DOL Issues Guidance on Lifetime Income Disclosure for Defined Contribution Plans

If you have a really good memory you might recall that way back at the end of last year Congress actually passed a significant retirement bill called the Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”). We prepared a brief article about the impact the SECURE Act would have on defined contribution accounts that you can find here.

COVID-19 and the employee benefit issues it has created seems to have overshadowed the SECURE Act, but the folks at DOL apparently remembered that they had been given a task. Section 203 of the SECURE Act amended ERISA to require that individual account balance plans add lifetime income disclosure to at least one participant account statement a year and the DOL was given until December 20, 2020, to provide plan sponsors with guidance on how these disclosures should be provided. The DOL has now released this guidance in the form of an interim final rule (IFR) along with a helpful fact sheet.

DOL Issues Guidance on Lifetime Income Disclosure for Defined Contribution Plans

Let’s Assume

The lifetime income disclosure illustrations are meant to provide participants with some idea of what their account balance would provide as a stream of income at retirement. The IFR provides plan sponsors with a set of assumptions and rules that must be used to prepare illustrations and comply with the disclosure requirements. These include:

  • The calculation will use a point-in-time current value of the participant’s account balance and does not assume future earnings.
  • It is assumed the participant would commence the lifetime income stream on the last day of the benefit statement period after the participant has attained age 67 (Normal Social Security Retirement Age for most individuals). If the participant is already over age 67 his/her actual age should be used.
  • The lifetime income illustrations must be provided in the form of a single life annuity based on the participant’s age and as a 100% qualified joint and survivor annuity presuming that the joint annuitant that is the same age as the participant.
  • Monthly payment illustration calculations will project forward using the current 10-year constant maturity Treasury rate (10-year CMT) as of the first business day of the last month of the statement period.
  • Assumed mortality for purposes of the calculation must be based on the gender neutral mortality table in section 417(e)(3)(B) of the Code – the mortality table used to determine lump sum cash-outs for defined benefit plans.
  • Plans that offer in-plan distribution annuities have the option to use the terms of the plan’s insurance contracts in lieu of the IFR assumptions. For clarification purposes, it is important to note that nothing in the lifetime income disclosure rules require that plans offer annuities or lifetime income options.
  • Plans must use model language provided in the IFR to explain the life-time income illustrations to participants.

Sweet Relief

The concept of lifetime income disclosure has been under consideration by Congress and federal regulators for many years and one concern has always been what would happen if the actual results a participant experiences is not as good as these projections. The IFR addresses this concern by providing that if plan sponsors and other fiduciaries follow the IFR’s assumption and use the model language to comply with the lifetime income disclosure rules those fiduciaries will not be liable if monthly payments fall short of the projections.

Something to Keep in Mind

Plan sponsors and participants should keep in mind that the product obtained as a function of complying with these lifetime income disclosure rules is going to yield something quite different than the results that would be achieved through an interactive projection of a participant’s account.  Many retirement plan vendors and financial planners will utilize projection tools that take into account future contributions and earnings as well as attempting to anticipate potential market fluctuations and interest rate changes rather than simply basing a projection on a static period of time. While a participant may find the figures that would be generated by this lifetime income disclosure useful as a year over year comparative tool the participant should also explore other planning tools for a more complete and robust retirement projection.

Timing & Effective Date

This IFR was publicly released on August 18, 2020, and it is expected to be published in the Federal Register very soon. Interested parties have been given 60 days to comment on what the DOL has set forth. The idea is that the DOL will take the comments it receives and make any adjustments it feels are merited to the guidance and then issue final regulations that will supersede the IFR. The guidance in the IFR will be effective one year after publication in the Federal Register. If you have any questions regarding these topics and updates, please contact John Lucas in the form below.

Published September 3, 2020

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Take Stock of Your ESOP Distribution Policy

It’s plain and simple: if your company’s Employee Stock Ownership Plan (ESOP) lacks a distribution policy, there may be no defined rules for when and how participants are paid from the plan. A distribution policy is a key component of an ESOP and should include timing, method, and form of payment.

