acopa actuarial symposium august 15, 2014 regulatory update · • generally effective 2015, 2016...

8/12/2014

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ACOPA Actuarial Symposium

August 15, 2014

Regulatory Update

Judy Miller – ASPPA/ACOPA

Carol Zimmerman - IRS

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Agenda

Legislative Update • HATFA

• Pending

Regulatory update • DOMA / Windsor

• Death Master File

• Mortality update

• Temporary nondiscrimination testing relief for closed DB plans

• IRA and DC-to-DB rollovers

• Pre-approved cash balance plan documents

• QLAC

• Circular 230 Update

• Pending Guidance

• Joint Board Update

• PBGC

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Highway and Transportation

Funding Act of 2014 (HR 5021)

Extends the MAP-21 10% interest rate corridor through 2017.

Elective (opt out) for 2013 • For all purposes or only for 436

• Guidance will be needed on elections, as well as material AFTAP change for 2014

Temporary reporting requirements for plans with >50 participants and >$500,000 underfunding also extended 5 years.

MAP-21 rates can’t be used for

436(d) if plan sponsor debtor in bankruptcy • Generally effective 2015, 2016 for union plans

Technical correction for end of year vals also included

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Recent Activity

S 2511 (Harkin-Alexander) • Restricts application of “Substantial Cessation of

Operations” provisions of ERISA §4062(e)

• PBGC has put hold on 4062(e) action until end of year

- ACOPA, ABC; the Committee on Benefits Finance of

FEI, and CEIBA sent a letter to PBGC June 3, 2014

expressing concern

HR 5381 (Tiberi-Neal)

• Closed DB plan non-discrimination rules

HR 2918 (McKinley)

• Coal Healthcare and Pensions Protection Act of 2013

• Abandoned Mine Reclamation Fund monies would be

transferred to 1974 UMWA Pension Plan

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Legislative Forecast

For remainder of 2014:

• CR in September

• probably through early 2015

• Tax extenders in lame duck (but for how long?)

• IRA charitable rollover

• PPA Multi-employer provisions

• Revenue raiser for ______

• “Stretch IRA” provision

• Longshots for 2014

• Coal miners multi-employer pension plan solution

• 4062(e) clarification (similar to S 2511)

• Closed DB plan nondiscrimination rules

2015 – Tax Reform

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DOMA

• Enacted in 1996

• Did not prevent state regulation of same-sex

marriage

• Provided that for purposes of federal law:

– Section 2 – No state required to recognize same-

sex marriage performed under law of another

state

– Section 3 – For federal purposes “marriage” is

legal union between one man and one woman,

and “spouse” is person of opposite sex who is

husband or wife

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United States vs. Windsor

• Issued on June 26, 2013, effective July 21, 2013

• Ruled that Section 3 of DOMA unconstitutional

– Violates basic due process and equal protection principles under the 14th Amendment

– Violates concept of “federalism” because domestic relations such as marriage are traditionally governed by state, not federal law

• Did not address constitutionality of Section 2 of DOMA

– States still permitted under DOMA to disregard same-sex marriage performed in another state

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IRS Guidance

Rev. Rul. 2013-17 and FAQ

“Place of Celebration” rule - for federal tax purposes

“marriage” legal determination based on state where

marriage performed, not where couple lives

Ruling alleviates potential administrative quagmires

• No need for HR to track change of address to change

federal tax treatment

Confirmation that neither state law civil unions or

domestic partnerships are “marriages” for federal law

purposes

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DOL Guidance Technical Release No. 2013-04

Consistent with IRS ruling

Rule of state of “celebration” not domicile

Domestic partners and civil union partners not

treated as spouse

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Retirement Plan Impact

Joint and spouse survivor annuity (QJSA) at

retirement

Pre-retirement survivor spouse annuity (QPSA)

for death prior to annuity commencement

Profit sharing plan without annuity option –

death benefit

In-service distributions

• Loans

• Rollovers

• Hardship distributions

QDROs

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Retirement Plan Impact

Standing to bring claim as surviving spouse

Technical testing rules

• Attribution of ownership between same-sex

spouses

• Highly Compensated Employee

• Key Employee

• Controlled Group

• Affiliated Service Group

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Updated Guidance

IRS issued Notice 2014-19 offering guidance

for retirement plan sponsors

Qualified retirement plan operations must

reflect Windsor decision effective June 26,

2013

Earlier application is permitted, but not

required

No qualification failure if, prior to September

16, 2013, plan only recognized same-sex

marriage based on place of residence

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Updated Guidance

If Windsor is reflected retroactively (i.e. before 6/26/13):

