


Ascensus White Paper Explores Opportunity to Address the Small Business Retirement Savings Deficit

Public Policy and Industry Solutions Taking on Retirement Plan Coverage and Quality Deficits

Dresher, PA — Ascensus—whose technology and expertise helps millions of people save for retirement, education, and healthcare—has released a white paper exploring recent innovations in both the public and private sectors that are addressing coverage and quality deficits in retirement plans for small business employees. In Focus: The Small Business Opportunity discusses the scale and impact of these enhancements on the retirement industry, financial advisors’ practices, and the financial lives of millions of Americans.

Small businesses play a critical role in the U.S. economy, employing about 47.5% of the U.S. workforce. The paper notes that the ranks of small business employment are increasingly accounted for by professionals, tech-centric entrepreneurs, and business owners over age 50. However, the small business segment has traditionally struggled to provide retirement plans for employees.

“Research suggests that small businesses are hindered by ‘twin deficits’ of both quality and coverage,” states David Musto, president at Ascensus. “Many small businesses have no workplace retirement benefit coverage at all—and those that sponsor plans struggle with cost and complexity.”

The white paper notes that a confluence of public policy solutions, industry best practices, and new technologies are being brought to bear to address the workplace savings challenge. In the public sector, new state-facilitated retirement programs have been or will be initiated in California, Connecticut, Illinois, Maryland, Oregon, and the city of Seattle. At the same time, Congress is considering long-discussed proposals for open multiple-employer plans that would allow small employers to jointly sponsor retirement savings plans.

Private Industry Solutions and Best Practice

For their part, plan recordkeepers, advisors, and third-party administrators (TPAs)–together with a steadily evolving array of technologies–are driving the evolution of solutions that make it easier for small businesses to sponsor plans and to improve outcomes for employees.

– Advisors are playing a critical role in assessing, navigating, and guiding small business plan sponsors through the increasingly complex range of choices they face in offering retirement benefits that can boost productivity and help with employee recruitment and retention.

– TPAs are collaborating with plan sponsors and their advisors to streamline regulatory disclosure and compliance and to evolve new technologies and more secure data solutions.

– Plan sponsors are increasingly outsourcing administrative functions associated with fiduciary compliance with Section 3(16) of the Employee Retirement Income Security Act (ERISA) in order to ensure that plan operations are consistent with regulatory mandates.

– To enhance savings levels for employees, small business owners are increasingly turning to Cash Balance plans, a hybrid savings mechanism that combines the flexibility and portability of 401(k) savings with the high contribution limits associated with traditional defined benefit plans. Cash Balance plans today top $1 trillion in assets under management, an increase of 61% over the past eight years.

– As the industry continues to experience consolidation among multi-purpose financial services firms, “purpose-built” firms wholly dedicated to the retirement plan marketplace are becoming providers of choice. These firms bring deep expertise in small and start-up plans, offering plan design consultation, investment flexibility, and scalable technology that enables them to service these plans efficiently.

“Small business owners and employees are at the cusp of a new world with multiple opportunities to join the workplace savings mainstream,” continues Musto. “Financial advisors, TPAs, recordkeepers, and other providers are re-defining retirement plan best practices for small businesses, dynamic contributors and vitally important innovators in the American economy.”

To download In Focus: The Small Business Opportunity, visit


About Ascensus
Ascensus is the largest independent recordkeeping services provider, third-party administrator, and government savings facilitator in the United States. The firm delivers technology and expertise to help millions of people save for what matters most—retirement, education, and healthcare. For more information about Ascensus, visit View career opportunities at

IRS Publication Details 2018 Tax Changes Resulting From Tax Reform

IRS has issued Publication 5307, Tax Reform Basics for Individuals and Families, a new guide to assist taxpayers to navigate the changes enacted into law by the Tax Cuts and Jobs Act that passed in December 2017.

In addition to a summary of basic tax filing changes, the publication details a number of changes in the law which impact retirement and education savings. Included in the publication are explanations of how the Act eliminated recharacterization of Roth IRA conversions, reformed how retirement plan loans are treated following termination of employment, increased access to retirement plan distributions for taxpayers in disaster areas, and relaxed regulations on distributions from 529 plans.