Three things in particular struck me about the SECURE Act:

  • First was the lack of immediate, significant impact on the employer maintaining plans. There are a number of details which their vendors-and the regulators- need to address soon, but for most plan sponsors? It really is a big ho-hum.
  • Second was the sheer number of novel concepts that was introduced by the Act: PEPs, Groups of Plans, Birth and Adoption Rules, Portability of lifetime Income, lifetime Income disclosure, and several other new concepts that simply did not exist before the Act. Unlike the vast majority of retirement laws being passed in the past couple of decades which modified existing rules; SECURE brings new concepts in, wholesale.
  • Third, and perhaps most important, is the volume of small, odd, technical  details to which attention needs to be paid. This statute is a technocrat’s dream. So much in there actually raises fundamental  infrastructure issues of the sort we rarely see. We are all familiar with the 80/20 rule, with the caution of not letting perfection become the enemy of good. Well, these “oddities” raise the exact inverse of the 80/20 rule: through my long years in retirement product development,  the highest risk of failure arises from the lack of understanding of how the smallest of details can tank a multi-million dollar project. The “80” may sound good conceptually and structurally, but it is in the implementation of the detail in the “20” which will determine the success of the project. The SECURE  Act is rife with such detail.

I use two of the “details” to make the case. The first has to do with the portability of lifetime income options, something which is not exactly a “hot topic” for most plan sponsors yet. But it IS important for those developing products in this space. One little mentioned detail in these rules is the fact that “insurance” is not required for portability, even though that is the only way currently to “guarantee” lifetime income. This opens the door to innovative lifetime income products such as tontines (yes, that of Michael Caine’s and Dudley Moore’s movie “The Wrong Box,” on the nefarious side of this topic; and I first mention tontines in an old blog) and other innovative products now being seriously considered by some “disrupters.”  This minor detail may eventually provide one of the key elements necessary for   an entire new industry.

The second example is of importance to those currently considering the development of a PEP for the beginning of next year.  In another little mentioned detail,  the trustee of the PEP must be “responsible for collecting contributions to, and holding the assets of, the plan and require such trustees to implement written contribution collection procedures that are reasonable, diligent, and systematic.”  This is actually a big deal. Directed trustees, insurance companies and other custodians have, for years, been pushing back against efforts by the DOL to make them somehow accountable for monitoring late elective deferrals from employers, and to engage in some sort of notice or collection procedure against recalcitrant employers. This new detail appears now to make a PEP trustee responsible for actively enforcing the timeliness of deposits of elective deferrals from those employers participating in a PEP. That responsibility will be “table stakes” if one is to establish a PEP, and the seriousness of this obligation should not be overlooked.

There is much in the SECURE Act like these two examples; there are a number of stories behind the words of the statute which will make for interesting “telling” as they are implemented.


We’ve probably all had our fill of the innumerable webinars and other productions related to the SECURE Act.  But we are likely to hear more as the statute is “unpacked.” You see, the SECURE Act is really a bit unusual when compared to other major pieces of retirement plan legislations in the past  like PPA, GUST or  EGTRRA, because it introduces a significant number of new technical concepts without a whole lot of detail. Many of the  provisions do not have real immediate affects on the day to day operation of an employer’s plan (though those changes will be impactful down the road). Think, in particular, of terms like the Lifetime Income Portability Rules, and how they might work; or how to pull off the distribution of the 403(b) custodial contract; or just was does that “fiduciary safe harbor” on the purchase of annuity contracts mean, in practice, to my plans?

The one topic which seems to be on the forefront of a significant number of professionals, however, is the attempt to make sense of the new MEP and PEP rules. This is especially so because they follow so closely on the Association Retirement Plan regs finalized by the DOL and the “Unified Plan (“bad apple”) rule proposed by the IRS.  These commentators seem to be taking a common misstep, however:  it seems like (with rare exception) that each of these analyses are missing the assessment of the use of the “Group of Plans,”or “GoP”, in relation to MEPs and PEPs.

