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Phased retirement has become increasingly popular among two groups of employees: those who would like to begin easing away from work at a younger age, and those who need to continue working at older ages but require a less demanding schedule. We recently conducted a webinar to help employers identify the situations in which phased retirement may be beneficial, and structure phased retirement arrangements in such a way as to avoid the practical and legal pitfalls.
Based on both campaign promises and Donald Trump’s plans for his first 100 days, a Trump presidency is likely to make major changes in employee benefits law. The most significant ones are likely to be:
- Major changes in the Affordable Care Act (although the timing and extent of such changes are unclear), combined with expansion of health savings accounts.
- Postponement or elimination of the recently issued Department of Labor fiduciary regulations.
- Loosening of executive compensation rules.
- Further cutbacks in IRS guidance and audit activity.
- Increased hostility to consideration of noneconomic factors in selecting retirement plan investments.
- Diminished enforcement of protections for LGBT employees.
- Increased activity at the state level, including establishment of state-sponsored retirement plans for private employers.
These issues, and others of less general concern, are discussed below. Read more.
On November 14, 2016 the IRS issued IRS Notice 2016-62, 2016-46 I.R.B. 725, announcing the changes in pensions and benefits limits for 2017. The maximum limits on employee pretax contributions to 401(k), 403(b), and 457(b) plans (without catch-ups) remained unchanged at $18,000. However, the maximum limit on annual additions (primarily to defined contribution plans) rose from $53,000 to $54,000, and the maximum limit on benefits (when expressed as an annual benefit) under a defined benefit plan rose from $210,000 to $215,000. Limits on annual compensation taken into account and the compensation used in the definition of a key employee also rose.
The Comparison of 457(b) Plans, 401(k) Plans, 403(b) Plans, and Deemed IRAs chart has now been updated to reflect recent developments, including:
- 2017 limits on contributions and benefits
- Changes in the Employee Plans Compliance Resolution System (EPCRS)
- The IRS announcement that it is discontinuing most determination letters regarding individually designed plans
New materials include the following:
- The IRS’s proposals to eliminate or substantially modify the determination letter process (see Q 4:135).
- Proposed Department of Labor regulations concerning the definition of a fiduciary (see Qs 7:1 through 7:4) and fee disclosure requirements for service providers (see Q 8:22).
- Revenue Ruling 2014-9, which provided guidance to plans concerning the circumstances under which they could accept rollovers (see Qs 4:22 through 4:27).
- Notice 2015-07, discussing the extent to which a governmental plan can cover employees of charter schools (see Q 1:17).
- Update on state funding issues, including the role of state policies requiring payment of the annual required contribution in increasing the chance that employers would make their required contributions (see Qs 6:63 through 6:66).
- Recent developments concerning same-sex marriage and the Equal Employment Opportunity Commission guidance treating discrimination based on sexual orientation as sex discrimination in violation of Title VII of the Civil Rights Act of 1964 (see Qs 1:38 and 1:45).
- New explanations in the Beneficiary Designations and the Domestic Relations Orders chapters to follow the Supreme Court’s decision concerning same-sex marriage (see Qs 12:32, 12:39, 12:45, 12:46, 13:31, 13:37, and 13:62).
- Recent major state legislative changes affecting state and local governmental plans (see Q 2:122).
- The Supreme Court’s ruling that inherited IRAs are not “retirement funds” and are no longer exempt from the property of the estate under federal law (see Q 14:38).
- Analysis of why proceedings about child support result in difficult orders (see Q 13:22).
- Review of the effect of a recent court decision about whether a beneficiary designation must be in its maker’s handwriting (see Q 12:5).
- Discussion of whether exemptions are a potential concern to debtor participants’ interests in governmental plans (see Q 14:31).
- Controversy regarding public plan divestment in fossil fuel stocks (see Qs 7:84, 7:85, and 7:100).
- Impact of a participant’s plan loan on the Chapter (7 or 13) under which the participant can obtain relief (see Q 14:12).
- Revisions to discussions explaining a plan’s administrator discretionary power to decide whether a participant had made a beneficiary designation (see Chapter 12).
- Expanded explanation of whether a domestic relations order (DRO) directed to a retirement plan can be used to pay child support (see Q 13:21).
- Updated explanations about the effect of premarital agreements and marital agreements to follow the recent Uniform Premarital and Marital Agreements Act (see Qs 12:49 through 12:53).
- A 2014 court decision as an example of domestic relations courts’ orders that treat a person who never was the participant’s spouse and was never even a putative spouse as though the nonspouse is the participant’s nonchild dependent, even if the facts known to the court make clear that the ostensible dependent is no longer in the participant’s household (see Q 13:19).
- Recent developments in case law affecting governmental plans, including numerous new decisions in constitutional disputes, and new sections labeled “Fiduciary Duty” and “Correction of Errors” with relevant cases (see Appendix E).
The 457 Answer Book is an in-depth resource that provides answers to the questions that tax-exempt organizations, state and local governments, their accountants, tax and legal advisors, 457 administrators, product providers, and investment counselors need to know.
Guiding readers through all aspects of 457 plan administration — from installation through the audit process — the 457 Answer Book describes: the duties and responsibilities of those performing the functions; the required legal, accounting, and administrative tasks; checklists that facilitate control of each administrative process; and suggested forms.
On April 6, 2016, the Department of Labor (“DOL”) issued final guidance dealing with investment advice to ERISA plans and their participants. The guidance is scheduled to appear in the Federal Register of April 8, 2016. While this guidance does not by its terms apply to governmental and church plans (which are not subject to ERISA), such plans often use DOL guidance as an indication of best practices which they will follow. Moreover, the DOL suggests that a breach of contract claim may be available to enforce the standards with respect to individual retirement accounts (“IRAs”), which are not subject to ERISA. While the DOL has no authority to regulate governmental and church plans, it has laid out a road map which state courts may use to impose liability on governmental and church plans under a breach of contract theory.
The article, dealing with the proposed IRS regulations dealing with the definition of normal retirement age for governmental plans, is subscription only. However, in relevant part, it said:
The proposed rules generally were favorable, allowing plans to maintain the status quo in most cases,
Carol V. Calhoun,president of the Bethesda, Md.-based Calhoun Law Group,[now Counsel at Venable LLP, Washington, DC] told Bloomberg BNA on Feb. 4.
“They say a governmental plan does not have to define normal retirement age, that it will be at whatever point you can receive a normal retirement benefit under the plan that is not reduced actuarially,” Calhoun said. For instance, the rules said that if a governmental plan says that normal retirement age is 25 years of service, then that will be considered the normal retirement age, she said.
Qualified Government Plan
A qualified governmental plan is one that is established and maintained for its employees by the federal government, a state government or political subdivision thereof, or by any agency or instrumentality of the federal or state government. The proposed rules “basically took all of the normal retirement ages that any state-wide plan has and they said all of those were going to be acceptable,” Calhoun said.
On January 27, 2016, the IRS issued proposed regulations governing the extent to which governmental pension plans must comply with the rules governing normal retirement ages. In general, the rules are a positive step from the perspective of governmental plan sponsors, but they contain a few potential pitfalls.
The qualification rules of the Internal Revenue Code (“Code”) provide for several rules that are based on a plan’s normal retirement age. For example, a pension plan cannot pay in-service benefits before the earlier of age 62 or normal retirement age. Benefits must be fully vested at normal retirement age. Benefits under the plan must be definitely determinable (i.e., subject to calculation, rather than at an employer’s discretion) as of normal retirement age. Read more.