Compliance August 31, 2015

IRS Issues Guidelines for Cooperative and Small Charities Pensions

The Cooperative and Small Employer Charity Pension Flexibility Act specifies funding requirements for certain pensions that were not immediately affected by PPA funding rules.
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The Internal Revenue Service (IRS) has issued guidance about certain issues relating to the Cooperative and Small Employer Charity Pension Flexibility Act (CSEC Act), which was enacted April 7, 2014. 

The CSEC Act specifies minimum funding requirements and related rules that apply with respect to certain defined benefit pension plans maintained by groups of cooperatives and related entities and groups of charities.

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The IRS explains that Section 430 of the Internal Revenue Code (Code), which was added by the Pension Protection Act of 2006 (PPA), specifies the minimum funding requirements that generally apply to single-employer defined benefit pension plans and multiple-employer plans. However, section 104 of the PPA provided that the effective date for the application of the minimum funding rules under Section 430 and the funding-based benefit restrictions under Section 436 of the PPA is delayed for certain plans maintained by more than one employer that are specified types of cooperative organizations and related entities. For those plans, the minimum funding rules and the funding-based benefit restrictions generally do not apply for plan years beginning before January 1, 2017. 

In addition, legislation passed in 2010 amended Section 104 of the PPA to expand the group of plans covered by the delayed effective date to include certain plans (eligible charity plans) that are maintained by employers that are described in Section 501(c)(3) of the Internal Revenue Code.

NEXT: Rules under the CSEC Act

IRS Notice 2015-58 explains that the CSEC Act added Section 433 to the Internal Revenue Code, which specifies minimum funding rules that apply to CSEC plans for plan years beginning on or after January 1, 2014. The minimum funding rules are similar to rules currently governing these plans; however, they provide that the amortization period for the change in liability resulting from an amendment to a CSEC plan is 15 years instead of 30 years, and Section 433 does not include a requirement to make a deficit reduction contribution as required under pre-PPA rules.

In addition, Section 433 provides special rules that apply to a CSEC plan with a funded percentage of less than 80%. Such a plan is in “funding restoration status.” If a CSEC plan is in funding restoration status, the plan sponsor must establish a funding restoration plan that is designed to bring the plan’s funded percentage to 100% over a period of seven years (or the shortest amount of time practicable to bring the plan’s funded percentage to 100%, if longer).

For the period for which a CSEC plan is in funding restoration status (as certified by the enrolled actuary for the plan), an amount no less than the plan’s normal cost must be contributed for each plan year. If the normal cost is not contributed for the plan year then an accumulated funding deficiency will exist regardless of the size of the plan’s credit balance. A CSEC plan that is in funding restoration status generally cannot be amended to increase benefits or accelerate vesting unless a specified additional contribution is made.

Under the CSEC Act, a number of elections are available to cease to be an eligible charity plan. The IRS also warns that certain eligible charity plans are not CSEC plans, and certain CSEC plans maintained by employers that are Section 501(c)(3) organization employers are not eligible charity plans. The notice answers the question, “What is a CSEC plan?” and describes the elections available.

The guidance applies not only for purposes of the Internal Revenue Code but also for purposes of the parallel provisions of the Employee Retirement Income Security Act (ERISA).

Participants August 31, 2015

Pre-Retirees Comfortable with Automatic Savings

They advise younger generations to start saving early.
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Pre-retirees between the ages of 50 and 62 say they are very comfortable with automatic deposits to their 401(k), mortgage or permanent life insurance, a New York Life survey found.

Nearly two-thirds (64%) say that automatic saving gives them more confidence heading into retirement than other forms of savings. However, nearly half, 46% say it is difficult for them to save anything above what is being automatically routed to their 401(k) due to the financial demands they are facing. Forty-five percent wish more automatic savings vehicles were offered.

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On average, pre-retirees began saving for retirement at age 34, but they wish they had started eight years earlier, at age 26. Twenty-five percent wish they had started saving 10 years earlier.

“This is a wake-up call to younger generations: Gen X, Gen Y and even Gen Z,” says Chris Blunt, president of New York Life’s investments group. Pre-retirees sit in an important vantage point. They are in a position to share what has worked well for them as they inch toward retirement. These 50- and early 60-year-olds wish they had started a serious savings plan in their 20s. Finding ways to put savings on auto-pilot is key to that plan. There is still time for earlier generations to react to these two pieces of advice.”

NEXT: Men’s versus women’s feelings about automatic savings

The survey also found that 58% of pre-retirees with children living at home say it is hard to save anything above and beyond their automatic savings vehicles. And pre-retirees with children living at home wish there were more automatic savings vehicles available, with 58% of this group expressing this wish compared to 45% of all pre-retirees.

Men are more confident in their automatic savings, with 68% of men expressing this assurance, compared to 59% of women. There are also very high levels of confidence in various automatic savings vehicles: ninety-three percent are confident in their 401(k) direct deposit. Eighty-one percent are confident in the direct deposit to their college savings plan. Seventy-nine percent are confident in the direct deposit to their mortgage, and 78% are confident in the direct deposit to their permanent life insurance policy.

“These savings vehicles often fly under the radar, but are kind of a big deal,” Blunt says. “The ease and recurring nature of these savings vehicles make them highly effective tools for helping clients to achieve their financial goals.”

Ipsos Public Affairs conducted the survey for New York Life in late July among 906 adults between the ages of 50 and 62 with a household income of at least $80,000.

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