Washington Update Robert M. Kaplan, CFP, CPC, QPA Director of - PowerPoint PPT Presentation

Second Quarter Quarter 2019 Washington Update Robert M. Kaplan, CFP, CPC, QPA Director of Technical Education American Retirement Association bkaplan@usaretirement.org 1

Agenda • Unexpected Relief – Two IRS Rev. Procs. • Student Loans Matching $ Bill • Portman Cardin - Reintroduced • Secure Act – Bipartisan Legislation • The Saving for the Future Act • State Update: NJ Secure Choice Program • DoL Proposes new OT levels • IRS Updates Fix-It Guide for Hardships • Congress inquiring about Cybersecurity • GAO recommendations on Unclaimed Balances • IRS Updates Auto Enroll info on website • Legislation introduced regarding lifetime income products 2

EPCRS Update • Revenue Procedure 2019 – 19 • Two major areas of relief with Self Correction – Loans – Plan Amendments • Effective immediately 3

Loan SCP • Self Correction if the failure relates to: – Loan defaults – ONLY if the 5 year time frame has not expired* – Multiple loans if the plan or loan procedure did not allow** – Issuing loans when the plan document did not permit (this correction was available prior to 2019-19)* – Obtaining spousal consent for a loan – * If the 5 year time period has expired and the defaulted loan would be taxable – SCP can be used so that the tax is applicable in the year of correction, not default – **These corrections can be done with a retroactive amendment 4

Loan SCP • Self Correction is NOT available if: – The operational failure is that the loan is in excess of the limits ($50,000 or 50% of VAB) – The repayment period is more than 5 years – Payments are not level or fully amortized Still need VCP for the above Note: The DoL while recognizing VCP corrections does NOT recognize Self Correction so it may be advisable to file under DoL’s VFCP program 5

Plan Amendment SCP • Three that were in place before 2019-19 – Allowing loans or hardships when document did not – Failure to limit compensation to 401(a)(17) - $280,000 for 2019 – Allowing participants to enter when not eligible yet • Newly allowable if operation did not conform to plan IF – Amendment conforms document to operation – Benefit, right or feature increases due to amendment – Applies to all eligible employees – Consistent with correction principles 6

Plan Amendment SCP • Also allowable – Non-amender failures – Timely adoption of a restatement of preapproved plan • But would still need to meet the “favorable letter” requirement – IDPs – failure to adopt required amendments timely • Must correct in the significant time frame (second year after it appears in Required Amendment List) 7

Determination Letters • Rev. Proc. 2019-20 • Allows for submission to the IRS of determination letters for: – Certain plan mergers • Previously unrelated entities • Due to company merger or acquisition • Merger of plans must be by the end of the year following the corporate transaction • Filing for letter must be by the end of year following the plan merger – Statutory hybrid plans • A DB plan that contains a hybrid benefit formula • Must be filed between September 1, 2019 and August 31, 2020 8

Retirement Parity For Student Loans Act • Senate Bill – Introduced five Democrats • Allows employer to match student loan repayments as if they were deferrals to the plan • Would be combined with deferrals to determine match maximums • Loan repayments not included in ADP but match is included in the ACP test 9

Retirement Security and Savings Act • Introduced by Portman (R – OH) and Cardin (D – MD) • Increase RMD age – 72 in 2023 – 75 by 2030 • RMD Exception – aggregate savings less than $100,000 – Allow to contribute at any age • RMD Penalty reduced – to 25% and 10% if self corrected • QLAC expansion – encourage usage 10

Retirement Security and Savings Act • Introduced by Portman (R – OH) and Cardin (D – MD) • Saver’s Credit expanded • Gov’t Match – create a new match for low income savers in form of refund directly to retirement account • Include part time workers – between 500 and 1000 hours for two consecutive years 11

Retirement Security and Savings Act • Introduced by Portman (R – OH) and Cardin (D – MD) • Start Up credit increased to $5,000 – Also tax credit for adopting a more generous SH • Increase EPCRS Self Correction for small businesses – All inadvertent operational errors without fees or submission • Top Heavy rules simplified for new employees 12