Committee of Stakeholders

Developing an ESOP distribution policy begins by gathering a committee of company stakeholders – representatives from the executive team, human resources, shareholders and trustees. This policy group should focus on developing a well-written ESOP distribution policy that considers the employee benefit, ownership and corporate objectives, and their relative importance. An ESOP distribution policy:

  • Provides details for distribution to participants
  • Ensures adherence to legal requirements outlined in the plan document and the Internal Revenue Code (IRC)
  • Ensures the method of payment is nondiscriminatory and nondiscretionary
  • Simplifies administration of the plan
  • Aligns distributions from the plan with the company’s financial objectives
  • Supports the company’s philosophies and ESOP culture 

Ultimately, the committee will set rules related to when and how ESOP participants will be paid from the plan.

Take Stock of Your ESOP Distribution Policy

Timing of Payment

As the committee weighs the timing of ESOP benefits, one of the guiding factors should be based on the company’s overall goals and objectives. Deferring payments until the required deadline:

  • Allows for a longer planning horizon
  • Slows the reallocation of shares and repurchase obligation
  • Reduces the incentive participants may have to quit in order to gain access to their ESOP benefit

The committee may choose to provide immediate payment of ESOP benefits to participants who have terminated employment. Immediate payment allows the organization to:

  • Remove stock from accounts of terminated participants
  • Allocate shares to newer employees sooner, which addresses “have/have not” concerns typical in more mature ESOPs
  • Ease administration of the plan

Whether the committee opts to defer ESOP benefit payments or make them immediately upon the participant’s termination, it’s important to follow IRC regulations (IRC §409(o)) for ESOPs which set specific rules for distributions due to death, disability or normal retirement, as well as termination for any other reason.

In the event of death, disability or normal retirement, participants are entitled to ESOP benefits no later than one year after the end of the plan year in which the event occurs. A participant who retires in 2020, is entitled to payment of their ESOP benefit before December 31, 2021.

For participants who terminate employment for any other reason, benefits must be provided no later than six years after the end of the plan year in which the event occurs. A participant who terminates employment in 2020, is entitled to their ESOP benefit before December 31, 2026.

There are additional ESOP distribution rules (IRC §401(a)(14)) that must also be applied, including:

  • Age 65 or the plan’s normal retirement age (if earlier)
  • 10th anniversary of the date the participant entered the ESOP

In some instances, a participant’s request to delay an ESOP payment may be permissible. For example, an employee may wish to delay receiving their payment under the IRC’s required minimum distribution rules (i.e. attainment of age 72), instead of age 65. Rules addressing these delays should also be addressed during the formulation of the distribution policy.

Method of Payment

The ESOP distribution policy establishes the method of payment for the benefit: lump-sum, installments or alternative options based on the participant’s account balance. In accordance with IRC §409(o), installment payments should be:

  • Substantially equal payments
  • Made at least once per year
  • Fully paid within a five-year period (large balances can be paid over an additional five years)

The policy may also provide an option to make lump-sum payments for balances that are below a certain threshold (e.g. $10,000 or $20,000) and installments for balances above the threshold.

The committee should consider the company’s objectives as it chooses the ESOP payment method.

Installment Payments:

  • Help spread the overall distribution funding requirements over a longer horizon
  • Contribute to smoother plan benefit levels

Lump-Sum Payments:

  • Limit terminated participants from receiving future S-distributions/C-dividends
  • Help concentrate the shares held in the plan to primarily active employees

Form of Payment

The ESOP distribution policy should also define the form of payment – cash, stock or a combination. IRC 409(h) provides specific distribution rules for ESOPs, including participant rights to demand distribution in the form of employer securities and (if not readily tradable) have the employer repurchase the shares at a fair valuation.

Mandatory cash distributions are permissible in certain instances:

  • S Corporation ESOPs
  • When an employer’s charter or bylaws restrict substantially all ownership to the ESOP or current employees
  • Bank ESOPs

Just as the timing and method of the ESOP payment align with the company’s objectives, the form of payment should also be set with the organization’s goals in mind. When payments are made in stock:

  • Shares are distributed and redeemed by the company (Payment is either a lump-sum payment or installments backed by a promissory note, which must be adequately secured by the company)
  • Participants may be eligible for capital gains treatment on the difference between the market value and their cost basis (net unrealized appreciation (NUA))

If cash is the chosen form of payment, the distribution funding will typically consist of employer contributions to the ESOP or through S-distributions/C-dividends.

Other Considerations

While the ESOP distribution policy committee will focus primarily on the timing, method and form of payment, the group should also address these topics which may impact plan distributions:

  • Account segregation
  • Qualified Domestic Relation Orders (QDROs)
  • Events after termination
  • Forceout distributions
  • Diversification

Questions about ESOP Policy Distribution? Contact the Findley consultant you normally work with or Aaron Geibel in the form below.

