ACOPA Actuarial Symposium WS 1 - Regulatory Update August 7, 2015 Kyle Brown, IRS Counsel Jim Holland, Cheiron, Inc. Judy Miller, ACOPA Executive Director 1 Agenda IRS Mortality table update Notice 2015-49 (de-risking & lump sums) Announcement 2015-19 (DL program) Cash Balance volume submitter Multiemployer guidance EPCRS Upcoming guidance PBGC ERISA 4010 Form 501 Reportable events 1
Mortality Table Update 3 Mortality Table Update Current tables issued in 2007 and 2008 regs Code says update tables at least every 10 years Comments requested in Notice 2013-49 (after SOA mortality study) other studies? combined or nonannuitant/annuitant? static or generational? Notice 2015-53 Static mortality tables for use through 2016 Proposed regs to be issued revising rates and projection factors expected to be effective in 2017 Expect regs applying 430(h)(3)(A) rates to CSEC current liability calcs 2
Notice 2015-49 De-risking Plan sponsors reduce risk (and PBGC premiums) by purchasing annuities for/ paying lump sums to retirees On the upswing 1 : $8.5 billion in 2014 up from $3.8 billion in 2013 277 contracts in 2014 up from 217 in 2013 DOL, IRS, PBGC and others concerned about offer of lump sums to retirees Retiree groups worried about security of purchased annuities 2015 PBGC premium filing to require after-the-fact reporting of risk transfers through lump sum windows and annuity purchases 1 LIMRA Secure Retirement Institute 3
Lump Sum Offerings to Annuitants Generally not permitted to change the period or form of distribution after commencement 1.401(a)(9)-6, Q&A 13 allows a change for (a) an increase in the annuity described in Q&A 14, or (b) plan termination or retirement. Q&A 14, allows annuity payments to be increased due to amendment Sponsors have used Q&A 14 to amend the plan to allow lump sums offerings to retirees Notice 2015-49 Notice 2015-49 says on or after July 9, 2015, sponsors may no longer use the Q&A 14 amendment provision to offer lump sums to participants in pay status. Exceptions if, before July 9, 2015: Amendment adopted PLR for program issued Participants notified of explicit and definite intent to implement a program Entered into a binding collective bargaining agreement 4
Announcement 2015-19 9 Determination Letter Changes Beginning in 2017, the 5-year cycle is eliminated Cycle A filers can file 2/1/16 through 1/31/17 IDP determination letters will only be available at initial adoption and plan termination. And other limited circumstances TBD Remedial amendment period will revert to 1.401(b)-1 (last updated in 2000) Commissioner intends to extend the remedial amendment period to at least December 31, 2016 10 5
Cash Balance Volume Submitter Rev. Proc. 2015-36 Updates existing guidance on master & prototype (M&P) and volume submitter (VS) plan opinion and advisory letter applications Extended submission deadline to October 30, 2015 (was June 30) Lowers the number of adopting employers necessary to qualify as a sponsor from 30 to 15 (if you are submitting more than one basic plan document (M&P) or specimen plan document (VS), then need at least 30 employers) Opens the pre-approved plan program to cash balance plans for the October 2015 submissions Opens the pre-approved plan program to ESOPs for the February 2017 submissions 12 6
Cash Balance Volume Submitter In addition to usual pre-approved DB requirements, CB VS must: Provide protection for prior accrued benefits at all times ( 411(d)(6)) If credits increase with age, service or other measure during employment, must be definitely determinable, operationally nondiscriminatory and comply with 133 1/3% rule. In fact, all CB VS must rely on the 133 1/3% rule. Cash Balance Volume Submitter CB VS are: Limited to cash balance formulas, and cannot: Cannot offer participant choice of interest crediting rates (ICR) Cannot have an ICR based on actual rate of return or rate of return on RICs If conversion, must be A+B Cannot be funded exclusively through insurance contracts 7
