• Regulatory + Legislative Updates

• What’s Happening in Retirement Plan Designs

• Pending Legislation

• Fiduciary Responsibilities

UPDATE: American Taxpayer Relief Act of 2012

In-Plan Roth Rollovers (IRAs)-Prior to ATRA, a participant was required to have a distributable event. Starting in 2013, no distributable event is necessary to make such a taxable conversion (however your plan must allow for it).

Jan. 2015 begins the “One-Per-Year” IRA Rollover Limit

Aggregate ALL IRA’s and treat them as one

One-Rollover-Per-Year means per 12 month period not per calendar year

Rollover from a traditional IRA to a Roth IRA is not subject to the one-rollover-per-year rule

Doesn’t apply to a rollover to or from a qualified plan

Doesn’t apply to trustee-to-trustee transfers

MyraTraining Wheels for Retirement Savings

MyRA

Obama’s 2014 State of the Union Address introduces new IRA backed by treasury bonds (executive order)

Treasury created it, and it takes little time to set up with an investment partner (MyRa.Treasury.Gov)

Must be a Roth IRA and funded through payroll deductions

No risk of losing money

MyRA

Household income for single persons must be less than $129,000 and for couples must be under $191,000

$5,500/$6,500 Max. Annual Contribution

At $15,000 or 30 years must be rolled over to a private sector Roth IRA

Free account and after tax automatic payroll deductions as low as $5

Rate of Return less than inflation

MyRA

PROS

Low balance to start $25

Direct Deposit Contributions

No minimum contribution

Free (no startup cost or fees)

Not subject to ERISA

MyRA

CONS

Low Earnings, (average return over the last 10 years is 3.39%)

Invested in government bonds

$15,000 Limit

Employer must agree to cooperate

Payroll burden for employer

Is something better than nothing?

Once people start saving will they begin to save even more?

New Form 5500 Requirements for MEPs

CSEC Cooperative Small Employer Charity Pension Flexibility Act of 2014

Will require new reporting by Multiple Employer Plans subject to ERISA

Requires an attachment of:List of participating employersA good faith estimate of the % of

total contributions

DOMAU.S. v. Windsor

Found section 3 of DOMA to be unconstitutional

Did not deal with the issue of “full faith and credit” i.e. the recognition of marriage performed legally in one state by another state that does not recognize same-sex marriages

IRS adopted state of celebration as the rule in Rev. Rul. 2013-17 which became effective in September 2013

Employers in states that don’t recognize same-sex marriages must treat same-sex couples as married with respect to their company-sponsored retirement plans

DOMA’s Effect on Retirement Plans

If a plan sponsor has a participant who was married in a state that allows for same-sex marriage then the plan sponsor must also recognize the marriage for plan purposes

Beneficiary Designations

QDRO Qualified Domestic Relations Orders (how do we know?)

Testing for HCE and Key Employees

DOMA-What Do Plan Sponsors Do?

Check the plan document Plan documents that directly contradict this

rule i.e. “marriage means between one man and one woman” needed to be amended by December 31, 2014

Ambiguous plan documents don’t need to be amended

Plan sponsors don’t need to notify participants

Good time to update beneficiary forms

Restatements-Happening Now!

Restatements occur every 5-6 years depending on the plan document used

The plan document is completely re-written to integrate new legislation

Great time to amend the plan for discretionary changes

PPA Preapproved Plan Document Restatement deadline April 30, 2016

Missed deadlines=disqualified plans

PPA Restatement, What’s new?

Pension Protection Act of 2006 Mandatory Restatement Replacing EGTRRAAutomatic Enrollment provisionsAutomatic enrollment opt out

Funding notificationsInvestment advice rulesContribution limitsQDIA

PPA Restatement, What’s new?

