Defined benefit plan

Several Retirement and IRA Topics on IRS’ Priority Guidance Plan List

The Department of the Treasury and IRS have released a second quarter update to the 2018-2019 fiscal year Priority Guidance Plan (PGP). The PGP lists items of regulatory guidance that the IRS is—or hopes to be—working on during the fiscal year. A high priority item highlighted in the update is the release of guidance to implement provisions of the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December of 2017. Some items of guidance have remained on the PGP over several fiscal years.

Following are the pending guidance items related to employee benefits.

  • Regulations under Internal Revenue Code Section (IRC Sec.) 401(a)(9) updating life expectancy and distribution period tables for purposes of the required minimum distribution (RMD) rules
  • Guidance on hardship distributions from employer-sponsored retirement plans (in response to the Balanced Budget Act of 2018 provisions)
  • Guidance on missing retirement plan participants
  • Final regulations on minimum present value requirements for defined benefit (DB) pension plans
  • Guidance updating regulations on service credit and vesting
  • Hybrid DB pension plan interest credit and annuity conversion factor guidance
  • Multiple employer plan guidance
  • Church plan guidance
  • Guidance on Traditional and Roth IRAs, Including contributions and excise taxes
  • Affiliated service group guidance
  • Additional guidance on lifetime income payments from employer plans and IRAs
  • Regulations on deferred vested benefit reporting requirements
  • Final regulations on various issues for nonqualified plans subject to IRC Sec. 409A
  • Final regulations on “ineligible” nonqualifed plans under IRC Sec. 457(f)
  • Regulations for qualified ABLE programs (proposed regulations issued in 2015)
  • Updated guidance on use of truncated taxpayer identification numbers (SSNs); proposed regulations issued in 2017

IRS Updates Operational Compliance List for Retirement Plans

The IRS has updated the agency’s periodically-issued operational compliance (OC) list for employer-sponsored retirement plans. This list identifies the legislative provisions or agency guidance issued during the covered period that plans have been required to comply with in operation.

The updated list covers the years 2016 through 2019, and following are those items of legislation or guidance described in the updated OC.

  • Hardship distribution changes due to enactment of the Bipartisan Budget Act of 2018, and subsequent proposed regulations (the OC list confirms IRS informal guidance that the proposed regulations may be relied upon until issued as final)
  • Specified disaster relief and resulting retirement plan options
  • Final qualified nonelective contribution (QNEC) and qualified matching contribution (QMAC) regulations
  • Extensions (several) of temporary nondiscrimination relief for closed defined benefit pension plans
  • Extended rollover period for certain retirement plan loan offsets and improper IRS tax levies on participant assets
  • Mid-year changes to 401(k) safe harbor plans
  • Final regulations on cash balance/hybrid retirement plans
  • Final regulations on partial annuity distributions from defined benefit pension plans
  • Proposed regulations on normal retirement age in governmental pension plans
  • Restrictions on distributions during bankruptcy for collectively-bargained single-employer defined benefit pension plans
  • Benefit restrictions for certain defined benefit pension plans of cooperatives and charitable organizations

IRS Won’t Challenge DB Plans That Offer a Lump-Sum Distribution Window, for Now

The IRS released notice Notice 2019-18 that is of importance to defined benefit (DB) pension plans that may be considering an amendment to allow lump sum payments to participants already receiving annuitized (lifetime) payments.  Notice 2019-18 declares that the IRS is suspending a previously-announced plan to revise required minimum distribution rules under Treasury Regulation 1.401(a)(9) that govern such benefit changes. Only under limited circumstances are such changes allowed under these regulations.

As background, the IRS points out that a number of sponsors of DBd plans have amended to provide a limited period during which certain retirees may elect to convert their annuities (lifetime income payments) into lump sums. Because the previously-announced plan to revise the governing regulations has been withdrawn, the IRS states that “until further guidance is issued,” the agency will not claim that such plan amendments offering a lump sum payment opportunity violate governing regulations.

Past IRS practice had authorized DB plans to offer these limited lump sum payment opportunities if they had applied for and received a private letter ruling (PLR), or an IRS determination letter on a plan’s qualified status. Notice 2019-18 states that the IRS will no longer issue PLRs on this issue, but does not rule out the option to consider such amendments in a plan’s determination letter filing.

PBGC Final Regulations Provide New Table to Allocation Assets in Terminating Single-Employer Plans

The Pension Benefit Guarantee Corporation’s (PBGC) released final regulations that provide a new table for determining expected retirement ages for participants who are undergoing distress or involuntary termination in single-employer pension plans. The updated table is used to compute the value of early retirement benefits, which are included in the total value of benefits under a plan.