Published June 3, 2020

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2020 Health and Group Benefits Plan Compliance Calendar

Calendar Plan Year & Calendar Employer Tax Year*

2020 Health and Group Benefits Plan Compliance Calendar January through June
2020 Health and Group Benefits Plan Compliance Calendar July through December

January 2020

31   Last day to report on Form W-2 to employees the cost of applicable employer-sponsored coverage under a group health plan

February 2020

28   Paper Filing – Last day for applicable large employer member to file one or more Forms 1094-C and to file Form 1095-C for each employee who was a full-time employee for any month of the calendar year 2019

28   Paper Filing – Last day for person that provides minimum essential health coverage to an individual during calendar year 2019 to file an information return with the IRS reporting the coverage. Filers will use Form 1094-B, Transmittal of Health Coverage Information Returns, to submit Forms 1095-B, Health Coverage, to IRS.

28   Notice of Breach of Unsecured Protected Health Information – breaches affecting fewer than 500 individuals. Last day for covered entities to notify HHS of a breach affecting fewer than 500 individuals. (Covered entities must notify affected individuals of such a breach without unreasonable delay and in no case later than 60 days following the discovery of a breach.)

March 2020

02   Last day to file electronically with DOL Form M-1 annual report for MEWAs (and certain entities claiming exception) for 2019 (without extension)

02   Last day for filers of IRS For 1095-B, Health Coverage, to furnish a copy of Form 1095-B to the person identified as the “responsible individual” on the form for coverage in 2018

02   Last day for an applicable large employer member to furnish a Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to each of its full-time employees

31   Electronic Filing – Last day for an applicable large employer member to file one or more Forms 1094-C and to file a Form 1095-C for each employee who was a full-time employee for any month of the calendar year 2019 bb

31  Electronic Filing – Last day for person that provides minimum essential coverage to an individual during calendar-year 2018 to file an information return with the IRS reporting the coverage. Filers will use Form 1094-B, Transmittal of Health Insurance Offer and Coverage Information Returns, to submit Forms 1095-B, Health Coverage, to IRS

May 2020

15   Last day (unextended deadline) to file Form 990 series for a 2019 VEBA. An automatic filing extension of 6 months may be requested by filing Form 8868 by the due date of the Form 990

July 2020

28   Last day to furnish Summary of Material Modifications (SMM) to participants and beneficiaries receiving benefits

31   Last day to file Form 5500 for 2019 without extension

31   Last day (unextended deadline) to file Form 5330 and pay excise tax on disqualified benefits underfunded welfare plans

31   Last day (unextended deadline) to file Form 5330 and pay excise tax on certain excess fringe benefits

September 2020

30   Last day to furnish Summary Annual Report (SAR) for 2019 plan year to participants and beneficiaries if an extension to file Form 5500 was not obtained

October 2020

Prior to Oct. 15, 2020 – Medicare Part D Creditable Coverage Notice – Employers offering prescription drug coverage to Medicare Part D eligible individuals must notify those individuals whether the offered prescription drug coverage is creditable coverage. Notice must be provided prior to Oct. 15, 2020.

15   Last day to file Form 5500 with extension

December 2020

15   Last day (with extension) to furnish Summary Annual Report (SAR) for 2019 plan year to participants and beneficiaries

*This calendar is designed to provide a general overview of certain key compliance dates and is not meant to indicate all possible compliance dates that may affect your plan.

Copyright © 2020 by Findley, Inc. All rights reserved.

To access other selected requirements with no specific deadline plus a detailed description of each compliance item, click below.

View 2020 Detailed Health and Welfare Plan Compliance Calendar/Checklist and other selected requirements with no specific deadline

Interested in other compliance calendars?

Defined Benefit

Defined Contribution

It’s Official: Coronavirus Screening and Treatment Covered Pre-Deductible for HDHPs

The Internal Revenue Service and the U.S. Treasury issued guidance this week to employers stating coronavirus screening and treatment can be provided through a high deductible health plan (HDHP) without participants first having to satisfy the plan’s deductible.