What is a “Group of Plans”which I’m referring to as a “GoP” and for which- as Mark Iwry points out- the “o” is NOT capitalized (and I suppose they could be called “Section 202 Arrangements”  after Section 202 of the SECURE Act which introduced the concept), and why does it matter?

The answer is pretty straightforward: technology enabled plan aggregation (ok, ok, I’ll admit, there’s nothing simple about “technology aided aggregation,” but at least the concept is simple). First, you ask why you would want to do a MEP or a PEP in the first place? Well, its because you want all of those things that scale brings: centralized, cost-effective fiduciary expertise; institutionally priced investments down-market; consolidated plan administration; and a few other things.  MEPs and PEPs both clearly bring those things, but they are not the “silver bullet” answer to bringing scale. There is also an alternative that those involved in these things should consider if they bring the same results.

Take a few minutes to read  closely the definition of a GoP at SECURE Section 202:

PLANS DESCRIBED.—A group of plans is described in this subsection if all plans in the group— (1) are individual account plans or defined contribution plans (as defined in section 3(34) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(34)) or in section 414(i) of the Internal Revenue Code of 1986); (2) have— (A) the same trustee (as described in section 403(a) of such Act (29 U.S.C. 1103(a))); (B) the same one or more named fiduciaries (as described in section 402(a) of such Act (29 U.S.C. 1102(a))); (C) the same administrator (as defined in section 3(16)(A) of such Act (29 U.S.C. 1002(16)(A))) and plan administrator (as defined in section 414(g) of the Internal Revenue Code of 1986); and H. R. 1865—630 (D) plan years beginning on the same date; and (3) provide the same investments or investment options to participants and beneficiaries. A plan not subject to title I of the Employee Retirement Income Security Act of 1974 shall be treated as meeting the requirements of paragraph (2) as part of a group of plans if the same person that performs each of the functions described in such paragraph, as applicable, for all other plans in such group performs each of such functions for such plan.

After you read it  you may want to say “good grief!” Technology today permits anyone who wants to make the appropriate investment in data aggregation to effectively mimic a MEP or a PEP, with the sole difference being that you could not get around the notion that each of the “aggregated plans” would have to file a separate Form 5500 because, unlike a PEP or MEP, they are each still individualized plans. Sec 202 takes care of that: as long as you are a defined contribution plan  (note the breadth of the definition picks up 403(b) plans, and permits non-ERISA and ERISA plans to join the same program); have the same trustee/custodian; and have the same investment options, you can file a single consolidated Form 5500 for all plans in that same arrangement. Now, there are a number of key elements that need to be put into play to make this work, including negotiating with the investment vendors, but it really falls into the sweet spot of many TPAs who often oppose the PEP or MEP.

A GoP needs no “bad apple” rule; it does not suffer from the trials of having to disgorge a plan from the central plan; and you need not be concerned about the impact dealing with the ambiguity of the rules surrounding MEPS and PEPs-and we all are well familiar with the way single plans work….

So, before leaping into the MEP/PEP abyss, first ably review whether a GoP suits your needs better.

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Not a lot of attention is being given in the” benefits press” to Section 109 of the SECURE Act, which enables something called “Portability of Lifetime Income Options.” But it  is one of those fundamental building blocks with which -regrettably or not, depending on your view of things- all benefit professionals and all plan sponsors will have to eventually deal. Given that it is effective now, there is some urgency in understanding this thing. One of the challenges is that annuities within Defined Contribution plans are not generally well understood, so I invite you to explore the blogs which show up in  “Lifetime Income” under the “Topics” drop down menu in the sidebar of this webpage. This may prove to be a valuable resource to you.

Background of the “Portability Issue”

First, some background. For all the attention lifetime income has been getting in the marketplace over the past few years, annuities have had surprisingly little take up with employers. Some claim it’s because of the fiduciary concerns, which is why we have SECURE Section 204 (which has a fiduciary safe harbor for the purchase of annuities), but I doubt that was as big as a problem as others would make it out to be. I think its really much simpler: people neither like or understand insurance products, and don’t trust insurance companies. Industry experts themselves have boiled this down to “Four I’s”- Irrevocability, Inflexibility, Inaccessibility and Invisibility-to which I added a fifth- Immobility.” Check out two dated but still effective blogs which describe this in more detail at  Part 1 and Part 2. No, I did not complete the blog on “Immobility, ” but that is what Section 109 is all about.

