403(b) plans and lifetime income programs suffer a similar malady: both sorts of arrangements operate in a sort of “exception” environment, where they rely upon atypical application of the standardized qualified plan rules in order to effectively work. This means that these programs are not typically amenable to broad and sweeping policy statements of the
Loan defaults prevented by automatic enrollment in loan protection (protection which would be triggered default following termination from employment) decreases EBRI’s retirement security deficit by $1.96 trillion, or by 53%. This identifies loan defaults following termination of employment as being a key source of “leakage,” as well as an important element of the nation’s “retirement savings deficit.” The massive size of this systemic retirement security loss from loan defaults has largely gone unnoticed in the past by policymakers, plan sponsors and plan advisers.
Continue Reading 401(k) Loan Protection Helps Address Leakage. How it Works.
There are substantial efforts underway throughout the retirement market, attempting to wrap minds around the various aspects of providing lifetime income from DC plans. This incudes efforts to design new programs and how to explain them to sponsors, fiduciaries and advisers who must make the ultimate selection election between competing choices.This will not only involve getting familiar with a whole new vocabulary, but ultimately there needs to be at least a working knowledge of the different types of annuities which may be in play in any of these designs.
Continue Reading Building a Lifetime Income Product
Common PEP problems are barely addressed by the SECURE Act’s fix to the “one bad apple” rule (called the “unified plan rule” by the IRS, under which a participating employer’s disqualification error will disqualify the entire plan), though there seems to be a common misunderstanding in the industry to the contrary. That new “bad apple” fix actually has very little operational impact on a MEP /PEP whose operations has been affected by that bad actor. It provides only a narrow remedy to a narrow issue by which a P3 or lead sponsor can get rid of an employer who causes an operational/qualification error in the plan-though it may take up to a year to do so if one is to follow the IRS’s pre-SECURE Act proposed regs.
Continue Reading The Limited Utility of the “One Bad Apple” Rule Fix
Conni and I have lurked in the netherworld of retirement plan administration for decades now, working on those things nobody ever sees. One of the ways we explain what we do to friends and family is with a story about their own 401(k) and 403(b) plans. What we tell them is that when they go
The DOL’s new ESG rules may have a curious impact on some church related organizations which utilize faith based standards in their retirement plan investments. Their ability to continue do may now turn on the manner in which they handle their status as a “church plan.” It arises because the ESG rules will NOT apply
A common misunderstanding between 408(b)(2) and 404(a)(5) is the nature of the requirements: 408(b)(2) requires the service provider’s contract with the plan’s fiduciary contain certain, specific terms. It does NOT require that those fees be disclosed to participants, nor does it require annual disclosure. It is simply a business matter between the fiduciary and the service provider. The only time a follow-up “disclosure” is ever required is if there is a material change in the contract’s terms (including the service fee), and then that disclosure is only required to be made to the plan fiduciary.
Continue Reading The Use, and Impact, of 408(b)(2) and 404(a)-5 Are Often Confused
With few notable exceptions, the statutory and regulatory references we need in the administration of plans are at our fingertips from a number of easily accessible internet resources, a great deal of them actually available for free. One of the most annoying of those “notable exceptions” is found under Code Section 411(e) (6) of the Code, the vesting standards which apply to governmental and church 401(a) plans. Section 411(e)(2) states, in pertinent part, that these plans “shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the vesting requirements resulting from the application of sections 401(a)(4) and 401(a)(7) as in effect on September 1, 1974.” You can find those here.
Continue Reading The Hard-To-Find “Pre-ERISA Vesting Rules” for Church and Governmental Plans
Robert Richter, now of ARA and chief editor of the EOB, has weighed ion my posting on the suspension of the due date of loan repayment. I had posited that it is effectively is the participants choice, as the specific language of the statute declares that “such due date shall be delayed for 1 year” -when combined with the need of the participant to certify COVID stays-effectively means an employee has the right to continue payments or not. I also suggested that the language of the statute means that the employer has no authority to impose a due date. He pointed out that the IRS may end up not agreeing, if past is prescient.
Continue Reading CARE Act Suspension of Loan Repayments: Is it the Employer’s or the Participant’s Choice?
The structure and the language used by the drafters of the CARE Act in their crafting of the new participant loan repayment suspension rules seem to be both rare and stunningly broad: it appears to mandate, as a matter of federal law, that each loan repayment due through December 31, 2020 by COVID qualifying participants are suspended for one year.
This is actually a big deal. Section 2202(b)(2) of the CARES act, which mandates the suspension, did fool with the amortization schedules, or the timing and taxation of defaults under Section 72(p) of the Tax Code, which is the section which governs the tax aspects of loans. In fact, it did not amend Section 72(p) at all. Nor did it amend any part of ERISA Section 408(b)(1), which hold the ERISA rules governing loans.
Continue Reading The CARES Act Participant Loan Payment Suspension Rules Take an Unusual Approach in Making the Change; 403(b) Policy Loans Affected Differently