Defined benefit plan

Age Table for 2020 Valuations in Certain Defined Benefit Plans Posted in Federal Register

Today’s Federal Register contains the official publication of a Pension Benefit Guaranty Corporation (PBGC) retirement age table for use by single-employer defined benefit pension plans that are undergoing distress or involuntary terminations, and have valuation dates in 2020. A pre-publication version of the guidance was announced Friday, December 6. As noted by PBGC, “this table is needed to compute the value of early retirement benefits, and thus the total value of benefits under the plan.”


Senators Propose Reforms to Strengthen Multiemployer (Union) Pension Plans

Senate Finance Committee Chairman Charles Grassley (R-IA) and Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Lamar Alexander (R-TN) have proposed the Multiemployer Pension Recapitalization and Reform Plan, ultimately to be reflected in legislation intended to assist struggling multiemployer (union) pension plans. Currently, only a Technical Explanation—not legislation text—is available.

The objectives, as stated in the Technical Explanation as well as in a Senate news release, include the following.

  • Stabilize plans in immediate danger of failure.
  • Provide a limited infusion of taxpayer dollars.
  • Strengthen the Pension Benefit Guaranty Corporation (PBGC)’s ability to insure the multiemployer system.
  • Put the multiemployer system on a stable path for the long term.
  • Ensure fiscal responsibility.

The bill does not go as far in providing actual funding for struggling pension plans as the Rehabilitation for Multiemployer Pensions Act, also known as the Butch Lewis Act, introduced by Ways and Means Committee Chairman Richard Neal (D-MA) and passed by the House of Representatives in July of this year. That legislation has not been considered in the Senate, but, as passed in the House, proposes 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 PBGC funds for additional assistance that some plans could qualify for beyond the above-described loans.

 


PBGC—Seeking Changes to Form 5500 Reporting—Requests OMB Approval for Modifications to the Agency’s Information Collection Authority

The Pension Benefit Guaranty Corporation (PBGC) is requesting that the Office of Management and Budget (OMB) extend approval, with modifications, for the agency to collect information pertaining to retirement plan annual reporting on Form 5500, Annual Return/Report of Employee Benefit Plan.

The PBGC is proposing modifications to the 2020 Form 5500 Schedule R, Retirement Plan Information, and its related instructions. The proposed modifications would affect multiemployer (union) defined benefit pension plans covered by Title IV of ERISA. PBGC is also proposing other minor modifications to the Form 5500 series to improve the accuracy of reported information.

The PBGC is publishing a notice informing the public of its request for OMB approval.  Comments on the request are to be submitted no later than 30 days after publication in the Federal Register, which is currently scheduled for tomorrow, November 13.


2020 Cost-of-Living Adjustments for IRAs and Retirement Plans

The IRS issued Notice 2019-59 containing the 2020 IRA and retirement plan limitations after cost-of-living adjustments (COLAs). Most of the retirement plan limitations increased.

 

2020 IRA Contribution Limitations

  • Traditional and Roth IRA contributions: $6,000 (unchanged)
  • Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLAs)
  • IRA deductibility phase-out range for single taxpayers that are active participants in retirement plans: $65,000 to $75,000 (was $64,000 to $74,000 for 2019)
  • IRA deductibility phase-out range for married joint filing taxpayers that are active participants in retirement plans: $104,000 to $124,000 (was $103,000 to $123,000 for 2019)
  • IRA deductibility phase-out range for non-active participants who are married to active participants in retirement plans: $196,000 to $206,000 (was $193,000 to $203,000 for 2019)
  • Roth IRA income limit phase-out range for determining contribution eligibility for married joint filers: $196,000 to $206,000 (was $193,000 to $203,000 for 2019)
  • Roth IRA income limit phase-out range for determining contribution eligibility for single filers and heads-of-households: $124,000 to $139,000 (was $122,000 to $137,000 for 2019)

 

2020 Retirement Plan Limitations

  • Annual additions under Internal Revenue Code Section (IRC Sec.) 415(c)(1)(A) for defined contribution plans: $57,000 ($56,000 for 2019)
  • Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit pension plans: $230,000 ($225,000 for 2019)
  • Annual IRC Sec. 402(g) deferral limit for 401(k), 403(b), and 457(b) plans: $19,500 ($19,000 for 2019)
  • Catch-up contributions to 401(k), 403(b), and 457(b) plans: $6,500 ($6,000 for 2019)
  • Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $13,500 ($13,000 for 2019)
  • Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,000 (unchanged)
  • IRC Sec. 401(a)(17) compensation cap: $285,000 ($280,000 for 2019)
  • Highly compensated employee definition income threshold: $130,000 ($125,000 for 2019)
  • Top-heavy determination key employee definition income threshold: $185,000 ($180,000 for 2019)
  • SEP plan employee income threshold for benefit eligibility: $600 (unchanged)

 

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 of 10, 20, or 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 2020. For 2020, taxpayers with adjusted gross income that exceeds $65,000 for joint filers, $48,750 for head of household, and $32,500 for all other filers will not qualify for a tax credit. See Notice 2019-59 for the specific income limitations based on tax filing status.