You see, lifetime income guarantees can really only currently be provided by state-licensed insurance companies issuing annuity contracts and by governmental programs(though there are efforts underway to change that, thus the quirky language in the Act is designed to accommodate these innovative product efforts). Annuity guarantees, however, are not generic (each insurance company’s terms and pricing are each a bit different), nor are they terribly liquid.  When there is a plan transition, lets say a merger; or where the insurance product falls out of fiduciary grace with the sponsor; or when a participant leaves the plan sponsor and wants to continue to add to the annuity in their own IRA; there are really limited options. Too often, the only solution would be to liquidate the annuity and then repurchase another. The problem is that annuities are designed (and priced)  to be held for a lifetime, and early termination often results in a loss of value through a variety of termination charges (these charges, by the way, enable more favorable pricing on the active annuity).

Section 109 actually fixes this problem. For the participant who does not have a distributable event, but the plan ceases its relationship with the insurer for whatever reason, Section 109 permits that participant to maintain that annuity by taking an “in-kind” distribution of it. The participant can hold it (and it still has the attributes of a 403(b), 401(k) or 457(b) plan, as the case may be), or by converting it into an IRA (the term “qualified plan distributed annuity” has been the term used in the past. It looks like SECURE is now calling them a “‘qualified plan distribution annuity contract” or QPDAC, I suppose).  For the participant who leaves the employer, contributions might still be made to it if the participant is eligible for IRA contributions by converting the QPDAC to an IRA, or it can be be rolled over into another qualified plan (should the plan permit it).

You can see how this rule is going to have widespread impact. These are incredibly substantial changes, for which there is yet little guidance-and little familiarity with in the market.

The Plan Document Problem

There’s a lot to be done to get up to speed on the QPDAC. The first, and most fundamental, issue is that these things only work when they are treated as an in-kind distribution of a plan investment, as opposed to a benefit provided under the plan. This means, for example, plan document language which only permits a “lump sum cash distribution” won’t work; but  language which permits either a simple “lump sum distribution” or a more specific “in-kind distribution of an annuity contract” will work. It would be a serious mistake to build annuity payment options into the plan’s benefit terms as, for a variety of reasons, it will seriously screw up the DC plan.

The second immediate drafting issue is the application of the joint and survivor annuity rules. If you draft it wrong, you will end up having those difficult rules apply to all the distributions under under the plan. Take a look at my blog here which should help you out there.

There will now much detail to work through.


There is an encouraging sign that Congressional staff and other legislative writers may finally be taking seriously the notion that that 403(b) plans really are fundamentally different than 401(k) plans.  This “sign” takes the form of Section 112 of the SECURE Act, under which sponsors of “cash or deferred arrangements”   must allow long-term employees working more than 500 but less than 1,000 hours per year to make elective deferrals to their plans.

At first glance, one may be under the mistaken impression that this is a rule which applies to all elective deferral plans, whether they be 401(k) plans, 403(b) plans or 457(b) governmental plans.  But this impression is likely wrong: the statute, by its terms,  clearly only applies to elective deferrals under 401(k) plans, not 403(b) plans.

The title of this section of the SECURE Act which imposes this new rule can be misleading (“QUALIFIED CASH OR DEFERRED ARRANGEMENTS MUST ALLOW LONG-TERM EMPLOYEES WORKING MORE THAN 500 BUT LESS THAN 1,000 HOURS PER YEAR TO PARTICIPATE”), because we have all been conditioned in recent years to treat 403(b) elective deferrals in the same manner as a “cash or deferred arrangement” under 401(k). But there is truly a legal difference between a deferral under a 401(k) “cash or deferred” arrangement” and one under 403(b).