• It may be in whole or in part

• Voluntary retroactivity may not be such that it results in a qualification failure

• Plan must be amended to specify application of Windsor to the extent it is recognized retroactively

Plan amendment is not required if plan language is not inconsistent with Windsor decision

Amendments generally due by December 31, 2014

Many already comply

Plans that contain a variant of the DOMA definition must amend

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Open Questions

Retroactivity

Potential litigation from participants/partners

Example:

• Cozen O’Connor versus Tobits

• Spouse joint and survivor benefits

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Social Security Death Master File

Balanced Budget Act of 2013 included provision

restricting access to data in the DMF for a period of

three years following death

Commerce Secretary oversees certification process

for those wanting access

Must have fraud protection interest or other

legitimate need for data

Data must be maintained under strict safeguards

User fee required

Severe penalties for improper use or disclosure

Presents challenges to plan administrators relying

upon this data to identify deceased participants

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Society of Actuaries

2014 Pension Plan Mortality Study

Life expectancies at age 65 have

increased more than 10% since

last study in 2000

Purpose of SOA study was to

develop a table for IRS to use as

an update to the current basis

mandated for ERISA funding and

valuing lump sum payments

• Adoption no earlier than 2016 for

funding and lump sum calculations

• Accounting assumptions based on

RP-2000 study could be questioned

for 2014/2015

New mortality assumption could

increase plan liabilities 5% - 10%

Current law basis (2014):

• Male – 19.3 years

• Female – 21.1 years

New SOA study:

• Male – 21.6 years

• Female – 23.8 years

Life expectancy at age 65,

U.S. population

Source: Health, United States, 2012: (Table 18);

National Center for Health Statistics

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More heavily retired/ beneficiaries than RP 2000

More heavily blue collar

Dropped a large amount of data submitted for the

study

• 120 private plans submitted 38 used

• 3 large public plans submitted 0 used

• 59.9 million life-years submitted 9.5 million used

• Some concerns about reasons records were

dropped, and effect on results

• Comparable to RP-2000 study

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Tables provided

• Separate pre- / post-retirement

• Separate blue collar / white collar

• Separate tables by amount (salary/ benefits)

• Disabled (but not select-and-ultimate)

Projection scale

• MP-2014, 2 (3?) -dimensional (gender, age,

calendar year)

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IRS Mortality

Current tables issued in 2007 and 2008

regulations

Code includes a mandate to update tables at least

every 10 years – 2017 or 2018?

Static mortality tables published for use through

2015

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IRS Mortality

Far too early to predict what tables will be issued by

IRS

Comments requested

• Any other mortality studies?

• Separate mortality table warranted for pre-1995

disabled participants?

• Simplified tables still needed?

• Combined vs. annuitant / nonannuitant?

• Static vs. fully generational?

• Can software accommodate 2-dimensional

projection scales?

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Nondiscrimination testing

for closed DB plans

Closed DB plans = DB plans closed to some

participants, with ongoing accruals for others

Over time, participants of closed plan tend to become

more concentrated in HCEs

Concerns that closed plans are failing “gateway” test

• Employers unable / unwilling to make minimum 7.5%

DC contributions plus matching contributions

• Tendency to freeze DB plan altogether without relief

Requested permanent relief from gateway test if met

conditions when plan closed

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for closed DB plans

IRS sympathetic, but concerns:

• Avoid creating incentive to close plans to gain relief

• Relief could be used to design plans the IRS would

consider discriminatory

• Potential for unintended consequences if isolated

changes made to nondiscrimination testing rules

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for closed DB plans

IRS Notice 2014-5 offers limited relief through 2015 provided:

• Amendment to close plan was adopted before notice issued

• Nondiscrimination requirements met for year beginning in 2013 without using minimum allocation gateway

oMeet “primarily DB” or “broadly available separate plans” gateway

oDB plan passes coverage and nondiscrimination without aggregating with DC plan

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for closed DB plans

Feedback indicates relatively few plans are

helped by the current relief

IRS requested comments on other alternatives

for future relief, including:

