There is a difficulty, which is inherent to bulk IRA programs: IRAs are individually owned investment contracts, which are under the control of the former participant-even though they are set up by the former employer. Using negative consent triggers fiduciary status. This also demonstrates that there is a whole range of other laws which come into play when dealing with IRAs.
Continue Reading DOL RCH Advisory Opinion Illustrates the Difficulties Inherent to Bulk IRA/Auto Portability Programs
The Fundamental Question Sought to be Answered under the DOL Proposed MEP Reg: Is Controlling and Maintaining a Retirement Plan a “Substantial Employment Function?”
The key to the regulation is the DOL’s extensive request for comments. It has identified are two major, unresolved issues for comment. The first is what should constitute a “corporate MEP.” The second The seconds the pooled employer plan, the classic MEP of unrelated employers. The DOL proposes drawing this line at the “substantial employment function.”
Continue Reading The Fundamental Question Sought to be Answered under the DOL Proposed MEP Reg: Is Controlling and Maintaining a Retirement Plan a “Substantial Employment Function?”
The DOL’s “Plan Investment Conflicts Project” Is Showing Up In Its Plan Audits: Who Should Be Responsible For Watching the “Black Box”?
One of the key EBSA National Enforcement Projects is the “Plan Investment Conflicts Project” or PIC project. It is the “next generation” of fiduciary compliance programs that the DOL has developed over the years, with this one building on those past programs which had looked at compensation conflicts, 408(b)(2) compliance and 404(a)-5 disclosures. It appears to be using standard, plan level investigations to instigate reviews of selected practices of large financial service companies, as opposed to having to open large service provider investigations to get to the answers being sought.
Continue Reading The DOL’s “Plan Investment Conflicts Project” Is Showing Up In Its Plan Audits: Who Should Be Responsible For Watching the “Black Box”?
SEC Proposed “Modernization” Of Fund Report Delivery Rules Impacts Both 403(b) and 401(a) Plans
The SEC proposed Rule 30e-3 3 this past June which will fundamentally rework the manner in which mutual fund prospectuses and other fund reports are delivered to shareholders. This proposed rule, if made final, would effectively make electronic delivery of these reports the default-much in the same way as currently being proposed for the electronic delivery for required ERISA notices.This impacts 403(b) and 401(a) operations, as well as efforts to make ERISA e-delivery a default.
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TCJA’s Defaulted Loan Extended Rollover Rules have a Serious Technical and Fiduciary Glitch
Effective January 1 of this year was the right of participants to an extended period to rollover their defaulted loan amount, if the default arose following unemployment or the termination of a plan. The statue has a fundamental flaw: it confuses the rules related to the taxation of the loan with the distribution rules related to defaulted loans. The practical effect of this confusion is that it is virtually impossible to effectively use.
Continue Reading TCJA’s Defaulted Loan Extended Rollover Rules have a Serious Technical and Fiduciary Glitch
The Qualified Longevity Annuity Contract (the “QLAC”) Rules Form Foundation for Understanding of How 401(k) and IRA-Based Lifetime Income Works
The recent uptick in publications from the private sector focusing on lifetime income is now a welcome surprise, complete with studies showing that participants are now wanting elements of guaranteed income ad part of their retirement arrangements. But lifetime income can be a daunting concept for the non-actuarial/non-insurance professional whose practice is focused on defined contribution arrangements. Where does one even start in trying to figure this out, and whether or not to include it your clients DC plans or IRAs?
Continue Reading The Qualified Longevity Annuity Contract (the “QLAC”) Rules Form Foundation for Understanding of How 401(k) and IRA-Based Lifetime Income Works
Ignore Those Form 5500 Instructions: 403(b) Plans DO NOT Use Form 5330 For Late Deposits
One of the continuing confusions in how 401(a) rules apply to 403(b) plan involves the reporting rules related to the correction and reporting on the 5500 of one of the most common errors in any elective deferral plan: the late deposit of those deferrals into the plan. Neither non-ERISA or ERISA 403(b) will ever file a Form 5330. Ever. Even when the VFCP program is being used to correct the late deposit.
Adding to the confusion is that the Form 5500 instructions do not differentiate between 403(b) plans and 401(a) plans. It simply states that all “defined contribution” plans need to file the Form 5330 for late deposits, and pay the penalty tax.
Continue Reading Ignore Those Form 5500 Instructions: 403(b) Plans DO NOT Use Form 5330 For Late Deposits
Tax Act’s Participant Loan Changes Compels Fresh Review of “Uncomfortable” Loan Fiduciary Obligations
The Tax Cuts and Jobs Act’s participant loan changes (which delays the account offset on loan defaults related to unemployment or plan termination) triggers something we would all rather not look at: the “uncomfortable” manner in which ERISA’s fiduciary rules apply to loans and their administration.These changes should cause plan sponsors and recordkeepers to consider new choices about their handling of loan defaults, something they haven’t had to do in nearly 18 years. This matters because changing a plan’s loan rules is not a minor technical act. Loans are investments subject to the same ERISA prudence rules as any other plan investment, and changes to loan procedures impacts the investment.
Continue Reading Tax Act’s Participant Loan Changes Compels Fresh Review of “Uncomfortable” Loan Fiduciary Obligations
A 403(b) “Pseudomorph”: The IRS’s Gradual Shift On Applying 415 Limits to 403(b) Plans
There is a little noticed change in the IRS’s recent update of Publication 571 (which is the IRS’s 403(b) technical guide). In a highlighted box on page 4 is the following, under how the limits on “annual additions”-otherwise known as the 415 limits- apply: “More than one 403(b) account. If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts maintained by your employer. If you participate in more than one 403(b) plan maintained by different employers, you don’t need to aggregate for annual addition limits.” This innocuous seeming statement is actually pretty outstanding, finalizing a quiet morphing over a generation of the way the IRS applies a regulation in a way we rarely see.
Continue Reading A 403(b) “Pseudomorph”: The IRS’s Gradual Shift On Applying 415 Limits to 403(b) Plans
The IRS Has a 403(b) MEP Problem
A 403(b) MEP is really complicated when you get down to it because-like anything 403(b), it seems-of the devil that exists in the details. For example, besides having to deal with the DOL 2012 Advisory Opinion on all MEPs; and the fact that the Tax Code Section governing 401(a) MEPS does not apply to 403(b) plans (which means you can never really have a 403(b) MEP for tax purposes); and that the ERISA Section governing all ERISA MEPs (including 403(b) MEPs) requires compliance with that Tax Code Section which doesn’t cover 403(b) MEPS; you still have to deal with the complications of dealing with those legacy contracts of the various participating employers in the MEP. Then there is the issue of dealing with those combination of ERISA and non-ERISA 403(b) plans commonly sponsored by a 403(b)participating employer. These require use of traditional state law agency rules to make them work.
Continue Reading The IRS Has a 403(b) MEP Problem