Technically, here’s how it works.  You’ll see that the legislative language could have been a bit clearer:

The new rule amends Section 401(k)(2)(D) of the Code, not 403(b). So we need to look at 403(b)and its regulations to see if 401(k)(2)(D) somehow applies to 403(b) elective deferrals.

1.403(b)-2(b)(7) defines a 403(b) elective deferral under 1.402(g)-1. 1.402(g)-1(b)(3)  defines a 403(b) elective deferral as one made under a salary reduction agreement which is excluded from income  by virtue of Code Section 403(b).  Note the difference between this and the definition of elective deferral for 401(k) plans under 1.402(g)-1(b)(1), which defines a 401(k) elective deferral separately as  being made under a “cash or deferred” arrangement under 401(k). This seems pretty clear, then, that the new rule would not apply to 403(b) plans.

But then it gets complicated. 1.403(b)(3)(a) excludes from income amounts “contributed by an eligible employer for the purchase of an annuity contract for an employee pursuant to a cash or deferred election (as defined at 1.401(k)–1(a)(3))”-which suggests that 401(k)(2)(D) (and the new rule) might apply. But when you go to 1.401(k)–1(a)(3), it merely defines the 403(b) contribution as an elective deferral, without any reference to any service requirement. Indeed, the service requirements under 401(k)(2) do not apply to 403(b) plans, as 403(b) plans instead have the universal availability rule-a rule which was NOT changed by SECURE. Thus the 500 hour rule will not apply to 403(b) plans.

I realize that this analysis may sound a bit convoluted, but that’s the way any legal analysis gets when you try to compare 403(b) and 401(k) rules. It sometimes is just like trying to compare apples and oranges.

Now, you may want to take the cynical view that this was merely a legislative drafting oversight, and that the regs which are eventually written will impose this rule on 403(b) plans. I don’t believe this will happen, for two reasons. First, there are no statutory grounds for doing so. Secondly,  the ERISA minimum participation rules under Section 202 (which imposes the 1000 hours/2 year rule)- which would have made this new 500 hour rule apply to ERISA 403(b) plan if it were amended-was NOT changed.


“Aggregating” plans has now taken center stage with the passage of the SECURE Act. We now often find ourselves a bit muddled by the new array of terms with which we now need to deal.  Keep this as a (hopefully) handy glossary to guide when you find yourself caught in the middle of a conversation about “Multiple Employer Plans, and need to quickly summarize the different MEP types:

1.  MEP: This is your plain vanilla, traditional “Multiple Employer Plan.” Yes, they will still exist after all is said and done, and if you have a MEP that meets all of the pre-SECURE Act rules regarding “commonality and control” (including the regs which also describe PEO MEPs (see # 6) and Association MEPs (see #5)), you don’t need to do anything-EXCEPT that the (i) plan terms must provide for a simplified “One Bad Apple” (or unified plan rule, see #8) and (ii) there are new Form 5500 reporting requirements.

2.  PEP:  A PEP is a “Pooled Employer Plan.” Simply put, it’s a still MEP, (I guess you should call it a PEP MEP), but one that doesn’t fulfill the “commonality” requirement under #1.  Instead, the PEP will qualify as a MEP as long as it has something called a “Pooled Plan Provider” (a PPP, see #3). Yes, the MEP that’s a PEP will also (i) have to have a simplified “One Bad Apple” (or unified plan rule, see #8) rule in its terms, and (ii) have special Form 5500 reporting requirements.

PS: IRAs can be PEP MEP, too.

3.  PPP: A PPP is the “Pooled Plan Provider” that has to be hired by the PEP in order to qualify as a MEP. A PPP is a “person” (it really can be anybody: TPA, and insurance company, a mutual fund management firm, a broker, or even just an individual!) that is

  • “a” named fiduciary (which simply means it is named as a fiduciary in the plan documents) which accepts full responsibility, in writing, for the plan meeting the terms of ERISA and the Code;
  • registers with the DOL as such, before becoming a PPP;
  • the participating employer agrees to provide to the PPP the info needed to properly operate the plan; and
  • the PPP makes sure all parties handling plan assets are bonded.

