Defined benefit plan

Student Loan and Retirement Plan Guidance on IRS Priority List

The IRS has released its fiscal year 2019-2020 Priority Guidance Plan (PGP). Employee benefit-related items on the list include “Guidance on student loan payments and qualified retirement plans and 403(b) plans.”

Both employers and federal lawmakers have made student loans a high-profile issue, due in part to debt burdens that are said to be limiting employees’ ability to participate fully in their employers’ retirement plans, and in the U.S. economy.

Employers have individually requested IRS approval of benefit arrangements that link student loan repayment and retirement plans. There have been calls for the IRS to issue guidance that other employers could avail themselves of without seeking IRS guidance or approval individually.

Similarly, many bills that have a student loan dimension have been introduced. Some address such elements as disclosure, financing options, and debt forgiveness, but several have linked student loan payments with employer-sponsored retirement plans. For example, the Retirement Parity for Student Loans Act, introduced in December 2018 by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD), would allow employer retirement plan contributions on behalf of employees that are based on their higher education student loan payments.

Other retirement benefit-related items on the 2019-2020 PGP are either new or carryovers from prior years’ lists, including the following.

  • Revisions to the IRS Employee Plans Compliance Resolution System program for correcting retirement arrangement defects
  • Revised life expectancy tables used to calculate required minimum distributions, taking into account longer life expectancies
  • Broad updated guidance on Traditional and Roth IRAs
  • Guidance on retirement plans of affiliated service groups
  • Guidance on church retirement plans

DOL Issues Final Regulations on Overtime Pay and Exemptions for Certain Classes of Employees

The Department of Labor’s (DOL) Wage and Hour Division has issued final regulations on overtime pay, and, specifically, exemptions from overtime pay for certain “executive, administrative, professional, outside sales and computer employees.”

The Fair Labor Standards Act (FLSA) requires certain covered employees to be paid a minimum wage and—for employees who work more than 40 hours in a week—to receive “overtime premium pay that is at least 1.5 times the regular rate of pay.” Certain classes of employees—generally salaried employees—are exempt from this requirement, but there are salary levels below which an employee would nevertheless be considered eligible for overtime pay.

The Wage and Hour Division issued a request for information (RFI) in July 2017, seeking public input that might be helpful in rewriting previously issued final regulations regarding overtime pay and exemptions. Information gathered following this RFI led to the agency’s issuance of proposed regulations in March 2019, and now—six months later—their issuance in final form.

These final regulations address salary levels in the context of overtime pay eligibility, the inclusion of bonuses, incentive payments and commissions in salary level requirements, treatment of highly compensated employees, and future updates to earnings thresholds.

While employers or their plan administrators generally make compensation determinations for retirement plan purposes, some feel this DOL guidance could affect not only compensation for benefits purposes, but potentially plan design.

The effective date of these final regulations is January 1, 2020.


PBGC Proposed Regulations to Clarify Defined Benefit Plan Guidance

The Pension Benefits Guaranty Corporation (PBGC) issued proposed regulations for the allocation of assets in defined benefit plans and for distributions from terminated plans. The changes clarify certain portions of the existing regulations, and formalize policies involving payments of lump sum and partial benefit distributions, changes to forms of benefits, and valuation of plan assets. PBGC will accept public comments through November 29, 2019.

These proposed regulations include the following changes.

  • Clarify that PBGC’s rules on lump-sum payment are unaffected by election of a lump-sum distribution before plan termination. PBGC does not pay benefits in a lump sum except in certain limited circumstances
  • Clarify that a de minimis benefit under the regulations is linked to the definition found in ERISA 203(e)(1), rather than a fixed amount of $5,000
  • Clarify that a de minimis benefit of a participant who dies after plan termination will be paid as an amount due a decedent, not as a qualified pre-retirement survivor annuity
  • Clarify that benefits will be paid to estates only as lump sums
  • Clarify that accumulated mandatory employee contributions may not be withdrawn if benefits are in pay status when a plan becomes trusteed by PBGC
  • Clarify that the form of benefit in pay status when a plan becomes trusteed by PBGC will not be changed
  • Clarify that pre-trusteeship partial distributions are considered in determining benefits
  • Require that fair market value be used for purposes of valuing assets to be allocated to participants’ benefits and in determining employer liability and net worth. The current regulations do not specify this requirement.

Watch Ascensus.com for any further information about this guidance.


