Buried deep within “The Cooperative and Small Employer Charity Pension Flexibility Act of 2014 (CSEC Act),” enacted on April 7, 2014 is a new MEP Form 5500 reporting requirement. It is one which, frankly, most of us missed. It came to light as the DOL issued its Interim Final Rule (to be published November 10
Notice 2014-66 Addresses Lifetime Income’s “Relevancy” Problem
One of the biggest challenges facing the task of wider implementation of retirement security through use of DC lifetime income has been the question of relevance. Quite frankly, plan sponsors and their advisors really have not seen the whole idea of lifetime income as relevant to their own plans and practices. It really hasn’t been
Myth-Busting the Ratings Allure: Fiduciary Risk From Use of Ratings In Purchase of Lifetime Income Products
Guaranteed lifetime income from a DC plan requires a contract with a life insurance company. Period. Even if the program is provided by a mutual fund company, a bank, or any other non-governmental entity, insurance companies are the only businesses which can issue to DC plans a contract guaranteeing lifetime income.
Choosing the right insurer
New QLACs Establish Foundation for DC Annuitization
Lifetime Income for 401(k) plans has been been getting a lot of press, driven in large part by efforts by the DOL and Treasury to find ways to promote retirement security.
The IRS took a substantial step in making these DC lifetime income efforts become a reality with its publication of the final regulations establishing the “Qualified Plan Longevity Annuity Contract,” or “QLAC “. In order to even publish this regulation, however, the IRS had to “clear the underbrush” and resolve an number of technical issues relating to the manner in which defined contribution plans could even provide lifetime income.
Treasury and IRS staff did just this, and quite practically. The final regs even addressed some key market concerns, removing a couple of roadblocks which would have made the QLACs difficult to provide. So, for example, the QLAC can have a return of premium feature; can pay certain gains (which is important for certain, popular, annuity products); removed potentially duplicative disclosure requirements; and permits insurance companies to use off the shelf annuity products without amending them (if the contract otherwise meets the QLAC annuity requirements) until 2016. Staff also kept the QLAC simple (for example, no variable annuity contracts will qualify), thus keeping it very affordable.
Even though the establishment of the QLAC provides a good planning tool, for sure, and it does provide a modest tax benefit, that is not the real story here. The true impact of the QLAC reg, and what makes it so very important, is that it establishes the foundation under tax law by which DC plans can simply annuitize.
So, before you dive into the close details of the QLAC (and we will do that, as will many others, I’m sure, over the coming months), lets first turn to the tax rules that actually make lifetime income work in a defined contribution plan. You will need to understand what it takes to put an annuity into a plan, as well as what it takes to distribute an annuity from the plan. I invite you to read the preamble to the originally proposed QLAC reg, as well as Rev Rul 2012-03. Between these two pieces of guidance, you find some very basic instructions on how DC annuitzation-even beyond QLACs- will work. Here’s a brief list of key elements:
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ERISA and Mom
I have tried to publish this as my “Annual Mother’s Day” posting. It puts a very personal twist to the things we do, and hopefully puts a larger and hopeful light on many of the mundane tasks that make up much of our business:
ERISA wonks such as ourselves tend to get lost in the
The Wharton Loan Default Study: Documenting Unemployment’s Unrecognized Penalties
The Wharton School Pension Research Council’s new Working Paper on” Borrowing from the Future 401k Plan Loans and Loan Defaults” finally validated what some of us knew to be true for quite awhile. Using actual participant and plan data from a very large database (not just a statistical sampling), the study found that 90%
Trouble Ahead for the Non-ERISA 403(b) Plan*
* Except,of course for governmental 403(b) plans and non electing churches……
It is difficult to maintain the non-ERISA status of a 403(b) arrangement. Those who wish to do so really have to work at it, with the irony being that “working at it” just may be what triggers ERISA status for those plans. In essence,
A Useful Compendium of Lifetime Income Guidance for Defined Contribution Plans
We have been extensively researching, writing on and developing the concept of providing lifetime income from defined contribution plans for some 15 years. The work has resulted in a patent; several major independantly published research papers; the outlining of some of the important concepts which underline the proposed QLAC regs and its key revenue ruling; and the development of more than one retirement product. If you look closely, you’ll see that that many of the major whitepapers published on lifetime income are well based on this extensive work we have published. Some of the work really is groundbreaking; for example, we propose a useful fiduciary process which can be used by fiduciaries in the purchase of annuities, in our NYU paper.
This blog has carried much of that material for the past 5 years, since February, 2009. We’ve now compiled those pieces here for use by employers, vendors, actuaries, advisers and attorneys who may be struggling to support lifetime income in defined contribution plans.Continue Reading A Useful Compendium of Lifetime Income Guidance for Defined Contribution Plans
“When All Else Fails, Read the Regulations….”
Consider EPCRS’ “Under Examination” rules. If a plan is “Under Examination” it generally cannot take advantage of the more favorable VCP; and SCP is limited- meaning the plan sponsor would need to rely upon the more expensive Audit Cap to fix the problems.
Continue Reading “When All Else Fails, Read the Regulations….”
A Regulatory and Fiduciary Framework for Providing Lifetime Income from Defined Contribution Plans
A more complete and up to date description of how lifetime income can work in a DC plan is in order. Evan Giller (newly Of Counsel with Boutwell and Faye) and I put together the attached piece entitled “Regulatory and Fiduciary Framework for Providing Lifetime Income from Defined Contribution Plans.” It is originally appearing in the New York University Review of Employee Benefits and Executive Compensation – 2013. Published by LexisNexis Matthew Bender. Copyright 2013 New York University.” In the paper, we’ve drawn upon our long experience with retirement plan annuities, mixing it well with all of these new developments.
Continue Reading A Regulatory and Fiduciary Framework for Providing Lifetime Income from Defined Contribution Plans