A traditional MEP (see #1) doesn’t qualify as a PEP. And until the DOL and IRS issue guidance on how you do a PEP, you can operate under a good faith basis after the effective date.

PS: Each Participating employer in the PEP is still considered a plan sponsor.

4.  Group of Plans:  A Group of Plans, as of yet, has no acronym (though I guess we can call them GOPs). It is neither a MEP nor a PEP MEP.  It’s just a bunch of unrelated employers who can file a “combined” Form 5500 if they have the same:

  • Trustee,
  • Plan administrator,
  • Plan year, and
  • Investments or investment options.

The idea of a GOP is that if you don’t meet the MEP rules under #1, and you have no interest in joining a PEP under #2 by using a PPP under #3, you can still get economies of scale by entering into common contractual/ fiduciary arrangements with unrelated employers- by filing a single 5500 in the same way a MEP or PEP MEP can. This option may prove more valuable than a MEP or PEP.

5. ARP: This is an acronym for the “Association Retirement Plan.” This term was coined by the DOL’s new regulation on MEPs. All it does is refer to the traditional MEPs (see #1), under which the DOL somewhat expanded the definition of what constitutes an “association” (and therefore has “commonality”). They still exist after the SECURE Act.

6. PEO MEP:  The “bona fide Professional Employer Organization” was permitted by the new DOL MEP reg to sponsor a traditional MEP (see #1) as long as it meets certain criteria. These still exist after the SECURE Act, but a PEO which questions whether they actually meet the DOL regs’ rules may want to consider operating as a PEP MEP instead.

7. Corporate MEP:  This is another new MEP term coined by the DOL in its new reg, and which still exists after the SECURE Act. It simply refers to those plans which had once covered all the members of a controlled group, and the controlled group became “uncontrolled”(my term!) by a change in ownership;  or refers  to those closely associated groups (such as affiliated service groups) which are covered by the same plan.  The DOL recognizes that these may or may not meet the ARP rules (see #5), and typically not the PEO MEP rules (see #6), but something needs to be done about them. They have asked for comments on what to do with them.  A PEP (see #2) may work in these circumstances.

8.  Unified Plan Rule, or “One Bad Apple Rule”:This also has no acronym, but is worth putting in this glossary. The IRS put out extensive rules which would relieve MEP participating employers of the fear of on bad acting employer from “disqualifying” the plan for all the other participating employers. The IRS coined the term “unified plan rule,” I assume because “One Bad Apple” sounds goofy in a reg. In any event, it was a complex set of rules which were proposed by the IRS. SECURE completely gutted that proposal, simply saying that to qualify for this relief, the plan must merely provide for a process to disgorge the “bad apple” from the plan.

9.  Open MEPs®. Prior to the Secure Act, this term referred to at least two different things: either a MEP of unrelated employers, or a MEP that was treated as a single plan under the Tax Code, but also as multiple plans under ERISA. Because a plan of unrelated employers will now be technically a “PEP,” and given that the Open MEP term is, after all, a registered trademark, I would expect the term PEP to supplant it’s use except by its owners.

A caveat: this Glossary is highly simplified, and is designed to lay out the major concepts of these programs in an understandable form. Each rule described above has a number of important details which need to be followed which are not discussed here.

The SECURE Act will make substantial and highly technical changes to some very specific elements of retirement plan laws, many to which we have been putting a good deal of attention (and written about here) throughout the years-like distribution of 403(b) custodial accounts; aggregating 5500s of unrelated plans; MEPs (see the Multiple Employer Plans Topics Categories in this site’s “Topics” sidebar); and the fiduciary safe harbor for annuity purchases. Before we try wrap our heads around the details of all of these changes, I thought it would be helpful to list-in chronological order-the effective dates for these changes to help in prioritizing what to pay attention to first. With one exception noted in bold below, the section references are to the SECURE Act which are picked up in “Division O” of the legislation. Note that some of these effective date provisions have certain caveats and conditions, so I recommend you look up the relevant date that interests you before making any determinative statement about that date! 

Effective for years beginning before, on, or after the date of the enactment

Sec. 111. Clarification of retirement income account rules relating to church controlled organizations.