According to the American Benefits Council, many companies have been seeking assurances from the federal government that by providing COVID-19 screening on a pre-deductible basis would not disqualify the HDHP from being coupled with an HSA. IRS Notice 2020-15 affirms that an HDHP will not fail to be an HDHP because it provides screening and treatment of the 2019 Novel Coronavirus (COVID-19) without a deductible, or with a deductible below the minimum deductible for an HDHP.

coronavirus screening and testing information for HDHP

For self-insured organizations with an HDHP, this notice allows the plan to cover coronavirus testing at 100% pre-deductible. The guidance also allows the plan to consider costs for coronavirus treatment to be pre-deductible.

Fully-insured organizations should check with your insurance provider to find out how they will be administering coronavirus testing and treatment.

Set Benefit Coverage with Your Plan Administrator

To set the benefit coverage for coronavirus testing and treatment, self-insured organizations will need to determine the coverage level desired (e.g. 100% for screening) and contact the plan administrator. Confirm that the benefits coverage should be applied to all of your organization’s medical plans – not just the HDHP

Communicate with Employees

Once you’ve made the decision to cover COVID-19 testing at 100%, be sure to include that message as you remind employees how to prevent the spread of the coronavirus. Participants in your medical plans should be told:

  • Coronavirus screening is covered at 100% without the deductible
  • Benefits for treatment of coronavirus are included in the plan, without having to satisfy the annual deductible

Vaccinations Continue to Be Preventive Care

Included in IRS Notice 2020-15 is confirmation that vaccinations continue to be considered preventive care and can be covered pre-deductible. Plan participants should be reminded of the importance to receive immunizations according to the CDC’s recommended schedule.

For questions about this topic, contact your Findley consultant or info@findley.com

Published March 13, 2020

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Pension Strategy Driver – 2020 PBGC Premium Rates Announced

For many sponsors of single-employer pension plans, the minimum cash funding requirement is no longer the most important number discussed with their actuaries every year. Instead, pension plan sponsors have shifted their focus to managing their PBGC premiums.

PBGC Premium Rates Chart 2007-2020. Flat-Rate vs. Variable-Rate

PBGC Premiums Defined

The PBGC premium is essentially a tax paid to a government agency to cover required insurance for the plan and the participant benefits in the event that the plan sponsor goes bankrupt. The annual premium is calculated in two parts – the flat-rate premium and the variable-rate premium – and is subject to a premium cap.

The flat-rate premium is calculated as a rate per person.

The PBGC variable-rate premium is an amount that each plan sponsor pays based on the underfunded status of its plan.

The variable-rate premium cap is a maximum amount that a plan sponsor of a significantly underfunded plan has to pay. It is calculated based on the number of participants in the plan. There are other caps that apply for small plans.

2020 Premiums Announced

For 2020, the flat-rate premium amount is $83 per person. This is 168% higher than the rate of $31 per person at the beginning of this decade.

For 2020, the variable-rate premium has jumped to $45 per $1,000 of the underfunded amount. Up until 2013, that rate was $9 per $1,000. That amounts to a 400% increase in just seven years.

The cap for 2020 is $561 per person; which means for a 10,000-life plan, the maximum PBGC variable premium is $5,610,000.

Therefore, the PBGC premium for a 10,000-life plan at the premium cap would total $6,440,000.

More information about various strategies to manage PBGC premiums can be found here: Managing PBGC Premiums: There is More Than One Lever.

More information regarding PBGC’s Current and Historical Premium Rates can be found on the PBGC’s website link above.

Questions? Contact the Findley consultant you normally work with, or contact Colleen Lowmiller at colleen.lowmiller@findley.com, 216.875.1913.

Published October 29, 2019

© 2019 Findley. All Rights Reserved.

Minimum Participation Rule Puts Pension Benefits at Risk

Almost all pension plans are subject to certain compliance tests that are outlined by the IRS. The compliance requirements are in place to make sure that if a plan sponsor’s contributions to a pension plan are deductible for tax purposes, then the pension plan’s benefits must not be designed too heavily in favor of the highest paid employees. One set of compliance rules for most pension plans are the minimum participation requirements. As some defined benefit pension plans continue operating, these rules are causing compliance concerns.

Minimum Participation Rule Details

Under Internal Revenue Code (IRC) Section 401(a)(26), a defined benefit pension plan must benefit a minimum of

  • 50 employees or
  • 40% of the employees of the employer.

If the pension plan is not benefiting any highly compensated employees (HCEs), it automatically satisfies the rule.

HCE is generally determined as an individual earning more than a specified dollar threshold established by the IRS for the prior year. This dollar limit is $125,000 based on 2019 earnings to determine HCEs for the 2020 year. All others are considered non-highly compensated employees (NHCEs).

