Products March 11, 2016

Report Offers Guide for Safe Harbor Plan Nondiscrimination Testing

Daniel Schwallie, an attorney with Aon Hewitt’s Retirement Legal Consulting & Compliance practice, discusses the confusion caused by different definitions of compensation.
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In a report published in the Journal of Pension Planning & Compliance, Daniel Schwallie, an attorney with Aon Hewitt’s Retirement Legal Consulting & Compliance practice, notes that ADP and ACP safe harbor plans require that a nondiscriminatory definition of compensation be used to determine safe harbor matching contributions.

However, he says, “the plethora of permitted compensation definitions, and the rules surrounding them, can create compliance issues, particularly if the plan document, payroll, and recordkeeping are not properly coordinated.”

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The report serves as a guide for the different definitions of compensation that may be used and what happens when the wrong definition is used to determine safe harbor match contributions.

Schwallie concluded that plan sponsors, plan advisers, payroll administrators and recordkeepers should work together to ensure all parties understand how the plan is supposed to work, and to ensure administration of the plan matches that understanding, in compliance with ADP and ACP safe harbor plan requirements.

The report can be viewed here.
Benefits March 11, 2016

Retirees Nationwide Protest Multiemployer Plan Benefit Cuts

While retirees say the cuts are unfair, regulators say without them, the result could be much worse.
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The Pension Rights Center announced that in a series of coordinated actions taking place from March 10 through 13, retired truck drivers, spouses and widows are taking to the streets in five states to protest unprecedented proposed cuts to their pensions.

The retirees are calling on presidential candidates and members of Congress to protect their pensions and to educate other retirees that similar cuts could happen to them, if action isn’t soon taken. 

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The retirees are asking Congress to repeal the Multiemployer Pension Reform Act of 2014 (MPRA), which gives power to the trustees of severely underfunded pension plans to cut retiree pension benefits. The retirees are urging Congress to find a better solution to save underfunded pension plans and protect retirees.

The Central States Pension Fund was the first and largest plan to apply for cuts. The U.S. Treasury Department, which is charged with overseeing the law’s implementation, has until early May to approve the fund’s application.

NEXT: Is the alternative worse?

In a recent Senate Committee on Finance hearing, Rita Lewis, a beneficiary of the Central States Pension Plan noted that Central States says the average cuts are around 22.5%, but in reality, the cuts will be 40% to 70%.

However, during that same hearing, Joshua Gotbaum, guest scholar, Economic Studies Program, The Brookings Institution, and former director of the Pension Benefit Guaranty Corporation (PBGC), said the alternative to a planned benefit reduction under the MPRA is even worse. “What MPRA did was to allow plans that otherwise would fail entirely to preserve benefits and keep them from falling all the way to PBGC levels,” he said.  “Under MPRA, severely distressed plans can propose a plan to cut benefits, but in every case a participant gets at least 10% more than what PBGC would provide.”

Two other multiemployer plans have applied for permission to cut benefits. According to the Pension Rights Center, 50 to 100 other plans that are eligible to make retiree pension cuts under the law are watching to see what happens with the Central States Pension Fund’s plan before deciding whether to move forward.  

In addition to state efforts, thousands of affected retirees and family members will travel to Washington D.C. on April 14, for a rally to be held on the grounds of the U.S. Capitol.

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