Taxable years beginning after December 31, 2008.

Sec. 110. Treatment of custodial accounts on termination of section 403(b) plans.

Plan years beginning after December 31, 2013

Sec. 205. Modification of nondiscrimination rules to protect older, longer service Participants. (this effective date applies if elected by sponsor).

2014 Calendar Year?

Sec. 401. Modification of required distribution rules for designated beneficiaries.(Effective date is the “first calendar year” to which the new 10 year rule applies, which includes any past beneficiaries who are currently subject to the old 5 year rule).

Plan years begining after December 31, 2015.

Portion of Sec. 116 which provides past relief for plans which had excluded difficulty of care payments as compensation for determining the 415 limit.

Plan years ending after December 31, 2017.

Sec. 115. Special rules for minimum funding standards for community newspaper plans.

Distributions made after December 31, 2018

Sec. 302. Expansion of section 529 plans.

Date of Enactment

Sec. 108. Qualified employer plans prohibited from making loans through credit cards and other similar arrangements.

Sec. 116. Treating excluded difficulty of care payments as compensation for determining retirement contribution limitations (for contributions after date of enactment, except see relief provided to 2015, above).

Sec. 204. Fiduciary safe harbor for selection of lifetime income provider. (technically, there is no effective date, but applies as of the “date of selection” of the annuity, which can only meet these requirements once the Act is enacted….)

Sec. 205. Modification of nondiscrimination rules to protect older, longer service Participants (if earlier effective date not elected).

Plan years beginning after December 31, 2019.

Sec. 102. Increase in 10 percent cap for automatic enrollment safe harbor after 1st plan year.

Sec. 103. Rules relating to election of safe harbor 401(k) status.

Sec. 202(d, ). Clarification relating to numbering of returns for deferred Compensation plans (see separate effective date for 202a),(b) and (c).

Sec 104 of Division M—Bipartisan American Miners (allowing in-service withdrawals from governmental 457(b) plans at age 59 1/2)

Taxable years beginning after December 31, 2019.

Sec. 104. Increase in credit limitation for small employer pension plan startupcosts.

Sec. 105. Small employer automatic enrollment credit.

Sec. 106. Certain taxable non-tuition fellowship and stipend payments treated as compensation for IRA purposes.

Sec. 107. Repeal of maximum age for traditional IRA contributions.

Sec. 109. Portability of lifetime income options.

Sec. 113. Penalty-free withdrawals from retirement plans for individuals in caseof birth of child or adoption.

Sec. 114. Increase in age for required beginning date for mandatory distributions (for distributions required to be made after December 31, 2019, with respect to individuals who attain age 701⁄2 after such date).

Sec. 201. Plan adopted by filing due date for year may be treated as in effect as of close of year (for plans adopted after 12/31/2019).

Sec. 206. Modification of PBGC premiums for CSEC plans.

Sec. 301. Benefits provided to volunteer firefighters and emergency medical responders.

Calendar year after December 31, 2019

Sec. 402. Increase in penalty for failure to file (applies to return due dates after this date).

Sec. 403. Increased penalties for failure to file retirement plan returns (this includes the increased IRS Form 5500 non-filer penalty, applies to returns and notice due dates after this date).

Plan years beginning after December 31, 2020.

Sec. 101. Multiple employer plans; pooled employer plans.

Sec. 112. Qualified cash or deferred arrangements must allow long-term employees working more than 500 but less than 1,000 hours per year to participate. (except that, for purposes of section 401(k)(2)(D)(ii)-which was added by the Act- the  12-month periods beginning before January 1, 2021, shall not be taken into account).

 Plan years beginning after December 31, 2021.

Sec. 202(a), (b) and (c). Combined annual report for group of plans (except that the modifications to the Form 5500 must implemented by the IRS and DOL  not later than January 1, 2022).

 Last day of the first plan year beginning on or after January 1, 2022, or such later date as the Secretary of the Treasury may prescribe.

Sec. 601. Provisions relating to plan amendments.

