With all the attention in the benefits arena devoted of late to Obamacare and potential changes in corporate health plans, it’s easy for plan sponsors to lose sight of annual retirement plan reviews. Retirement plan advisors should prepare for this by providing brief updates on anticipated changes in the law or regulations that may impact plans, in addition to the customary changes in investment line-ups, plan demographics and plan operations.
The following provides a description of several general plan changes that we are likely to see by year-end 2013 or early 2014. Advisors will want to be familiar with these changes so they can provide proactive guidance with respect to their clients’ plans. Advisors can also leverage this information with potential prospects to demonstrate their value of being on top of the latest regulatory and legislative trends.
IRS Recognition of Same-Sex Marriages (The Defense of Marriage Act -- DOMA)
The Supreme Court decision regarding the recognition of same-sex marriage has already impacted federal income tax status and retirement plans. On August 29, 2013, the IRS provided preliminary guidance that deems a same-sex marriage legal for all federal tax purposes if it is legal in the state or jurisdiction in which it was performed. The DOL issued similar guidance on September 18, 2013. If the same-sex marriage is valid under those terms, qualified plans must, as of September 18, 2013, treat same-sex spouses as “spouses” for such purposes as:
• Default beneficiary designations;
• Non-spouse beneficiary designations when spousal consent is required;
• Spousal death benefits such as the Qualified Pre-Retirement Survivor Annuity (QPSA);
• Provisions, such as optional forms of payment, loans and withdrawals, that require spousal consent;
• Eligibility to elect a rollover to a qualified plan;
• Eligibility for hardship withdrawals for payment of spouse’s medical, tuition or funeral expenses;
• Calculation of required minimum distributions (RMDs); and
• Stock attribution for definitions of Key and Highly Compensated Employees (used for testing).
Timely compliance with such an important list of provisions will present challenges and questions for many plan sponsors. Unfortunately, neither the IRS nor the DOL has issued guidance about how these rules apply to qualified retirement plans, including how to apply them to periods prior to September 16, 2013; what plan documentation requirements need to be met; and how to correct deficiencies (and any penalties) if not in compliance. There is no indication of when additional guidance is coming on this matter, so advisors can best help plan sponsors by getting them well-versed in the practicalities of this rule and helping them implement any changes that are required in their plan.
“Re-Set” of Annual Participant Fee Disclosure Deadline
The DOL now requires plan administrators of participant-directed defined contribution plans to disclose information about investment options, such as fee and performance information, in a comparative format to participants and beneficiaries at least annually. The first notice was required by July 22, 2012. As a result of compliance challenges with this regulation, a recent DOL Field Assistance Bulletin allows the 2013 annual disclosures to be made within 18 months (rather than 12 as originally directed) of the 2012 disclosures. For example, if the 2012 fee disclosure was on August 25, 2012, the 2013 one would be considered timely if provided by February 25, 2014.
In addition, the DOL has stated that it will consider whether, in future years, to allow a 30- or 45-day window for plan disclosures to participants instead of fixing a 12-month period to end on one specific day. All of this provides sponsors with more flexibility in scheduling plan disclosures.
New Definition of Investment Fiduciary
2014 finds us still awaiting guidance from the DOL on proposed changes to the definition of a fiduciary who can recommend plan investments. Such guidance may require updates in fiduciary operation, and it will likely leave plan sponsors with questions about how it impacts their current relationships. Advisors would be well-advised to have the basics of the fiduciary standard as well as an inventory of current fiduciary relationships on hand in any discussions with sponsors on this topic.
Expanded Roth Conversions
Enacted into law at the beginning of 2013 but yet to be implemented is the ability for plans that offer deferrals to convert pretax defined contribution monies into a Roth. The delay has been the lack of guidance by Treasury and the IRS on specific plan operation. While there hasn’t been a significant amount of requests by sponsors or participants to add this feature, you can be sure that once the guidance is released there will be an increase in the number of inquiries about how it works.
Benefit Statement Changes
The Department of Labor (DOL) Advance Notice of Proposed Rulemaking regarding lifetime income illustrations would require retirement plan providers and plan sponsors to include on participant account statements an estimate of their monthly retirement income—based on both current account balances and expected future balances at normal retirement age.