PBGC Asks OMB for Authority Pertaining to DB Plan Contribution Failures

The Pension Benefit Guaranty Corporation (PBGC), an agency that provides benefit insurance for participants in certain defined benefit (DB) pension plans, is requesting from the Office of Management and Budget (OMB) the authority to revise a form used to report failures to make required contributions to a plan.

A change that PBGC is proposing would require that when a payment is made to satisfy a missed contribution, the filer must submit documentation of that payment; for example, a copy of the canceled check, or wire transfer documentation. The Federal Register-published PBGC document also addresses ERISA-provided liens intended to safeguard the funding of single-employer DB plans covered by PBGC’s plan termination program.

Comments in response to this PBGC request must be submitted on, or before, January 6, 2020.


PBGC Amends Its Request for Authority to Collect DB Plan Information

The Pension Benefit Guaranty Corporation (PBGC), an agency that provides benefit insurance for participants in certain defined benefit (DB) pension plans, has amended its request for authority to collect information from retirement plan sponsors.

The previously-granted permission request—approved through June 30, 2021—allows PBGC to solicit information from plan sponsors that is pertinent to PBGC’s role as insurer of these plans. Such routinely granted approvals give an agency like PBGC the authority to require a response from recipients—in this case, retirement plan sponsors—to whom an information collection request has been directed.

PBGC is seeking amended authority because the agency has changed the information it wishes to collect. The information relates to PBGC’s risk exposure in the event that an insured DB plan terminates with unsatisfied benefit obligations. Among the items of information being sought is the number of participants in a plan that were already receiving periodic DB benefits and were subsequently offered and elected to receive their plan benefits in a lump sum. This change in the information being sought is claimed to be a reflection of recent IRS guidance.

Comments in response to this PBGC request for amended information collection authority must be submitted to the Office of Management and Budget (OMB) by November 29, 2019.


DOL Proposed Electronic Delivery Regulations Published in Federal Register

The Federal Register now contains the official publishing of the DOL Employee Benefit Security Administration (EBSA) regulations describing a proposed safe harbor for electronic delivery of employee benefit plan disclosures to participants and beneficiaries.

If adopted, these regulations would provide a safe harbor for electronic delivery as the primary or default means to provide ERISA benefit plan disclosures to participants and beneficiaries. Under conditions prescribed in this guidance, plan administrators could inform participants and beneficiaries that disclosures would be made available on a website. Participants and beneficiaries could, however, request the information in paper form, and opt out of electronic delivery altogether.

This guidance also contains a DOL request-for-information (RFI) seeking input on additional changes to the “design, delivery and content” of ERISA benefit plan disclosures, changes that could “further improve the effectiveness of ERISA disclosures.”

Comments on the proposed regulations and responses to the RFI are due on or before November 22, 2019. The guidance is proposed to take effect 60 days after publication as final regulations in the Federal Register.


DOL Proposes a Safe Harbor for Electronic Delivery of Employee Benefit Plan Disclosures

The Department of Labor (DOL) has issued proposed regulations which—if adopted—would provide a safe harbor for electronic delivery as the primary or default means to provide ERISA benefit plan disclosures to participants and beneficiaries. The DOL has also provided a fact sheet and posted a news release about the proposed regulations.

Under conditions prescribed in this guidance, plan administrators may inform participants and beneficiaries that these disclosures will be made available on a website. Participants and beneficiaries may, however, request the information in paper form, and may opt out of electronic delivery altogether.

This guidance also contains a DOL request-for-information (RFI) seeking input on additional changes to the “design, delivery and content” of ERISA benefit plan disclosures, changes that could “further improve the effectiveness of ERISA disclosures.”

Comments on the proposed regulations and responses to the RFI are due 30 days from publication in the Federal Register, which is scheduled for tomorrow. The guidance is proposed to take effect 60 days after publication as final regulations in the Federal Register.


President’s Executive Orders Could Affect Agency Guidance and Enforcement

President Trump on October 9, signed two executive orders that could have an impact on retirement, health and welfare, and comparable guidance issued by agencies that are part of the executive branch of our federal government. Among these agencies are the Treasury Department and IRS, the Department of Labor’s Employee Benefit Security Administration (EBSA), the Department of Health and Human Services (HHS), and the Department of Education.

The ultimate effects of these executive orders have yet to be determined, but they seem clearly intended to limit the issuance, the effect, and the enforcement of certain types of guidance below the level of formal regulations. These executive orders are consistent with the Trump administration’s stated intent to limit regulatory burden, and, in particular, to limit certain kinds of nonregulation guidance that have the effect or force of law.

 

Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents

This executive order is intended to establish a policy limiting the issuance of agency guidance other than formal regulations that have been subject to public notice, comment, and approval procedures. Furthermore, existing guidance of this kind—called “sub-regulatory” guidance—is to undergo review by the Office of Management and Budget (OMB) if the affected agencies wish to have that guidance remain in effect.

 

Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication

This executive order would appear to limit compliance enforcement to violations of statutes or approved regulations. Furthermore, if an agency wishes to cite its own understanding of what is necessary to comply with a statute or regulation, then any guidance expressing that agency’s understanding must first have been made publicly available, either by publishing in the Federal Register, or made available in a searchable database of that agency.

 

What Next?

It is difficult to predict the extent to which these executive orders may affect reliance on past guidance, the issuance of new guidance, and the enforcement of past or future guidance.


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