Will Permanently include:

Final 415 regulations

PPA Pension Protection Act of 2006

HEART Heroes Earning Assistance and Relief Tax Act

WRERA Worker, Retiree, and Employer Recovery Act

KETRA Katrina Emergency Tax Relief Act of 2005

GULF Opportunity Zone Act of 2005

Documents are based on IRS’s 2010 Cumulative List of Changes

Defined Benefit Plans

Extended Deadline for Preapproved DB PlansFor opinion & advisory letter applications From 1/31/14 to 06/30/2015Delays 6 year cycle for preapproved DB

plans

Cash Balance Plans Permitted in Prototypes & Volume Submitter Documents

Will also allow preapproved ESOPs

Review will be based on 2012 Cumulative List

New Emphasis on “internal controls”Procedures, policies, systems, computer

programs, activities of the plan administrator and plan sponsor that ensure compliance

Plans with proper internal controls are better administered

Rev Rul. 2014-9 Plan to Plan Rollover Safe Harbor (relaxed rules; Code 3C)

Watch out for RMDs

Rev Proc. 2014-32: 5500-EZ Late Filing (pilot program that ends June 2, 2015)

What’s New at the IRS

Notice 2014-35: IRS Relief for late-filed 8955-SSA

Final Regs. issued for DC plans, 403(b), governmental 457(b) plans, and IRAs in regards to Qualified Longevity Annuity Contracts (QLACs)

Notice 2014-54 Changed longstanding rules giving rise to a lot of interest in voluntary after tax contributions

What’s New at the IRS

The DOL is concerned that the required 408(b)(2) notice is too long and no one understands it

The DOL is considering requiring a “guide” or table of contents with page numbers and weblinks

The DOL is starting a list of service providers in the industry who have a history of misconduct (Fiduciary Offender List)

FAB 2014-1 changed the lost participant standards (IRS & SSA locator services no longer available)

DOL is still looking at Brokerage Windows very closely

What is the DOL up to these days?

IRS Issues

Guidance on the use of forfeitures to reduce Safe Harbor Contributions

Guidance on mid-year amendments to Safe Harbor Plans

Terminating Plan – PPA Amendments

Document record Retention (forever)

Self Correcting Participant Loan Failures

What do we need from the IRS & DOL?

DOL Issues

Self correction for late deferrals (can we use the DOL calculator)Brokerage Windows in Self Directed Plans

(fiduciary duties; rights and benefits)Electronic Disclosures (different rules

than IRS; opt in; check valid email)Benefits Statements(PPA 2006): will

require projectionsWindsor Decision (retroactivity? Lawsuits

have started – Bayer denies pension benefits to gay widower in 2008)

What do we need from the IRS & DOL?

What’s Happening in Plan Designs

Safe Harbor 401(k) Plans

Great for plans who fail testing

Free Pass on ADP/ACP* and potentially on Top Heavy Testing

HCEs can defer more

Mandatory Contribution

Full vesting of mandatory contribution

SH 401(k) Mandatory Contributions

3% non-elective contribution or;Employee not required to defer

Approximately 4% matching contribution or;

100% match on first 3% contributed by employee

50% match on the next 2% contributed by employee

Alternatives to minimumsEnhanced matching contribution

100% match of first 4% contributed (minimum 4%)

100% match of first 6% contributed (maximum to forgo ACP)

Limited to matching deferrals up to 6% but can match at any amount even more than 100%

SH balances the scales for 401(k) plans

Before SHParticipant Comp 401(k)

Deferral% Req. Refund Top Heavy

Contribution

Owner $200,000 17,000 8.5% $11,000 $0

Frank $50,000 $1,500 3.0% $0 $1,500

Dan $30,000 $0 0% $0 $900

TOTAL EMPLOYER CONTRIBUTION $2,400

Participant Comp 401(k) Deferral

% Req. Refund Matching Contribution

Owner $200,000 17,000 8.5% $0 $8,000

Frank $50,000 $1,500 3.0% $0 $1,500

Dan $30,000 $0 0% $0 $0

TOTAL EMPLOYER CONTRIBUTION $9,500 with 84.21% going to owner

With SH

*Owner has to make top heavy contribution even to those not participating in the plan + refund his excess contributions.