Unintended Consequences

Today, many pension plans have been “partially frozen” for years, which means they have benefits accruing only for a specified group of employees. As time passes and ordinary turnover and retirement occur, the number of employees that accrue benefits in these defined benefit pension plans is decreasing.

Although the original purpose was to provide “meaningful” benefits to employees across the plan sponsor’s organization, these requirements are now causing accruals to be shut off as some plans approach and fall below the minimum threshold of employees accruing benefits.

For the affected employees, it comes at a time close to retirement age when their promised pensions, by design, would be accumulating at the highest rates, and defined contribution style benefits, like 401k plans, can’t realistically replace all lost future accruals.

Potential Strategies

Do Nothing and Wait

  • We can hope that legislative relief will be passed to eliminate the participation issues. However, Congress has considered addressing these issues over the last 5 to 7 years, and no movement towards enacting relief rules has been seen yet.

Merge Pension Plans

  • This provides immediate relief to minimum participation issues.
  • It could be a temporary solution if the benefits are also partially frozen across the combined defined benefit pension plan. Review the demographics to project how long this solution will last when weighing the advantages of this strategy for your situation.

Open the Pension Plan

  • Reopen the pension plan to additional participants. (Yes, this could make sense!)
  • More employees will be benefiting and eliminate minimum participation rule issues.
  • New plan participants can receive a different formula (something similar to the current plan formula but reduced, cash balance formula, variable annuity formula, etc.)
  • Consider if recruiting or employee retention issues can be reduced or alleviated by designing new pension benefits for targeted employee groups.
  • This can be designed to help bridge the time until the potentially affected employees reach retirement age.
  • Watch the mix of HCEs and NHCEs because the additional pension benefit design still needs to satisfy other IRS coverage, nondiscrimination, and design-based compliance rules.

Freeze Remaining Pension Benefits

  • The freeze can be for all participants or only for current and future HCEs.
  • Replacement benefits can be provided to address employee retention and retirement readiness issues.
    • Provide projected lost benefits as cash payment(s).
    • Executive employees can have some or all lost benefits replaced in a nonqualified deferred compensation plan or other executive compensation arrangement.
    • Design partial replacement benefits in a 401k plan.
  • Consider the impact of the pension plan freeze on other sponsored benefit plans. For example, are there benefits that are automatically available, or not available, based upon whether an employee is accruing benefits in the pension plan?
  • Curtailment accounting rules are triggered which may require an additional one-time expense to be recognized through income in the year of the benefit freeze.

In Perspective

There are many valid business reasons that explain why a plan sponsor would want to stop pension accruals for everyone except a specified group. We know the IRS rules were not intended to cause the loss of benefits for employees late in their careers. Regardless, several pension plan sponsors are at the point where their partially frozen pension plans are close to becoming noncompliant. While we continue to wait for legislative relief for this issue (that may never come), if you sponsor a partially frozen pension plan, you should determine when this will become an issue for you. Begin discussing possible strategies, and have an approach in place well ahead of time to minimize the disruption to your organization as much as possible.

Questions? Contact the Findley consultant you normally work with, or contact Colleen Lowmiller at colleen.lowmiller@findley.com, 216.875.1913.

Published October 28, 2019

© 2019 Findley. All Rights Reserved.

GE pension changes: should my company be looking to do the same?

On October 7, General Electric (GE) announced a series of decisions around their salaried pension plan:

  • For participants continuing to accrue benefits, further accruals will be stopped at the end of 2020. (New employees hired after 2011 were not eligible for the pension plan.)
  • A lump sum buy-out proposal to 100,000 terminated but not yet retired participants will be offered.
  • Benefits in a supplemental plan for certain executives will also freeze.

Inevitably, whenever one of the largest pension plans in the country makes an announcement like this, it can cause executives at other companies to question if a similar decision makes sense for their plan.  The action item here most germane to other plan sponsors, and the focus of the remainder of this article, will be to focus on the middle bullet point.  Offering lump sums to non-retired, terminated participants has become a popular strategy among pension plan sponsors the last couple years as a way to reduce headcount without paying a premium to an insurance company to off-load the obligations.

Lump Sum Cashouts Defined

A Lump Sum Cashout program occurs when a defined benefit pension plan amends its plan to allow terminated vested participants to take a lump sum payment of their benefit and be cashed out of the plan entirely. The program is typically offered as a one-time window.  Plans generally may offer this type of program only if their IRS funded percentage is at least 80% both before and after the program is implemented.