More than 12 months after the latest of the issuance by the Secretary of Labor of interim final rules,  the model disclosure, and the assumptions upon which notices are based.

Sec. 203. Disclosure regarding lifetime income. 

Long-time readers may recognize this as a version of the Mother’s Day blog I would periodically post in honor of Mom. It has been nearly two years since her passing, and I have not posted it since. But it seems that sharing these notions now, during Thanksgiving week, makes some sense. Hopefully, it may help remind us of things we often let pass, and give us some measure of perspective around what we do and for what we have to be thankful.


On the rare morning when the breeze would blow in from the east, from the river, the orange dust from the prior night’s firings of the open hearth furnaces at Great Lakes Steel would settle onto the cars parked in the street. My Mom’s father worked there; my Dad’s father was a furnace brick mason at Detroit Edison; my father a tool and die maker at Ford’s Rouge Plant, not far down the road. Yes, I am a native Detroiter.

ERISA wonks such as ourselves tend to get lost in the press of details which seem to flow non-stop from our regulators and legislators in D.C. It is this background that reminds me that it is sometimes helpful to step back and see the personal impact of the things we do, even on the plant floor.

A few years back, a good friend of mine who ran the retirement plan operations of a large insurance company asked me to speak about ERISA to a meeting of his administrative processing staff. At the time they were still struggling with some of the more difficult administrative processes related to the QJSA and QPSA rules. Here’s what I told them:

My father died at the Rouge Plant in 1970, after 20 years with the company. Back then, the normal form of benefit under a defined benefit plan was a single life annuity, covering the life of only the employee. There was no such thing yet as a qualified joint and survivor annuity or a qualified pre-retirement survivor’s annuity. This meant that my father’s pension died with him. My mother was the typical stay-at-home mother of the period who was depending on that pension benefit for the future but was left with nothing. With my father’s wages topping at $13,000 annually and five kids at home, there was also little chance to accumulate savings.

The Retirement Equity Act of 1984 (a copy of which I still keep in my office) was designed to change all of that. By implementing the requirement of a spousal survivor annuity, a whole class of non-working spouses received protection which was desperately needed. So in that speech to my friend’s administrative staff, I asked them to take a broader view-if just for a moment- of the important task they were being asked to implement. It was valuable social policy with real, human effect which they were responsible for pulling off, and they should take a measure of pride in the work they were doing.

My point is that there are very important, and very personal, consequences often hidden in the day to day “grunge” of administering what often seems to be nonsensical rules.

It is in this spirit which we do give thanks for our blessings, including the opportunity to be in a profession where the law really does matter to people’s lives and can make a difference.



Lifetime Income from Defined Contribution continues to gain traction, which means that those tasked with administering these programs really need to start paying attention to the details of how its done. This also means understanding how the Joint & Survivor Annuity rules-rules which many have spent a career avoiding in 401(k) plans- operate. This then means understanding how Revenue Ruling 2012-03 actually works.

Revenue Ruling 2012-3 was issued by Treasury as part of a package of rulings designed to enhance the availability of lifetime income from DC plans. This package included the proposed QLAC regulations (whose terms were coordinated with the Rev Rul) and another Rev Rul which addressed the issue of partial annuitization from DB plans.

2012-3 is an actuary’s dream, with specific, almost painful details outlining the machinations of how the J&S rules apply when making lifetime income payments from a plan which otherwise is designed to avoid this issue. Remember that the J&S rules not only require that the payment from a retirement plan be made in the form of a 50% Joint and Survivor Annuity, but also requires a particular notice scheme before the payments begin. 401(k) (and more and more, 403(b)) plans are designed to meet the exception to these rules by providing lump sum benefits, with the spouse being the default named beneficiary. Lifetime income blows up this exception. So, now what do you do?

