Defined benefit plan

House Committee Approves Union Pension Plan Rehabilitation Bill

The House of Representatives’ Committee on Education and Labor has approved H.R. 397, the Rehabilitation for Multiemployer Pensions Act, which was introduced in January by House Ways and Means Committee Chair Richard Neal (D-MA). The bill was approved by the Democrat-controlled committee 26-18 on a party-line vote.

The legislation—also known as the Butch Lewis Act—is intended to address issues of insolvency common to a significant number of multiemployer (union) defined benefit pension plans. The bill as proposed would do the following.

  • Establish a Pension Rehabilitation Administration within the Treasury Department, and a related trust fund to make loans to certain union pension plans that are in critical-and-declining status, or insolvent
  • Enable the Treasury Department to issue bonds to fund the loans described above
  • Appropriate to the Pension Benefit Guaranty Corporation (PBGC) funds for additional assistance that some plans could qualify for beyond the above-described loans

The legislation must also be considered by the House Ways and Means Committee, which Rep. Neal chairs, as well as the House Appropriations Committee. The bill has 168 co-sponsors, the majority Democrats.


House Committee to Consider Union Pension Plan Rehabilitation Bill

The House of Representatives’ Committee on Education and Labor will reportedly consider and vote this week on H.R. 397, the Rehabilitation for Multiemployer Pensions Act, which was introduced in January by House Ways and Means Committee Chair Richard Neal (D-MA). The legislation—also known as the Butch Lewis Act—is intended to address issues of insolvency common to a significant number of multiemployer (union) defined benefit pension plans. The bill as proposed would do the following.

  • Establish a Pension Rehabilitation Administration within the Treasury Department, and a related trust fund to make loans to certain union pension plans that are in critical-and-declining status, or insolvent
  • Enable the Treasury Department to issue bonds to fund the loans described above
  • Appropriate to the Pension Benefit Guaranty Corporation (PBGC) funds for additional assistance that some plans could qualify for beyond the above-described loans

Other House committees with jurisdiction over this legislation, which are also expected to consider it at some point, include Ways and Means, and Appropriations. The bill has 168 co-sponsors. There is no equivalent Senate bill introduced at this time.


Legislation Would Give Pension Recipients Higher Priority in Bankruptcies

The Prioritizing Our Workers Act of 2019, companion bills introduced in the U.S. House of Representatives and the Senate by Rep. Tim Ryan (D-OH) and Sen. Joe Manchin (D-WV), would provide greater protection of workers’ defined benefit pension plan benefits when a sponsoring employer files for Chapter 11 bankruptcy protection.

Under a Chapter 11 proceeding, an enterprise is given temporary protection from creditors, and an agreement for eventual repayment of some or all financial obligations is typically negotiated. In general, wages owed to employees after the bankruptcy filing are given priority over unsecured claims of creditors, but promised pension benefits—which are commonly accrued before the bankruptcy event—are less protected. As a result, workers may find their pension benefits reduced or unavailable.

The Prioritizing Our Workers Act of 2019 would generally place pension obligations on a footing similar to wages owed to workers, thereby increasing the likelihood that these obligations would be met; but as a consequence might have the opposite effect for some creditors.

Rep. Ryan’s bill (H.R. 2619) has been referred to the House Committee on the Judiciary, while Sen. Manchin’s bill is currently unnumbered.


PBGC Issues Final Regulations on Duties of Terminated and Insolvent Multiemployer Plans

The Pension Benefit Guaranty Corporation (PBGC), which insures benefits of many defined benefit (DB) pension plans, has issued final regulations on certain reporting and disclosure requirements of multiemployer (union) DB plans that are terminated and insolvent. The guidance addresses actuarial valuation requirements, provides guidance on withdrawal liability information filing, and provides revised notice requirements for plans expected to be insolvent. The guidance is generally effective July 1, 2019, but certain provisions for providing withdrawal liability information to the PBGC, and certain actuarial valuation requirement changes, will be applicable for plan years ending after July 1, 2019. These final regulations can be found here.


House Passes the SECURE Act

In a 417-3 vote, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which would significantly overhaul current legislation governing retirement plans. The bill, which is sponsored by Rep. Richard Neal (D-MA), was approved with broad bipartisan support. It must be passed by the Senate and signed by the President before it becomes law.

The legislation went through a few changes shortly before passage. The final bill removed certain provisions that had been included in previous versions which were intended to expand 529 plans to cover the cost of home schooling and attendance at private elementary, secondary, and religious schools. Additionally, the final version included language unrelated to retirement savings, which is intended to fix the 2017 Tax Cuts and Jobs Act provisions that affected military survivor benefits.