Many pension plans have offered, or at least considered, Lump Sum Cashout programs over the last several years to minimize their financial risk. Plan sponsors that have implemented these programs have been rewarded with significant cash savings as well as risk reduction.

Advantages of Implementing Lump Sum Cashout Today

1. Improved Funded Status

An advantage of the current interest rate environment is that lump sums will be less than most other liability measurements related to the plan. Employers will be paying benefits to participants using a value less than the balance sheet entries being carried for those benefits in most cases. These lower lump sum payments will then help employers improve the funded status of the plan in addition to de-risking or reducing the future risk.

2. PBGC Premium Savings

The most significant benefit of offering a Lump Sum Cashout Program is the Pension Benefit Guaranty Corporation (PBGC) premium savings. The PBGC continues to increase the annual premiums that pension plans are required to pay to protect the benefits of their participants in the pension plan. The per participant portion of the premium (flat-rate) is now up to an $80 payment per participant in 2019. This is more than a 200% increase since 2012. The variable rate portion of the premium is up to $43 per $1,000 underfunded which is an increase of almost 500% since 2012.

These rates are expected to continue to grow with inflation each year. Therefore it is ideal for pension plan sponsors to reduce their participant count sooner rather than later so they can save on these future premiums. In total, some pension plan sponsors could see annual PBGC premium savings of over $600 for each participant who takes a lump sum distribution.

Other Considerations When Planning for a Lump Sum Cashout

There are some concerns that pension plan sponsors will also want to consider such as:

  • Potential increases to contribution requirements;
  • One-time accounting charges that could be triggered;
  • Potential increase to annuity purchase pricing upon pension plan termination. Note that a permanent lump sum feature may increase pension plan termination annuity pricing and cause some insurers to decline to bid.

The pension plan’s actuary should be consulted so they can properly evaluate the impact of offering such a program.

Some pension plan sponsors use lump sum cashouts as part of their pension plan termination preparation strategy. This Findley article provides tips to map your route to pension plan termination readiness. Already have a frozen plan and been considering a termination in the near future? For a complete A-Z walkthrough, check out our guide below.

Questions? Contact the Findley consultant you normally work with, or contact Amy Gentile at amy.gentile@findley.com, 216.875.1933 or Matt Klein at matt.klein@findley.com 216-875-1938.

Published on October 8, 2019

© 2019 Findley. All Rights Reserved.

The IRS Provides Clarity on Uncashed Retirement Distribution Checks

Qualified retirement plan sponsors now have answers to a few of the questions they have tossed around for years about the tax treatment of uncashed retirement distribution checks.

IRS Provides Clarity on Uncashed Retirement Distribution Checks

In Revenue Ruling 2019-19, August 14, 2019, the IRS provides guidance regarding the tax treatment of distribution checks cashed in a year other than the year of distribution or not cashed at all.

The IRS clarifies that if a participant or beneficiary does not cash a distribution check in the year of issuance, the individual must still include the amount in gross income for that year. In addition, if any withholding is required on the distribution, the issuer must withhold and report for the year in which the distribution is made, regardless of whether the check is cashed in the same year. In addition, the 1099-R is issued for the year of distribution and must reflect the distribution amount and amount withheld.

Unfortunately, the IRS did not take this opportunity to provide clear guidance around what to do when a distribution involves a missing or lost participant. In this ruling, the IRS states that it is still analyzing the missing participant issue. Presumably, this means that if a check is returned to a plan as undeliverable this IRS guidance does not apply.

Even without guidance on the missing participant issue, this IRS ruling provides welcome clarity in an area that was confusing for participants and plan administrators alike. In addition, it may provide needed encouragement to participants and beneficiaries to cash distribution checks in a timely manner. The result would relieve the plan administrator’s need to continue to track the distribution checks and eliminate any possible need for amended tax returns for the participant or beneficiary.

Questions? Please contact the Findley consultant you regularly work with, Sheila Ninneman at Sheila.Ninneman@findley.com, 216.875.1927, or John Lucas at John.Lucas@findley.com, 615.665.5329.

Published August 28, 2019

© 2019 Findley. All Rights Reserved.