IRS Extends Nondiscrimination Relief for Certain Closed Defined Benefit Plans

The IRS has issued Notice 2019-49, guidance that extends existing nondiscrimination testing relief available to certain defined benefit (DB) pension plans that are closed to new participants. The guidance is intended to aid sponsoring employers that are maintaining a DB plan for certain current employees, but commonly offer only a defined contribution (DC) plan—such as a profit sharing-401(k) plan—to new employees. In the absence of such relief, these DB plans could fail nondiscrimination testing because of the limitations on participation. Notice 2019-49 extends the current relief to cover plan years that begin before 2021. (Permanent relief has been proposed in retirement enhancement legislation that has not yet been enacted.)


House Passes Union Pension Rescue Bill, Senate Passage Considered Unlikely

The House of Representatives has passed the Rehabilitation for Multiemployer Pensions Act (H.R. 397), introduced in January 2019 by House Ways and Means Committee Chairman Richard Neal (D-MA). The bill passed by a 264-169 margin, with most of its support coming from Democrats. A Senate companion bill has been introduced by lead sponsor Sen. Sherrod Brown (D-OH).

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

Passage in the Republican-controlled Senate—where it is being called a bailout for badly managed pension plans—is considered unlikely.

 


DOL Addresses Compliance With MEP Form 5500 Filing Accuracy

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued Field Assistance Bulletin (FAB) 2019-01, which affirms earlier guidance on multiple employer plan (MEP) reporting on Form 5500, Annual Return/Report of Employee Benefit Plan, and provides temporary penalty relief for certain reporting failures.

In response to provisions in the Cooperative and Small Employer Charity Pension Flexibility Act, the EBSA issued an interim final rule in 2014 that added new reporting requirements for MEPs. In their annual filing, such plans were to report the following information on an attachment to the Form 5500 (or Form 5500-SF for small employer benefit plans).

  • A list of each employer participating in the MEP
  • A good faith estimate of each participating employer’s percentage of the plan’s overall contributions (employee and employer) made during the reporting year
  • The name, employer identification number (EIN), and plan number for the MEP as found on the Form 5500

Following the issuance of the 2014 guidance, the EBSA observed a number of failures “to include a complete and accurate list of employers” with their Form 5500 or Form 5500-SF.

EBSA identified several common failures in 35 percent of the 286 plans that were included in an enforcement effort earlier in 2019. The following were among the failures.

  • Employer names were not complete (e.g., abbreviated or initials-only).
  • EINs were truncated to include only the last four digits of the EIN.
  • The Form 5500 attachment noted that the EBSA-required data was “available upon request.”
  • A PEO was incorrectly listed as the only participating employer.

Rather than initiating civil enforcement action against MEPs guilty of such failures, the EBSA is granting transition relief in FAB 2019-01 “to plan administrators of MEPs who voluntarily comply…and commence filing complete and accurate participating employer information…for the 2018 and following plan years…”

Form 5500 Filing Deadline Extension for MEPs

Because the 2018 Form 5500/5500-SF filing deadline for calendar year plans is imminent—July 31, 2019—the EBSA is granting such MEPs a filing extension of up to 2½ months. EBSA also noted the following.

  • Plans should check the “special extension” box under Part I, Line D of the 2018 Form 5500/5500-SF, and enter “FAB 2019-01” as the description for the extension.
  • Filers may instead choose to File Form 5558 with the IRS to obtain the general 2½ month extension, but if so, this must be done by July 31, 2019, for calendar year plans.
  • Plans that have already filed their 2018 plan year Form 5500/5500-SF must file an amended return by October 15, 2019, to obtain the relief provided by FAB 2019-91.

The EBSA reserves the right in individual cases to request prior-year filing data.


PBGC Proposes Corrections, Clarifications, and Improvements to Certain DB Plan Guidance

Soon to be published in the Federal Register are proposed changes to Pension Benefit Guaranty Corporation (PBGC) regulations on defined benefit (DB) plan reportable events, disclosure requirements, annual financial and actuarial information reporting, single employer plan terminations, and PBGC premium rates.

PBGC, the federal agency with primary oversight of, and providing insurance for, certain DB plans, describes the proposed technical corrections, clarifications, and improvements as motivated by its “ongoing retrospective review of the effectiveness and clarity of its rules, as well as input from stakeholders.”

Public comments on the proposed changes will be accepted for a 60-day period that will begin upon their publication in the Federal Register. A pre-publication version of this guidance is available here.


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.