Compliance November 22, 2017

2017 Year-End Deadlines and Tips for Retirement Plans

2017 happens to be a light year for required plan amendments for retirement plans.
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Kyle Woods, senior associate at Alston & Bird in its Atlanta office, says in past years there have been significant year-end deadlines for retirement plans, but this year, due to fewer legislative changes that require plan amendments and the end of cycle filing for determination letters, there aren’t really many must-do items for the end of 2017.

But, there are a few to note.

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Last year, the Internal Revenue Service (IRS) issued a final rule modifying minimum present value requirements for partial annuity distribution options under defined benefit (DB) plans. According to Elizabeth Thomas Dold, principal at Groom Law Group, Chartered, in Washington, D.C., if DB plans adopt these bifurcated lump sums by the end of 2017, they will get Employee Retirement Income Security Act (ERISA) anti-cutback relief.

For defined contribution (DC) plans, Dold notes that plan amendments are not due yet for relief given to this year’s hurricane and wildfire victims; however, relief provided in 2016 for Hurricane Matthew victims does have required amendments by the end of this year. “But this is only for plans with no loan or hardship provisions,” she says.

Woods adds that amendments are also required for plans that took advantage of regulatory relief provided for victims of flooding in Louisiana in 2016.

Required minimum distributions (RMDs) for participants who turned 70 1/2 in previous years are due by 12/31.

Of course, discretionary plan changes—such as adding automatic enrollment or changing the plan’s matching formula—that are to go into effect in 2018 need to have plan amendments by the end of the current plan year—December 31, 2017 for most plans, according to Woods. Given how late in the year it is, he notes that at this point, plan sponsors probably couldn’t begin the process of implementing automatic enrollment because of the participant notice requirement, but if they want to switch to a safe harbor plan or increase their employer match, there is still time to do that.

Dold adds that plan sponsors may consider adding into plan amendments some items that do not require amendments just yet. For example, a plan sponsor can elect to apply the January 2017 proposed regulations to permit the use of forfeitures for qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs) in safe harbor plans.

Finally, Dold notes that plans that were previously under cycles B, C, D and E have until 12/31 to get a determination letter because their remedial amendment period was cut short. These plans should look to the cumulative list of changes issued by the IRS for 2015—for which cycle A plans have already had time to make amendments—to see if any changes need to be made to their plans.

“If there’s not a collective bargaining agreement [CBA] and union, amendments can be made within days, but sometimes service providers need a little lead time to implement. The actual amendment isn’t usually a complicated process,” Woods says.

Year-end tips for retirement plans

“We tell our clients the end of the year is an excellent time to review their plans and make sure they are operating properly. Also look at whether participants are utilizing benefits properly and think about additional features,” Woods says. He adds that while the more recent storm and disaster relief provisions do not have to be incorporated in plan amendments this year, if plans are already incorporating some other design changes, now would be a good time to address everything together.

Dold adds that plan sponsors should keep an eye out for updates to the IRS’ new required amendments list. Also, plan sponsors need to keep documentation about what they are doing to provide hurricane and wildfire relief.

Dold says actuaries are excited about an IRS announcement which provides for automatic approval of a change in funding method with respect to a single-employer defined benefit plan under certain circumstances in which the change in method results from a change in the plan’s enrolled actuary. Actuaries and DB plan sponsors should be talking about this as well as the final regulations about mortality tables.

Other tips mentioned in an Insights report by Conduent Incorporated include remembering to process automatic cashouts of small balances, if plans allow it, as well as to identify missing participants as soon as possible. “The sooner the search is started, the more likely you’ll be able to locate terminated participants whose addresses have changed,” the report states.

Conduent also says year-end is a good time to remind participants to name beneficiaries, and to review participant vesting and forfeiture amounts.
Administration October 20, 2017

What Is a True-Up Match?

Though not a required contribution, defined contribution (DC) plan sponsors may want to offer a true-up match to help participants maximize their savings for the year.
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Plan sponsors, advisers and providers are always recommending defined contribution (DC) plan participants defer enough of their salaries into the plan to receive the full employer match contribution.