Safe Harbor Plans

Exiting a Safe Harbor contribution mid-year allowed only if:The employer is operating at a loss for the

plan year, orThe safe harbor notice includes a “maybe

not” noticeRetroactively effective May 19,2009

SH notice must be given to employees 30-90 days before plan year begins

Deadline to establish a new plan is 3 months before the end of the plan year (October 1st for a calendar year plan)

Automatic Contributions & Auto IncreaseBecoming more and more popular

Washington really likes them

Auto Increase and QDIA puts them on automatic pilot for the participant

Vendors are making it easier on plan sponsors

Can be Safe Harbor or Non and if Non can get special deadline for testing refunds if needed

Cash Balance Plans

A defined benefit plan that looks like a DC plan in many ways“Theoretical” account balanceCalculated by actuary

Plan assets are pooled + trustee directedIf the trust performs better than predicted,

the required contribution decreasesIf the trust performs worse than predicted,

required contribution increases over time

Cash Balance Plans

Higher Limits than a DC plan $210,000Larger tax deductions

Flexible Plan DesignUsed in conjunction with a DC plan for

even higher limits $263,000

No investment decisionsEmployer funds account each year

Covered by PBGCEasy for employees to understandI’m giving you $5,000 V.S. I’m giving you

1% of Final Average Pay times years of service

Cash Balance Plans

PPA confirms they are not discriminatory

IRS Working towards volume submitter and prototype plans for CB plans

Employer bears the risk + gets the reward

Can be used in conjunction with a DC plan

Fee Disclosures

Many think their plan is freeEspecially bundled plans

Currently fee disclosures are too complex to understandDOL is working on a proposed

regulation regarding a 408(b)(2) “Guide”If the disclosure is too long or refers to

other document or websites the guide will be requiredIt will have to contain specific

references to where to find the information (page numbers, section numbers, weblinks)

Hardship DistributionsIRS is looking into requiring more

substantiation for hardship distributionsNot all plans allow for hardshipMust be made on account of an immediate

and heavy financial need“Safe Harbor” Reasons

Have unreimbursed medical expenses

Costs relating to the purchase of a principal residence

Tuition and related fees and expenses for post-secondary education

Payments to prevent eviction from or foreclosure on principal residence

Payment of burial or funeral expenses

Casualty losses to a participant’s principal resident that would be deductible

Conflict of Interest Rule

DOL is working to issue a new “fiduciary rule”

Protect plan sponsors and individual participants from advisor conflicts of interest

Obama gave the DOL the green light for the redraft of the rule that defines fiduciary

Delinquent 5500-EZ Returns Coming Soon

IRS is developing a VCP (Voluntary Correction Program) for delinquent 5500-EZ Filers (owner only plans)

Presently, 5500-EZ filers can’t use the DOL’s VCP program and have no way of abating penalties, other than through reasonable cause.

1 year pilot program released in May 2014 end June 2015

Penalty relief unavailable if plan admin receives penalty notice

IRS Proposes to Require Electronic Filing

Form 8955-SSA E-Filing Mandate for plan years beginning January 2014

Form 5500-EZ (owner only plans) for plan years beginning January 2015

Actuarial Schedules MS/SB for plan years beginning January 2015

Tibble vs. Eddison International

Revenue sharing lawsuit finally got its day before the US Supreme Court

Supremes focusing on how ERISA’s statue of limitations was to be applied in challenging fiduciary actionsStatute of Limitations 6 Years for

investments in plan at that time

Decision expected in June

Victory for the plaintiffs may affect every qualified plan in the country

Tibble vs. Eddison International

Fee Cases – is there an Upshot?

Plaintiff lawyers have gotten smarter about how to plead and pursue the cases

Plaintiffs must PROVE that fiduciaries breached their dutiesUse of retail funds may or may not be a violation

Use of funds from one family may or may not be a violation

Revenue sharing is NOT an imprudent method to pay plan fees but review

Process and documentation are the defining factor – did the fiduciaries act prudently?Watch plan procedures (especially Inv Policy

Statement)

Clark vs. Rameker

Court unanimously ruled that inherited IRAs do not have bankruptcy protectionInherited IRA is a RO IRA by a nonspouse

beneficiaryNot retirement funds for beneficiary

because they can take the money out and often are required to do so before retirement

May be better to leave the money in the qualified planProblem: will the plan allow the beneficiary

to do so?State law may give some protection that

federal law does not based on ruling

Tatum v. RJ Reynolds

Procedures are the most important aspect of fiduciary activities

If the fiduciary can prove that they had reasonable procedures in place and they followed and documented them, the courts will turn towards them

The first word in ERISA stands for EMPLOYEE not employer; Fiduciaries must look out for the best interest of the participants

Once breach and loss are proven the presumption is the fiduciaries are responsible unless they can prove that a prudent person would have taken the same actionsIt is not whether or not the stock lost moneyThe issue is whether the decision to sell the

stock was made prudently

Forum Clause Cases

Can a plan specify in its terms the Federal court in which lawsuits can be brought?