The SECURE Act includes the following provisions.

  • Enhance the ability of employers to participate in multiple employer plans (MEPs)
  • Increase the 401(k) automatic enrollment safe harbor deferral cap from 10 percent to 15 percent
  • Simplify 401(k) safe harbor rules
  • Increase the maximum tax credit for small employer plan start-up costs
  • Create a small employer tax credit for including automatic enrollment in new 401(k) and SIMPLE IRA plans
  • Treat taxable nontuition fellowship and stipend payments as compensation for IRA contribution purposes
  • Repeal the maximum age for making Traditional IRA contributions
  • Prohibit credit card loans from employer plans
  • Enhance the preservation and portability of lifetime income features
  • Allow 403(b) plan participants to retain individual custodial 403(b) accounts upon a 403(b) plan termination
  • Clarify certain retirement plan rules relating to church controlled organizations
  • Allow long-term part-time workers to participate in 401(k) plans
  • Allow penalty-free retirement arrangement withdrawals in the event of the birth or adoption of a child
  • Increase the age to begin required minimum distributions from 70½ to age 72
  • Provide pension funding relief to certain community newspapers that sponsor defined benefit pension plans
  • Treat tax-free “difficulty of care” payments received by home healthcare workers as compensation for retirement plan contribution purposes
  • Extend the deadline to adopt a retirement plan to the employer’s tax return due date (including extensions) for that year
  • Allow combined IRS Form 5500 reports for certain similar plans
  • Require benefit statements to defined contribution plan participants to include an annual lifetime income disclosure based on participant balance.
  • Provide a fiduciary safe harbor to employers for selection of a lifetime income provider
  • Protect older, longer service employees in closed defined benefit plans
  • Lower Pension Benefit Guaranty Corporation (PBGC) premiums for pension plans of cooperatives and charities
  • Reinstate, for one year, certain tax benefits for volunteer firefighters and emergency medical responders
  • Expand 529 plan distribution options to cover the costs of apprenticeships and allow for repayment up to $10,000 of student loan repayments for a student or his or her siblings
  • Require most nonspouse beneficiaries of defined contribution plans and IRAs to withdraw inherited balances within 10 years of the account owner’s death
  • Increase penalties for failure to file certain information returns and IRS Form 5500
  • Allow the IRS to share certain returns and return information with other governmental agencies for tax administration purposes
  • Modify rules relating to the taxation of unearned income of certain children

A nearly identical bill, the Retirement Enhancement and Savings Act (RESA) has been introduced in the U.S. Senate by Sen. Charles Grassley (R-IA) and Sen. Ron Wyden (D-OR). The Senate held hearings on the issue as recently as last week but has not yet scheduled a date to vote on its version of the legislation.

With apparent bipartisan support in both the House and Senate, there seems to be growing momentum that could result in 2019 being the year that significant retirement legislation is passed. Ascensus will continue to monitor the progress of RESA and its counterpart legislation in the House, the SECURE Act.

 

 


Bill for a Commission to Advise Congress on Retirement Issues Is Re-Introduced

Senators Todd Young (R-IN) and Cory Booker (D-NJ) have introduced the Commission on Retirement Security Act of 2019, legislation virtually identical to the 2018 bill these senators introduced. Its purpose is to create a commission that would advise Congress on issues pertaining to retirement security in the United States. The commission would be charged with reviewing existing private retirement benefit programs and drafting a report to Congress that could be useful to lawmakers in improving retirement security.

The following would be among the areas of focus for this commission.

  • Comprehensively review existing U.S. retirement savings vehicles, including the long-term transition from defined benefit pension plans to defined contribution plans
  • Take into consideration social and economic changes that have occurred in the U.S.
  • Examine alternative retirement programs in other countries that could have value or application in the U.S.

A schedule for consideration of the legislation has not been announced.

 

 


IRS Posts Updated Yield Curves and Segment Rates for Defined Benefit Plans

The IRS has issued Notice 2019-35, guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, spot segment rates used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2).

In addition, the notice provides interest rate guidance pertaining to 30-year Treasury securities under IRC Sec. 417(e)(3)(A)(ii)(II), as well as the 30-year Treasury weighted average rate under IRC Sec. 431(c)(6)(E)(ii)(I).

IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer defined benefit plans. IRC Sec. 431 addresses minimum funding standards for multiemployer plans.


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.