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2019 Health and Welfare Plans Compliance Calendar/Checklist

Significant Due Dates – Calendar Plan Year & Calendar Employer Tax Year*

2019 Health and Group Benefits Compliance Calendar

January 2019

31   Last day to report on Form W-2 to employees the cost of applicable employer sponsored coverage under a group health plan

February 2019

28   Paper Filing – Last day for applicable large employer member to file one or more Forms 1094-C and to file Form 1095-C for each employee who was a full time employee for any month of the calendar year 2018

28   Paper Filing – Last day for person that provides minimum essential health coverage to an individual during calendar year 2018 to file an information return with the IRS reporting the coverage. Filers will use Form 1094-B, Transmittal of Health Coverage Information Returns, to submit Forms 1095-B, Health Coverage, to IRS.

28   Notice of Breach of Unsecured Protected Health Information – breaches affecting fewer than 500 individuals. Last day for covered entities to notify HHS of a breach affecting fewer than 500 individuals. (Covered entities must notify affected individuals of such a breach without unreasonable delay and in no case later than 60 days following the discovery of a breach.)

March 2019

01   Medicare Part D Creditable Coverage Disclosure to CMS – Last day for employers offering prescription drug coverage to Medicare Part D eligible individuals to disclose to CMS whether coverage is creditable prescription drug coverage by submitting a completed online Creditable Coverage Disclosure to CMS Form

01   Last day to file electronically with DOL Form M-1 annual report for MEWAs (and certain entities claiming exception) for 2018 (without extension)

04   Last day for filers of IRS For 1095-B, Health Coverage, to furnish a copy of Form 1095-B to the person identified as the “responsible individual” on the form for coverage in 2018

04   Last day for an applicable large employer member to furnish a Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to each of its full-time employees

31   Electronic Filing – Last day for an applicable large employer member to file one or more Forms 1094-C and to file a Form 1095-C for each employee who was a full time employee for any month of the calendar year 2018. [IRS 2018 Instructions for Forms 1094-C and 1095-C provide that, while generally the Forms must be filed by March 31 when filing electronically, for calendar year 2018 the Forms are required to be filed by April 1, 2019 when filing electronically.]

31  Electronic Filing – Last day for person that provides minimum essential coverage to an individual during calendar-year 2018 to file an information return with the IRS reporting the coverage. Filers will use Form 1094-B, Transmittal of Health Insurance Offer and Coverage Information Returns, to submit Forms 1095-B, Health Coverage, to IRS. [The IRS 2018 Instructions for Forms 1094-B and 1095-B provide that, while generally the Forms must be filed by March 31 (when filing electronically) of the year following the calendar year of coverage, for Forms filed in 2019 reporting coverage provided in calendar year 2018 the Forms are required to be filed by April 1, 2019 when filing electronically.]

May 2019

15   Last day (unextended deadline) to file Form 990 series for a 2018 VEBA. An automatic filing extension of 6 months may be requested by filing Form 8868 by the due date of the Form 990

July 2019

29   Last day to furnish Summary of Material Modifications (SMM) to participants and beneficiaries receiving benefits

31   Last day to file Form 5500 for 2018 without extension

31   Last day (unextended deadline) to file Form 5330 and pay excise tax on disqualified benefits under funded welfare plans

31   Last day (unextended deadline) to file Form 5330 and pay excise tax on certain excess fringe benefits

31   Last day for plan sponsor of a self-insured plan to file Form 720 and pay the PCORI fee for 2018 plan year

September 2019

30   Last day to furnish Summary Annual Report (SAR) for 2018 plan year to participants and beneficiaries if an extension to file Form 5500 was not obtained

October 2019

14   Prior to Oct. 15, 2019 – Medicare Part D Creditable Coverage Notice – Employers offering prescription drug coverage to Medicare Part D eligible individuals must notify those individuals whether the offered prescription drug coverage is creditable coverage. Notice must be provided prior to Oct. 15, 2019.

15   Last day to file Form 5500 with extension

December 2019

15   Last day (with extension) to furnish Summary Annual Report (SAR) for 2018 plan year to participants and beneficiaries

*This calendar is designed to provide a general overview of certain key compliance dates and is not meant to indicate all possible compliance dates that may affect your plan.

Copyright © 2019 by Findley, Inc. All rights reserved.

To access other selected requirements with no specific deadline plus a detailed description of each compliance item, click below.

View 2019 Detailed Health and Welfare Plan Compliance Calendar/Checklist and other selected requirements with no specific deadline

Interested in other compliance calendars?