 

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In order to make sure participants are maximizing their retirement savings, plan sponsors may offer a true-up match.

 

What is a true-up match? This type of contribution allows employers or plan sponsors to fund the difference in match contributions for participants who may reach the maximum statutory deferral amount prior to the end of the year or for participants who did not contribute enough for part of the year to receive the full match.

 

A true-up match is contributed at year-end or one to two months following the new year, largely because plan sponsors must review all funded contributions completed throughout the 12 months, according to Michael Knowling, vice president of Client Relations and Business Development at Prudential.

 

“It allows [employees] to not leave free money on the table,” Knowling says. “It allows them to maximize their employer contribution or employer matching contribution.”

 

Knowling says it’s an extra benefit for workers, and it helps plan sponsors by helping participants maximize DC plan savings.

 

The true-up process

 

If a plan document includes a provision for a true-up match, who manages the true-up can go two ways, says Knowling: either the recordkeeper can perform the calculation or it can be performed in-house by the plan sponsor.

 

Plan documents often have wording such as, “the employer will match 50% of salary deferrals up to 6% of the employee’s compensation for the plan year.”     

 

“Employers are going back and kind of doing the match on [participants] behalf and background, saying, ‘How much do they make, what’s the minimum match they should have received and where’s the gap?’ and they’re applying the contribution on their behalf,” says Meghan Murphy, director at Fidelity Investments.

 

For a highly compensated employee, Knowling gives this example: “Let’s say an employee is contributing 15% of salary, or $1,500 a month, to the plan, that will allow them to reach the statutory contribution limit by year-end. Let’s just say in that scenario, the company has a matching contribution where they match 50% of the first 10% that’s contributed, in that situation the employee would get the full company match with no action required. On the other hand, let’s say that the employee has a contribution each month of $3000 instead of $1500. This participant is actually going to hit the statutory limit, probably six months into the year. At a match of 50% on the first 10% they contributed, the participant will receive less match than if he spread his contributions out over the year. A true-up contribution allows the employer to contribute the difference into his account.”

 

In another scenario, an employee may defer less than the match rate for the first half of a year, and then defer well above the rate for the last six months. In that scenario, Murphy says, employers will average out the match, and apply the difference for the participants.

 

The contribution is generally completed within the first two months following the new year, but will normally hold a deadline of April 1 because of the length in time taken for later contributions to process, says Murphy. This date can vary by an employer however, and be established as long as it is included in the plan document, is supplied to employees and has been approved.

 

In the event that a plan sponsor was to miss fulfilling the true-up—a scenario Knowling regards as very unlikely due to the visibility surrounding the process—the plan sponsor would work with either a compliance or legal team on a resolution.  Due to its status as an unrequired benefit, Murphy notes plan sponsors would not face a penalty from regulators should a true-up contribution be missed. However, if written into the plan document, the missed benefit must still be corrected.

 

Popularity of true-ups

 

During the PLANSPONSOR National Conference in June, poll results showed more than half of sponsors surveyed (55%) do not offer a true-up match, whereas 44% did.

 

According to Knowling, if the plan sponsor is already automatically enrolling employees at the match rate, participants will less likely see—and need—a true-up match.

 

However, the number of plan sponsors offering true-up matches may increase in the upcoming years ahead, as a recent defined contribution benchmarking survey from Deloitte found 54% of plan sponsors offered a true-up match in their plan design—nearly a 10% jump from 45% in 2015.

 

For workforces and plans not offering a true-up contribution, Knowling says plan sponsors can employ education targeting communications to participants on track for missing out on maximizing the employer match.

 

“If they don’t have the plan design that [provides for] a true-up contribution, there are opportunities with education so that the participant can maximize their employer matching contribution,” he says. “And for those plan sponsors who do have a true-up provision, they have an opportunity to promote the extra benefit.”

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