• Use of average DC allocations rather than

requiring minimum for each NHCE

• Counting average NHCE match toward

gateway

• Eliminate gateway if pass general test using

lower interest corridor

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for closed DB plans

IRS requested comments regarding possible relief:

Benefits, rights or features testing for ongoing

accruals

401(a)(26) minimum participation rules

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One-per-year IRA Rollovers

Two types of rollover transactions

• Direct trustee-to-trustee transfer

• 60-day rollover (participant receives funds)

IRC Section 408(d)(3) limits IRA rollovers to one 60-day

rollover in any one-year period

Bobrow v. Commissioner (Tax Court) held this one-per-

year limit applies on an aggregate basis

Consequently, 60-day IRA-to-IRA rollovers are prohibited

if such a rollover had been made with respect to any of the

individual IRAs in the preceding one-year period

On March 20th IRS issued Announcement 2014-15

adopting the Tax Court’s position effective January 1, 2015

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Qualified Plan Rollover Guidance

Revenue Ruling 2014-9 issued April 2014 provides safe

harbor method for plan sponsors to determine validity of

rollovers to a qualified plan

Essentially the recipient plan can check EFAST

FreeERISA to make sure the payor plan filed as a

qualified plan

Addresses rollovers from other employer plans and IRAs

Plan sponsors reluctant to accept rollovers that could later

be determined to be ineligible may rely on the procedure

described

If rollover amount is later deemed ineligible, the invalid

amount plus earnings must be distributed to the employee

within a reasonable time after discovery

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DC-to-DB Plan Rollovers

IRS previously issued rules (in 2012) allowing qualified

defined benefit plans to accept rollovers from qualified

defined contribution plan

• Lump sum converted to annuity using plan’s 417(e) factors

• May use alternate basis if more favorable to participant

PBGC recently issued proposed regulations addressing

treatment in the case of plan termination

• Treated as a benefit derived from mandatory employee

contributions if use mandated lump sum factors

• Additional amounts from alternate conversion basis

afforded lesser protection

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Pre-Approved CB Docs

Announcement 2014-4 extended deadlines to allow

development of pre-approved CB plans:

• Until 2/2/2015 to submit DB plans for opinion /

advisory letters

• Until 3/31/2014, for sponsors of Cycle C plans to sign

Form 8905 indicating intent to adopt pre-approved

plan

IRS also announced ability to withdraw filing and request

return of user fee for Cycle C cases

• Allow for use of pre-approved program

• Request due by 5/31/2014

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Pre-Approved CB Docs

Pre-approved CB program currently under development

• IRS priority

• Developing sample language

• Developing parameters

• Would like program to be as broad as possible

• Evaluating difficult areas relative to how many

plans expected to use given features

• Updating Rev. Proc. to reflect recent changes to DL

program

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QLAC Regulations

Qualified Longevity Annuity Contracts

Allow deeply deferred annuity contracts in retirement

accounts

Annuity starting dates as late as age 85

Value of contract excluded from account balance used

to determine RMD

Purpose is to provide “safety net” to help retirees avoid

outliving retirement assets

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QLAC Regulations

Final regulations apply to contracts purchased (or

exchanged) on or after July 2, 2014

Premiums for QLACs limited to lesser of:

• $125,000, adjusted for COL in $10,000 increments, or

• 25% of account balance

Excess premium must be corrected by restoring cash or

non-QLAC annuity to account balance

Annuity must start by age 85 (possible future increases

for mortality improvement)

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QLAC Regulations

Limitations designed to maximize lifetime benefits

• Death benefits limited to lifetime benefits or return of premium

• No variable annuities, equity-indexed annuities, etc./

• No commutation, cash surrender provisions

Must follow 401(a)(9) rules (e.g., limits on increasing

payments)

Must designate as QLAC

Annual reporting requirements

• Cumulative premiums paid to date

• Value of contract

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Circular 230

Final regulations issued June 9, 2014

Removed rules on “covered opinions”