Defined Benefit

Defined Contribution

More Pension Lump Sum Cashout De-risking Activity Expected in 2019

Pension plan sponsors looking for significant cash savings and de-risking opportunities have another favorable environment to pull the participants’ lump sum cashout lever this year. But that lever includes several options and considerations. In 2019, the interest rate environment is favorable which gives pension plan sponsors an opportunity to provide lump sum payments to participants while improving the funded status of the plan. So why wait to offer this cashout opportunity when you have this significant benefit staring you right in the face?

Lump Sum Cashout Opportunity in 2019

Lump Sum Cashouts Defined

A Lump Sum Cashout program occurs when a defined benefit pension plan amends its plan to allow terminated vested participants to take a lump sum payment of their benefit and be cashed out of the plan entirely. The program is typically offered as a one-time window but can also be made a permanent feature of the plan with potentially significant financial impact. Plans generally may offer this type of program only if their IRS funded percentage is at least 80% both before and after the program is implemented.

Many pension plans have offered, or at least considered, Lump Sum Cashout programs over the last several years to minimize their financial risk. Plan sponsors that have implemented these programs have been rewarded with significant cash savings as well as risk reduction

Advantages of Implementing Lump Sum Cashout Today

1. Favorable Lump Sum Interest Rate Environment

In 2019, the lump sum interest rate environment is favorable for most employers thanks to a significant interest rate increase during 2018 when lump sum interest rates are locked in for 2019 calendar year plans. These higher rates will result in smaller lump sum payments when compared to 2018 (15-20% decrease).

2. Improved Funded Status

Another advantage of the current interest rate environment is that lump sums will be less than most other liability measurements related to the plan. In other words, interest rates used for 2019 calendar year plans to determine accounting liabilities are lower than lump sum rates. Therefore employers will be paying benefits to participants using a value less than the balance sheet entries being carried for those benefits. These lower lump sum payments will then help employers improve the funded status of the plan in addition to de-risking or reducing the future risk. This interest rate arbitrage is not expected to exist in 2020 since defined benefit lump sum interest rates have continued to decrease since the beginning of 2019.

3. PBGC Premium Savings

The most significant benefit of offering a Lump Sum Cashout Program is the Pension Benefit Guaranty Corporation (PBGC) premium savings. The PBGC continues to increase the annual premiums that pension plans are required to pay to protect the benefits of their participants in the pension plan. The per participant portion of the premium (flat rate) is now up to an $80 payment per participant in 2019. This is more than a 200% increase since 2012. The variable rate portion of the premium is up to $43 per $1,000 underfunded which is an increase of almost 500% since 2012.

HOW TO CALCULATE THE PBGC PREMIUM
Flat Rate (per participant) + Variable Rate = PBGC Premium

These rates are expected to continue to grow with inflation each year. Therefore it is ideal for pension plan sponsors to reduce their participant count sooner rather than later so they can save on these future premiums. In total, some defined benefit plan sponsors could see annual PBGC premium savings of over $600 for each participant who takes a lump sum distribution.

Can You Offer a Lump Sum Cashout More than Once?

Employers that have previously offered a lump sum cashout to participants should be aware that this doesn’t exclude them from pursuing a de-risking program again. In general, as long as plan sponsors wait 3-4 years between similar programs, they can offer the same program to plan participants again. This gives participants who have terminated since the original program an opportunity to take their pension payment. A second round offering also gives participants from the first program a second chance to take a cashout while de-risking the plan for the plan sponsor.

Other Considerations When Planning for a Lump Sum Cashout

There are some concerns that plan sponsors will also want to consider such as:

  • Potential increases to contribution requirements;
  • One-time accounting charges that could be triggered;
  • Potential increase to annuity purchase pricing upon plan termination. Note that a permanent lump sum feature may increase pension plan termination annuity pricing and cause some insurers to decline to bid.

In summary, 2019 is an ideal year given the lump sum interest rates. The current interest rate arbitrage provides pension plan sponsors a low cost opportunity to de-risk the pension plan and save significantly on future PBGC premiums. As with any de-risking opportunity, there are several considerations that should also be discussed. The defined benefit plan’s actuary should be consulted so they can properly evaluate the impact of offering such a program.

Some plan sponsors use lump sum cashouts as part of their pension plan termination preparation strategy. This Findley white paper provides tips to map your route to pension plan termination readiness.

Questions? Contact the Findley consultant you normally work with, or contact Amy Gentile at amy.gentile@findley.com, 216.875.1933.

Published on June 7, 2019

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