PBGC was created by ERISA to, in part, ensure timely and uninterrupted payments of pension benefits. The final rule replaces an existing table with the new table, and applies for valuations beginning in 2019.

Specifically, the final rules amend Appendix D, Table I-19 of ERISA Section 4044, which sets forth the methods for valuing retirement benefits of terminating single-employer plans covered under ERISA. Guaranteed benefits and benefit liabilities under a plan that is terminating due to distress, or is underfunded and involuntarily terminating, must be valued in accordance with this table.

The PBGC has decided against allowing a public comment period, due to the fact that the final rule takes effect as of January 1, 2019.

House Tax Bill Would Make Several Changes to IRAs and Retirement Plans

A tax bill has emerged from the House Ways and Means Committee, extending certain expiring tax provisions, addressing provisions of 2017 tax reform legislation and several recent disaster events (hurricanes and California wildfires), and proposing additional provisions that would affect tax-advantaged retirement savings arrangements. H.R. 88, titled the “Retirement, Savings, and Other Tax Relief Act of 2018,” is being reported as having bipartisan support.

How the legislation in its current form will be received in the Senate, if passed by the House, remains to be seen, although it is known that there have previously been negotiations on retirement provisions between leaders of both congressional bodies. Control of the House of Representatives will change with the start of the 116th Congress in January 2019, resulting from the November 2018 midterm elections. Leadership of the House Ways and Means Committee—the source of this bill—will shift from Rep. Kevin Brady (R-CA) to a Democratic House leader, widely expected to be Rep. Richard Neal (D-MA).

The following provisions of this legislation would in some manner impact retirement savings arrangements.

  • Enhance retirement plan options related to distributions and repayments, plan loans, prorated tax treatment of distributions, etc., for several geographic areas recently affected by hurricanes, wildfires, typhoons, and volcanic eruptions
  • Broaden options for employers to participate in multiple employer plans (MEPs) or a similar new design known as “pooled employer plan” (PEP)
  • Extend the period within which a 401(k)-type plan may elect a safe harbor plan design
  • Make Traditional IRA contributions an option for taxpayers of any age who have earned income
  • Exempt $50,000 of aggregate retirement savings from RMD requirement (to be COLA-adjusted)
  • Allow graduate student fellowship and stipend payments to qualify as earned income for IRA purposes
  • Prohibit credit card-enabled retirement plan loan programs
  • Allow retirement plan lifetime income investments to be distributed and rolled over to another accepting retirement arrangement if the plan ceases to offer this investment option
  • Allow a higher cap (15 percent) on deferral rates in certain automatic enrollment 401(k) type plans
  • Increase the maximum tax credit for small employers that establish retirement plans (maximum of $1,500 per year)
  • Provide a tax credit incentive for employers to add automatic enrollment features to their retirement plans
  • Allow 403(b)(7) custodial accounts to retain 403(b) status even if the plan is terminated by the sponsoring employer
  • Permit recipients of military Ready Reserve compensation to make additional retirement plan salary deferrals
  • Allow certain qualified retirement plans to be established through an employer’s tax return deadline, including filing extensions
  • Provide nondiscrimination testing relief to certain defined benefit pension plans that are closed to new participants
  • Enhance the fiduciary safe harbor for employer selection of lifetime income retirement plan investments
  • Require an annual projection of potential lifetime income based on a participant’s retirement plan account balance
  • Modify certain defined benefit pension plan insurance premiums paid to the Pension Benefit Guaranty Corporation (PBGC)
  • Create a birth or adoption exemption to the 10 percent excise tax on early distributions from retirement plans

PBGC Issues Final Regulations on “Guaranteed Benefits” for Owner-Participants in Terminating DB Plans

The Pension Benefit Guaranty Corporation (PBGC) issued final regulations, published in the October 3, 2018, Federal Register, regarding limitations on guaranteed benefits to be paid to owner-participants by this insuring agency. PBGC provides partial benefits in the event that certain defined benefit (DB) pension plans are unable to pay participants their promised benefits. The guaranteed benefits described in these regulations relate to terminating single-employer DB plans. They specifically address a change from prior law with respect to owners of the businesses sponsoring such terminating plans.

The guidance—first issued as proposed regulations on March 7, 2018—implements changes brought about by the Pension Protection Act of 2006 (PPA). Before PPA, as now, there have been limitations on the benefit guarantees—insurance payments—that are provided by this agency when a plan cannot do so. Note, however, that certain DB plans, including owner-only plans and small plans of certain professional organizations, are not insured by PBGC.