• One set of standards for all written advice

• Principles-based approach

• Base advice on reasonable factual and legal assumptions

• Exercise reasonable reliance

• Consider all relevant facts that practitioner knows or

reasonably should know

• Eliminates need for blanket Circular 230 disclosure

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Circular 230

Requirements for firm management

• Must have adequate procedures in place to ensure compliance

• Must take reasonable steps to ensure the procedures are

followed

• Must take action if knows or reasonably should know of

violations

Miscellaneous rules

• Cannot consider audit risk in evaluating tax matters

• Guidance on when it is appropriate to rely on the advice of

others

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Pending Guidance

• Finalizing proposed regulations

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430 • Mechanics of constructing MRC

• Quarterly contributions

• Excise taxes

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417(e)(3) • Finalize bifurcation rules

• Propose rules, miscellaneous

417(e)(3) issues

- Hybrid plan regulations

- Separate PEP guidance

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Pending Guidance

Other projects • Pre-approved cash balance plan program

• Guidance, new legislation

• HATFA

• CSEC

• Guidance on funding method changes

• Automatic approvals - successor to

RP 2000-40

• Procedures for requesting approval –

successor to RP 2000-41

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Pending Guidance

Other projects • Nondiscrimination testing, closed DB plans

• Proposed regulations,

404

• Additional proposed regulations,

430 and 436

• WRERA rules

• Mergers / spinoffs

• Year-end valuations

• Miscellaneous updates

• Ongoing – Schedule SB updates

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Joint Board Updates

2014 renewals

• Finished processing renewals

• Contact Joint Board if you have not received a

renewal letter

• Surprising number of late applications

• Collecting feedback for improvement of on-line

application process

Website – monitor for communication

• Notices

• Roster of EAs in active status

• Roster of program sponsors

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Joint Board Updates

Applications for initial enrollment

• Substantial increase in number of new applications

• Experience descriptions generally better, but still

need to ask for additional information in many

cases.

• Encourage applicants to:

• Check regulations to ensure they meet

experience requirements

• Describe experience in enough detail that we

can tell that they meet those requirements

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PBGC Premium Regulations

Proposed rule issued July 2013

• After transition year, uniform filing date for all

plans of all sizes (10/15 for calendar year plans)

• Small plans (100 or fewer) look back to prior year

for variable premium determination

• Two filings in transition year

• Revised rules for new and terminating plans

Final regs issued in two parts to allow

implementation in 2014 for plans ≥ 500

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Final PBGC Premium Regs

February 3, 2014 - final regulations eliminated the

estimated flat-rate premium filing for plans with ≥ 500

participants, effective for premiums for pyb 2014

March 10, 2014 - finalized remaining portions of the

July 2013 proposed regs, effective for 2014 premiums

• All premiums due 9 ½ months after 1st day of plan

year (10/15 for calendar year plans) except:

• 2014 premiums for small plans (<100)

• New plans

• Plans terminated in a standard termination

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Small plans

• 100 or fewer participants for premium payment year

or non-first day of the year val date for the premium

payment year

• Prior year valuation results used to determine

variable-rate premium unless opt for current year

results

• Deadline same as larger plans for 2015 and future

years

• 2014 premium due 15th day of 14th full calendar month

after first day of plan year (2/15/15 for cal. year plan)

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New plan • Due date for 1st plan year, latest of

• Normal due date (2 ½ months before pye)

• 90 days after plan’s adoption

• 90 days after date became covered

• 90 days after UVB date for small plan resulting

from a non-deminimus consolidation or spin-off

• New small plans exempt from variable rate premium

in first year unless the plan results from a non-de

minimus consolidation or spin-off

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Terminating plan

• Final year premium earliest of

• Normal premium due date

• Last date for post-distribution certification w/o

penalty

• Date when post-distribution certification filed

• Variable-rate premium exemption

expanded to year of close out if standard

termination

• Current exemption is PYB after term date

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At-risk plans UVB clarification

• $700 x # participants plus 4% of FT

applies

• 4% load is 4% of premium funding target as if

the plan were not at-risk

• # participants is the same as used to

determine the load for funding purpose

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PBGC & Late Retirement Calcs

In post-distribution audits, PBGC has required a pre-retirement mortality adjustment if the document includes pre-retirement mortality, even when

• PVAB death benefit

• Plan administrator has historically adjusted only for interest pre-retirement

Most plans with PVAB death benefit provide no pre-retirement mortality assumption so no problem.

See asap 14-17

acopa actuarial symposium august 15, 2014 regulatory update · • generally effective 2015, 2016...

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