Retirement Security and Savings Act • Introduced by Portman (R – OH) and Cardin (D – MD) • Index IRA catch up amounts • Increase catch up in 401(k) from $6,000 to $10,000 • Allow additional contributions to SIMPLE Plans • Student Loans repayment match to retirement plan equal to loan repayment amount • New SH tax credit to SHs that use 6% 13

Secure Act • House Bill – Introduced by Neal (D-Ma) • Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 • Highlights: – QACA cap increased from 10% to 15% – SH Simplification • Annual nonelective notice eliminated • Amendments to nonelective status up to 30 days prior to PYE • After that date if – 4% nonelective not 3% – Plan amended by last day of following plan year 14

Secure Act • Highlights: – Start up credit for three years will be greater of: • $500 • Lesser of $250 x NHCEs OR $5,000 – Credit for Auto Enroll = $500 • For adding 401(k) or SIMPLE IRA with • Convert traditional to Auto Enroll • 3 years (in addition to start up credit) – Stipends and Fellowships considered comp for IRAs – Able to contribute to IRAs after attaining 70 1/2 15

Secure Act • Highlights: – Allow direct transfer of lifetime income products – 403(b) termination of custodial account can be in-kind – Long term part time employees must participate in 401(k) • Three years of 500 or more hours • N/A to union employees – Penalty free withdrawals for child birth or adoption – Increase RMD from 70 ½ to 72 – Adopt plan by tax return date (including extensions) – Consolidate 5500 for similar plans – Lifetime income disclosure – DoL assumptions 16

Secure Act • Highlights: – MEPs • Allow for “Open” MEPs or should I say “PEPs (Pooled Employer Plan) – no nexus required • PPP – Pool Plan Provider • Provides relief for “One Bad Apple” rule – noncompliant employer is responsible for benefits to its employees (the other employers in the PEP are not) These are some of the major provisions. There are others. If the bill is enacted, look for an ASPPA webcast on the impact of its provisions 17

The Saving for the Future Act • Senators Coons (D – De) and Klobuchar (D-Mn) – UP Savings Account created; first $2,500 in contributions go in for non-routine expenses – Over $2,500 then goes to UP Retirement Accounts – 4% auto enroll but can be escalated to 10% – Max contribution is half the level of 402(g) limit – Menu of investments offered including low cost index mutual funds – Employer can match or provide non-elective contributions • At least 50 cents for each hour an employee works (to 60 cents after 2 years and COLA after that) – Tax credits provided 50% of required contribution for 1 st 15 employees • • 25% of required contributions for next 15 employees • Workers not receiving employer contribution can claim credit up to $1,000 • Tax Exempt employers can claim credit as a refund 18

NJ Secure Choice Plan • Signed by Gov. Murphy last month • Effective – March of 2021 but can be extended to March of 2022 • Auto IRA mandatory for employers with no retirement plan and 25 or more employees – Optional for employers with fewer than 25 – Employer has no responsibility for: • Administration • Design • Benefits • Penalty – Yr 1 – Warning – Yr 2 - $100 per employee – Yrs 3 and 4 - $250 per employee – Yrs 5 and later - $500 per employee 19

DoL Proposes New OT rules • March 7, 2019 DoL proposes increase in OT rules that is estimated to impact over 1 million employees • Salary of less than $679 per week ($35,308 per year) must be paid OT for hours over 40 • Why should you care? – You may get questions about excluding OT from retirement plan compensation – Remember testing for salary exclusions • This only PROPOSED at this point 20

IRS Fix-It Guide Update Tips for fixing the mistake: • Establish procedures for reviewing hardship applications if there are none • Retroactively amend document if hardships were allowed but not a document provision • If distribution did not meet requirements a repayment may be made Note: Hardship corrections may be made through SCP or VCP 21

Congress asking about Cybersecurity Sen. Murray (D-Wa) and Re. Scott (D-Va) asked the GAO to examine issues about potential threats to retirement plans • What are plan sponsors and service providers doing to ensure that they are taking necessary steps • When should providers disclose breach and what steps should plan sponsors be required to take • Do current ERISA bonding insure against these risks and should cybersecurity insurance be required • Should Congress create a federal cybersecurity insurer • What are possible legislative and regulatory options 22