The PBGC-insured benefits of certain owners have restrictions that do not apply to rank-and-file employees. Before PPA, there were benefit limitations that applied to substantial owners, these being defined as a person owning the entire interest in an unincorporated trade or business, or more than 10 percent of a partnership or corporation. PPA changed the applicable definition from substantial owner to “majority owner,” now defined as a person owning the entire interest in an unincorporated trade or business, or more than 50 percent of a partnership or corporation.


Organization Proposes Calculation Standards for DB Plan Lump Sum Payments

The Pension Committee of the American Academy of Actuaries has released what it describes as an “exposure draft” document, which contains proposed standards of practice for actuaries valuing benefits payable as a lump sum from defined benefit (DB) pension plans.

The document notes the rising frequency of lump sum payments from DB plans, and that the amount of a lump sum calculated may vary based on certain market rates used in the calculation. Included is a discussion not only of traditional DB plan designs, but also cash balance and other hybrid plans.

The exposure draft makes clear that it is “not binding upon any actuary and is not a definitive statement of what constitutes generally accepted practice in the area under discussion,” but is being circulated for comments. Comments are to be received by November 15, 2018 (an e-mail address for submitting comments is provided).

The American Academy of Actuaries is a 19,500-member organization that serves the actuarial community, and as noted in this document, sets qualification, practice, and professionalism standards for actuaries in the United States.

IRS Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Pension Plans

The IRS this week released Notice 2018-69, Extension of Temporary Nondiscrimination Relief for Closed Defined Benefit Plans Through 2019. This guidance extends relief granted to certain defined benefit (DB) pension plans that was set to expire at the end of 2018 plan years.

Certain DB plans that continue to accrue benefits for existing participants, but are closed to the entry of new participants, could otherwise face nondiscrimination failures if not for this relief. The situation commonly involves sponsoring organizations that are enrolling new eligible employees in a defined contribution plan, but allowing existing DB plan participants to continue to accrue those benefits.

The nondiscrimination relief is available for plan years beginning before 2020 if conditions outlined in Notice 2014-5 are satisfied. The IRS notes that this extension is provided in anticipation of the issuance of final amendments to the IRC Section 401(a)(4) regulations.

Ascensus Enters into Agreement to Acquire PenSys

Addition of Highly Respected TPA Increases Firm’s Scale and California Presence

Dresher, PA—Ascensus—whose technology and expertise helps millions of people save for retirement, education, and healthcare—has entered into an agreement to acquire PenSys. The third-party administration (TPA) firm will immediately become part of Ascensus’ TPA Solutions division.

Based in Roseville, California, PenSys is a nationally recognized TPA that specializes in the design, implementation, and administration of defined contribution, defined benefit, and cash balance retirement plans. The firm, which also offers 3(16) fiduciary services, has established a strong reputation for providing creative plan design and high quality service.

“PenSys is one of the most highly respected TPAs in the country due to their focus on designing plans to meet clients’ unique needs and their use of technology to enhance personal service,” says Jerry Bramlett, head of TPA Solutions. “Their addition to Ascensus TPA Solutions goes a long way toward helping us build a national TPA that offers a broad set of services and resources to financial professionals, employers, and employees.”

“Since 1995, we’ve worked hard to make PenSys a partner who understands what service really means to financial professionals, CPAs, and their current and prospective clients,” states Bryan Jacobson, PenSys’ chief executive officer. “We’ll continue to offer the best possible solutions for establishing and maintaining their retirement plans as part of Ascensus.”

“PenSys is a high integrity business with excellence in plan design, actuarial consulting, and 3(16) services complemented by their open-architecture business model,” says Raghav Nandagopal, Ascensus’ executive vice president of corporate development and M&A. “This acquisition not only expands our California footprint significantly, but also adds to our capabilities to service clients nationally. We are delighted to welcome their clients and associates to the Ascensus family.”

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

Dan Kravitz Discusses Tax Advantages of Cash Balance Plans

In a recent ​Accounting Today article​, Dan Kravitz provides insight on how top-earning service professionals can utilize cash balance plans to lower their tax bills. ​The Treasury Department recently proposed new regulations that would prohibit planning techniques such as the “crack and pack” — where business owners split their firms into different entities to lower their tax bills. Kravitz said his firm, a specialist in defined-benefit plans for small businesses, is actively marketing pensions as a way for service professionals to get around the new rules.​