Cash Balance Volume Submitter CB VS Cannot be part of a floor offset arrangement unless a list of conditions are satisfied, including (but not limited to): The offset is applied on an accumulated basis at the participant s annuity starting date CANNOT offset each year s principal credit by that year s accruals or contributions under the offsetting plan; Must be applied on a uniform basis for all participants; Plan must provide a minimum accrued benefit to participants (expressed as a lifetime annuity commencing at normal retirement age) of no less than 0.5% of compensation for each year of credited service, which is not reduced by the offset applied to other formulas under the plan; The amount of the offset is definitely determinable. Multiemployer Guidance 16 8
2014 Multiemployer Reform Signature provision - Plans in critical and declining status can apply to suspend a portion of the accrued benefits. Plans that have taken all reasonable measures to avoid insolvency, but are still projected to become insolvent in the current or next 14 years (19 years if #inactive/# active >2 ) Plan sponsor must show that with benefit suspension will avoid insolvency & not reduce benefits below 110% of the PBGC maximum guarantee level for multiemployer plans (currently a maximum of $12,870 per year if exactly 30 years service). No reduction for those age 80+ on the suspension date. Suspension ratably phased out for those who are between age 75 and age 80. No suspension of disability benefits permitted Multiemployer Benefit Suspension Reduction must be equitable distributed. Special priority of allocation of suspended benefits applies where an employer has withdrawn, paid withdrawal liability and promised to make whole Suspension must be approved by Secretary of the Treasury in consultation with DOL and PBGC Participants must be given an opportunity to vote on the suspension before it is effective. Negative vote ignored if present value of projected required PBGC assistance in excess of $1 billion ( systemically important plan). If benefit improvements to actives during suspension, must provide equitable improvements for those in pay status. Equitable means present value for actives not > for those in pay status Plan must still be projected to avoid insolvency indefinitely after the improvements Treasury was given 180 days to provide guidance 9
EPCRS Changes 19 EPCRS Changes Rev. Proc. 2015-27 made changes to the existing rules with regard to overpayments and 415 excess corrections Updated, did not replace, Rev. Proc. 2013-12 Clarified that correction may not require requesting repayment from participants/beneficiaries in all cases Emphasized flexibility example of retroactive amendment instead of repayment Requested comments relating to recoupment 20 10
EPCRS Changes ASPPA/ACOPA comments on recoupment from plan participants in progress: Flexibility in interest on requested recoupment No interest required First 417(e) segment rate would be a safe harbor Retro amendment for SCP failure would not automatically make it a VCP correction No employer obligation if overpayment was not in excess of accrued benefit Employer obligation not to exceed unfunded value of accrued benefits Could burn PFB for employer obligation 21 IRS Guidance Plan 22 11
Future IRS Guidance - Final 430 Auto-approval of change in funding method Final hybrid transition regs Closed plan nondiscrimination regs 412(d)(2) disqualification and deduction issues Other? PBGC Guidance 12
ERISA 4010 regulations Codifies the MAP-21 and HATFA guidance in Tech. Updates 12-2 and 14-2 Limits the existing <$15 million reporting waiver to companies with fewer than 500 participants in all plans. Adds waivers from reporting for persons that must file a 4010 report solely on the basis of either a reporting trigger for a statutory lien resulting from missed required contributions of over $1 million or for outstanding minimum funding waivers exceeding the same amount, provided that the missed contributions or minimum funding waivers were reported under part 4043 by the due date for the 4010 filing. Form 501 Instructions The instructions require proof of distributions to be attached to the Form 501 For individuals who received a lump sum distribution, a copy of the cancelled check or bank statement with the individual s name and distribution amount. Have met with PBGC to express concerns 13
Reportable events Revised reporting forms issued. For reports due on or after September 1, 2015, reportable events filers that use the optional forms (Form 10 or Form 10-A) and Form 200 filers must use the new forms. For reports due before September 1, 2015, either the new or old forms may be used. (07/30/2015) 14