The plan is the rule; venue clauses in the plan document are enforceable and will be enforced by the courts

Haughton v. XeroxSmith v. AegonBoth cases noted that they had previously

enforced arbitration clauses for ERISA claims

Who is a fiduciary?

Anyone who…

Exercises discretionary authority or control over the plan

Exercises authority or control regarding the disposition of plan assets

Renders investment advice for a fee

Has any discretionary authority or responsibility regarding administration

IRS’s Latest Area of Interest

Emphasis on “Internal Controls”Procedures, systems, policies that

ensure compliancePlan Operations ReviewOperate the plan according to its

terms

Plan Document UpdatesLaw ChangesChanges in plan operations

DOL Audit Triggers

Late deposits marked on Form 5500

Employee ComplaintsLate or Missing depositsUntimely Distributions

Random Selection

Correspondence from other government agencies

Late Filings

5500 issues or unusual reporting

Unusual assets reported on Form 5500

Common Errors Plan Sponsors Make

EligibilityFailure to include eligible employeesFailure to exclude ineligible employees

Distributions & LoansAge 70 ½ Min. Distribution RuleImpermissible In-Service WithdrawalsFailure to Follow Loan ProvisionsFailure to properly calculate loan limitsFailure to withhold loan payments

Common Errors Plan Sponsors Make

PayrollPayroll miscalculationsLate DepositsMissed Matching contributionsFailure to Follow plan’s definition of

compensationBonuses, Commission, etc.

Common Errors Plan Sponsors Make

TestingFailure to pass ADP/ACP TestingFailure to limit compensation and

contributionsFailure to provide benefit or

contribution to non-key employees

DeferralsExcessive DeferralsFailure to satisfy IRC 415 Limits

Common Errors Plan Sponsors Make

Service ProvidersSelecting sub-standard service

providersInvestment Provider, Investment

Advisor, Recordkeeper, TPA, CPA, Auditor, anyone being paid from plan assets for any service

Failure to benchmark or review service providers, fees and investments

The #1 Mistake Plan Sponsor Make…

Failure to follow the terms of the plan document!

Why 401(k)s Have Failed (Forbes 4/24/13)

A Perfect Failure: Why the 401(k) Has Been a Flop (Huffington Post 6/7/12)

Why the 401(k) is a “Failed Experiment” (PBS Frontline 4/23/13)

Study: 401(k) retirement plans failing most workers (Moneywatch 9/4/13)

President Obama’s State of the Union Address (1/28/14) “fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans”

Trends (Bad Rap)

Problems with 401(k) Plans:Only 52% of people have access to a plan at work

Employees can’t afford to save

Participation rates are too low

Part time employees may be excluded

Tax breaks don’t work because the people who need to save more typically are not those who benefit from tax incentives

Trends

Tax Reform and Pension Reform are being looked at now

Pension Reform believes the 401(k) is a failure

Tax Reform views retirement plans as an expenditure (10 year window)

Dynamic Scoring may help (takes into account the economic effect of tax legislation)

Trends in Tax Reform

Limit on size of account

Limit on pre-tax vs Roth deferrals

Stretch IRAs (non-spousal inherited IRAs required to be distributed within 5 years)

Roth Conversions

Raising revenue to pay for specific expenditures Highway and Transportation Funding Act of

2014 (allowed higher interest rates to be used for DB plans lowering the funding requirements so there were smaller deductions and more money for highways)

Trends in Tax Reform

Trends in Tax Reform

Trends

Financial Wellness ServicesFinancial Education SeminarsPrograms like Dave Ramsey’s CORE

Wellness

Automation + Auto escalation still popular

Adoption of Roth accounts

Public Pension Plans moving to 401(k)-style individual accounts

For a copy of today’s slideshow

Text 401K to 66866

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