Defined benefit plan

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.


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.