First Quarter 2018 Washington Update. Robert M. Kaplan, CFP, CPC, QPA, APA Director of Technical Education American Retirement Association

Transcription

1 First Quarter 2018 Washington Update Robert M. Kaplan, CFP, CPC, QPA, APA Director of Technical Education American Retirement Association 1

2 Agenda PBGC Missing Participant Program DoL Assistant Secretary Named 2017 Tax Cuts and Jobs Act Loan Amount Rollovers Roth Re-characterization Eliminated Hardship W/D Concerns Tax Impact of Overpayments VCP Fee Schedule Updated 2

3 PBGC Missing Participants Program December 2017 finalized Only for terminating plans Advantages Voluntary DC plans + Non-PBGC DBs Will create searchable database

4 PBGC Missing Participants Program Plans covered PBGC Insured Single Employer Plans (not new) Defined Contribution Plans* Small Professional DB Plans (non-pbgc insured)* PBGC Multiemployer Plans* *Terminations after December 31, 2017

5 PBGC Missing Participants Program Options Transfer account balance (and participant information) to PBGC Purchase an annuity and send PBGC the data (searchable database) Note no cherry picking All terminating employees of a terminated DC plan must be transferred

6 PBGC Missing Participants Program Missing?? DB Plan if cannot locate participant DB Plan participant fails to make a distribution election at plan termination DC Plan participant fails to make a distribution election at plan termination DC Plan must follow DoL diligent search methods (see next slide) Uncashed checks qualify participant for PBGC program

7 DoL Required Search Steps Do all the following before abandoning search: 1. Use certified mail 2. Check related plan and employer records 3. Check with plan designated beneficiary 4. Use free electronic search tools

8 Free Electronic Search Tools Plan fiduciaries must make reasonable use of Internet search tools that do not charge a fee to search for a missing participant or beneficiary. Such online services include: Internet search engines Public record databases (such as those for licenses, mortgages, and real estate taxes) Obituaries Social media Consider using whitepages.com; yellowpages.com/whitepages

9 Additional Search Tools If a plan administrator follows the required search steps, but does not find the missing participant or beneficiary, the duties of prudence and loyalty require the fiduciary to consider if additional search steps are appropriate. A plan fiduciary should consider the size of a participant s account balance and the cost of further search efforts in deciding if any additional search steps are appropriate. As a result, the specific additional steps that a plan fiduciary takes to locate a missing participant may vary depending on the facts and circumstances. Possible additional search steps include the use of: Internet search tools Commercial locator services Credit reporting agencies Information brokers Investigation databases Analogous services that may involve charges

10 PBGC Missing Participants Program Fees $35 (one-time fee) for transferring assets to PBGC No fee for accounts under $250 No fee for transferring information about annuity purchased on behalf of participant

11 PBGC Missing Participants Program Other options are still available Rollover IRA (historically DoL best option) Interest-bearing bank account State unclaimed property fund Fiduciary consideration as to which method to use

12 DoL Assistant Secretary December 2017 Preston Rutledge named Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA) One priority will be the review of the Conflict of Interest Rule Projected benefits on statements Safe harbor annuity provider selection MEPs 12

13 2017 Tax Cuts and Jobs Act Rollover of loan amounts: Previously participant who left employer with outstanding participant loan would have to complete rollover within 60 days or it would be taxable Note: Participant would have to repay loan or contribute difference to IRA (see next slide) New rule extends the date to due date of individual s tax return (plus extensions) for the loan default and not the 60 days to rollover other funds 13

14 2017 Tax Cuts and Jobs Act Rollover of loan amounts example Bob terminates employment with a $50,000 vested account balance that included a $15,000 outstanding loan Options: Repay loan and rollover $50,000 Rollover $35,000 and be taxed on $15,000 (loan amount) Rollover $35,000 and add $15,000 of personal funds to IRA (by due date of individual s tax return) Take $35,000 distribution and be taxed on $50,000 14

15 2017 Tax Cuts and Jobs Act Re-characterization of Roth Conversion Eliminated IRS FAQs = Once a conversion from a traditional IRA to Roth is complete it cannot be re-characterized Does not affect qualified plans (re-characterization was not allowed previously) Note original contribution can be still be converted (from Roth to traditional OR traditional to Roth) 15

16 2017 Tax Cuts and Jobs Act Hardship withdrawal concerns: Rules for hardship withdrawals did not change but. Casualty deductions (one of the six safe harbor reasons) for principal residence may only be taken if in a federally declared disaster area Plan administrators should be told this before approving casualty hardships Not sure if this was intended so we are looking for future guidance from IRS 16

17 2017 Tax Cuts and Jobs Act Tax impact of overpayments: If participant repays an overpayment of over $3,000 that was included in a prior year see Tax Code Section 1341 Essentially, you recalculate tax as if overpayment was not made and get to deduct that in current year (repayment) This has not changed!!! But, if less than $3,000.. see next slide 17

18 2017 Tax Cuts and Jobs Act Tax impact of overpayments: Overpayment of less than $3,000 Prior year to 2018 Deduct as a miscellaneous business expense (see IRC 165) and is subject to the two percent floor for miscellaneous itemized deductions See Revenue Ruling and future Miscellaneous business expense deduction is eliminated Effect Participant taxed in year of payment and no future deduction! 18

19 IRS VCP User Fees Updated By plan asset size: $500,000 or less = $1,500 $500,001 to $10,000,000 = $3,000 Over $10,000,000 = $3,500 Exceptions to asset-based fees: Orphan plans may be waived Group submissions - $10,000 for first 20 plans then $250 for each plan (max $50,000) 457(b) resolved outside VCP All other reduced or alternative fees previously set forth in Appendix A,.09, no longer apply ASPPA Comment Letter

20 Questions?

21 2018 ASPPA Spring Virtual Conference Thursday, May 10 9:00 am to 5:00 pm Five Sessions Including: Washington Update and Late-Breaking Regulatory Developments Ask the Experts Panel