There’s a pile of issues which need to be addressed when making Lifetime Income arrangements under a DC plan, but four of the most basic concerns are addressed by 2012-3:

  1. The annuities are investments, not protected plan benefits.

The first key point that the Rev Rul makes is that choosing lifetime income under a 401(k) plan doesn’t need to be a matter of plan design, but should instead be designed as a matter of the participant making an investment choice. As a practical matter, this means that your plan document does not have to be amended to enable the payment of an annuity benefit (which would be a “protected benefit” under Code Section 411(d)(6)). The plan document language merely needs provide broad enough investment authority to enable the fiduciary to offer the purchase of an annuity contract as a plan investment for the participant (yes, if you really want guaranteed lifetime income, that guarantee still can only be provided under an annuity contract issued by a licensed insurance company).

2. The joint and survivor rules apply only to the elected annuity contract, not to the entire plan-or even to the entire account balance of the participant.

The Rev Rul makes I clear that, as long as individual accounts are being maintained, the exemption from the J&S rules for the rest of the plan -or the rest of the participant’s account-is not lost.

3. The J&S rules won’t apply until the “annuity starting date.”

This is really a big deal. The “annuity starting date” is a critical definition for lifetime income programs. The Revenue Rul defines when the annuity starting date occurs for the lifetime income payout, under which the entire notice and consent process is triggered. The Rev Rul took the position that the annuity starting date is effectively the date when the payout option is irrevocable. In most products, that will be the date the lifetime payments will begin, but it is possible for it to even be decades earlier.

4. Making the annuity the default method of payment under the plan won’t trigger the J&S rules if the participant can elect out of it before the annuity starting date.

The fact that the lifetime payout is the default option is not determinative of the “annuity starting date,” as long as the participant has the ability to choose another option before payments begin.

Getting re-acclimated to the J&S administration will be a challenge.

The long awaited remedial amendment period rules were released a few weeks ago, under Rev Proc 2019-39.  The IRS needed to issue regulatory guidance on how much time a plan sponsor had to amend its 403(b) plan because the Code Section which governs these sorts of changes for 401(k) plans -Section 401(b)-does not apply to 403(b) plans. Of the so many discreet elements of the differences between 401(k) and 403(b) that the drafters of the groundbreaking 2007 403(b) regulations overlooked, this was probably one of the most serious ones. It has taken the IRS a dozen or so years  to finally work out a sensible system by which to approach the problem which arises from the fact that a written plan document is required to obtain 403(b) treatment for a plan. For the 90 or so years prior prior to 2009, 403(b) plans never had a formal written plan document requirement.  I guess there is still an outstanding issue as to whether or not the IRS  has the authority to impose this requirement, given that its not listed in the statute of one of the requirements that give rise to 403(b) treatment of an annuity. Technically speaking, I think the plan document requirement actually has to act as a sort of non-dicrimination rule in order to have any statutory effect.

Nonetheless, we have a formal written plan document requirement, and now have a structure by which to timely amend these plans.

One of the most important rules which really hasn’t gotten a lot of press is the very new rule that any “discretionary” amendment must-as of January 1, 2020- be adopted by the end of the plan year in which the change to the plan’s operation was made (a “discretionary” amendment, by the way, is one which not required by law).This is actually a very significant change, and one which should not be overlooked. 403(b) plan documents have always had a great deal more flexibility than 401(k) plans in the way plan amendments operated. There really has been no rules at all which govern their timely adoption. As we have combed plan documents and operations in preparing them for the 2020 retestaments, we’ve been able to use this lack of time limits on plan amendments to fix some nagging document problems. Yes, there’s always the “form and operation” problem you have to deal with when your plan document has not fully reflected the 403(b) plan’s operational terms, but-generally, for a number of issues- as long as you had sufficient enough documentation to evidence its adoption and use, the lack of a drop dead date (and the availability of “paper clip rule”) by which we the plan had to be formally be amended gave us some confidence that a number of these flaws  may not have been fatal.

We have been expecting this rule, so it really is no big deal, and it is actually very useful in many ways. The issue, however, is the effective date. This new discretionary amendment rule is effective January 1, 2020. Yet the end of the remedial amendment Period is not until March 31, 2020. I  am hopeful that this does’t mean that any discretionary amendments which were necessary to “fix”plan document problems during the 2020 restatement process which are not adopted by January 1 will somehow be more cursed than those amendments made prior to that date.