RETIREMENT & BENEFIT PLAN SERVICES€¦ · Retirement & Benefit Plan Services Legislative & Regulatory Brief| 4Q19 2 Are Not FDIC Insured Are Not Bank Guaranteed. May Lose Value •

RETIREMENT & BENEFIT PLAN SERVICES

Legislative and Regulatory Brief

4Q 2019

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24Q19Retirement & Benefit Plan Services | Legislative & Regulatory Brief

Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value

• Legislative Activity 4

• Regulatory Updates 10

–Department of Labor Guidance and Projects

–IRS/Treasury Guidance and Projects

Policy topics

4Q19Retirement & Benefit Plan Services | Legislative & Regulatory Brief 3


Legislative Activity

• Congressional hearings and other activity• Rehabilitation for Multiemployer Pensions Act• Taxpayer Certainty and Disaster Tax Relief Act• Expanding Access to Retirement Savings for Caregivers Act• SECURE Act

House Financial Services Committee Holds Hearing On ESG. On July 10, 2019, the House Financial Services Committee’s Subcommittee on Investor Protection, Entrepreneurship and Capital Markets conducted a hearing entitled, “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social and Governance Disclosures.”

• The hearing aimed to understand potential opportunities for the Securities and Exchange Commission (SEC) to require environmental, social, and corporate governance (ESG) disclosures from publicly traded companies in valuation material for investors.

• Several witnesses addressed the pros and cons of possible additional required disclosures. Comments included:

− With growing uncertainty of political, environmental, and social risks, ESG reporting could serve as an important tool for investors to limit portfolio risk exposure.

− The increasing impact of climate change has not only affected global health, but also has financial implications in publicly traded companies. Mandatory reporting would create a level playing field for companies, and would create standardization for investors to compare.

− SEC should not increase the regulatory burden on companies, as it would exponentially increase compliance costs and potentially decrease the number of initial public offerings (IPO) in the US compared to other countries.

• The fact that the various committees in both the House and the Senate are focused on the issue of retirement savings and security is important, as it is clearly an issue with bi‐partisan support.

• In a Congress where little will advance without bi‐partisan support, seeing this activity and interest from both parties is important.

• ESG investments are expanding in the marketplace and have created some concerns for plan sponsors when creating their investment policies. This is due in part to varying guidance from the DoL in different administrations.

• While this hearing did not directly address the fiduciary concerns of plan sponsors, expanded disclosure requirements for ESG investments could provide plan sponsors and investment committees more information to consider.

Status in Washington Our Point of View

Congressional hearings and other activityLegislative Activity

STATUS: Various congressional committees continue to hold hearings related to retirement savings, healthcare and other benefits issues. Heading into the 2020 election cycle, benefits remain an important policy issue with bi‐partisan support.


• Passed in the Democratic controlled House in July on a party line vote, the bill now sits with the Republican controlled Senate where it is unlikely to be taken up.

• Then bill would address the pending insolvency of several multiemployer pension plans by establishing the Pension Rehabilitation Administration (RPA) within the Treasury Department.

• The PRA would be authorized to issue 30 year loans to pre‐approved multiemployer plans that are in critical status enabling them to cover existing obligations to participants in pay status. The loans would be financed through the issuance of special Treasury bonds.

• The Senate has not yet taken up this bill and is not likely to in the short term.

• A similar piece of legislation had been introduced by Senator Sherrod Brown (D‐OH) in a previous Congress, but he has yet to reintroduce it in the current Congress.

• The multiemployer pension insolvency, if left without a solution, could have significant impact to participants under the plans as well as to taxpayers.


Rehabilitation for Multiemployer Pensions ActLegislative Activity

STATUS: Passed in the House in July on a party line vote. The bill now sits with the Senate.


Legislative Activity

On June 18, the bill was introduced in the House. The bill would extend dozens of expired and expiring tax provisions including:

• A deduction for education expenses, • A credit for employers who offer paid family and medical leave, and;• Retirement‐related disaster tax relief:− Exempt qualified disaster distribution up to $100,000 from the additional 10%

early distribution penalty− Allow taxpayers to repay qualified disaster distributions within three years− Allow taxpayers to include qualified disaster distributions in income ratably

over three years− Increase maximum plan loan limits− Extend deadlines for repaying plan loans− Automatic extensions of deadlines under Treasury regulations due to disaster

for:o the qualified plan contribution deadlineo the deadline for withdrawing excess IRA contributionso the deadline for recharacterizing IRA contributions o the deadline for completing rollovers

• Supporters hoped that the provisions of this bill would get picked up in the “must pass” legislation to suspend the debt limit that Congress passed before leaving for their August recess. However, the tax provisions were not included.

• To date, tax relief provisions like this have been done ad hoc when timely relief was needed.

• Making permanent some of these tax provisions and disaster relief provisions would provide taxpayers, financial service institutions, recordkeepers and others some certainty going forward.

• There may be a couple of other opportunities before year‐end for some or all of these tax relief provisions to be incorporated into other tax legislation.

• We will continue to monitor.


Taxpayer Certainty and Disaster Tax Relief ActSTATUS: Introduced in House by Rep. Mike Thompson (D‐CA)


• The bill would allow for earlier catch‐up contributions for individuals who spent a year or more out of the workforce as a caregiver.

• The bill currently has 13 co‐sponsors.

• Current law permits individuals age 50 and up to make “catch‐up” contributions. This was created as a way to let individuals who could not contribute earlier in their career or did not contribute enough to make additional contributions to their retirement accounts.

• This bill would allow individuals to begin their catch‐up contributions a year earlier for each year they have a “qualified unemployment period.”

• A “qualified unemployment period” is a period of at least one year after age 18 in which the individual had no earned income because they were providing care to a dependent under age 13, or to a dependent or spouse who is physically or mentally unable to care for himself or herself.

• If an individual spent five years in a qualified unemployment period, they could begin catch‐up contributions at age 45 instead of age 50, for example.

• To be eligible, the individual would have to submit to the Internal Revenue Service (IRS) a written declaration. Plan administrators or IRA trustees would be permitted to rely on the IRS declaration.

• The bill has been referred to the Committee on Ways and Means (of which Rep. Walorski is a member), but no action has been taken, and there is currently no Senate companion bill.

• An increasing aging population along with increased longevity presents a challenging need for more caregivers, many of whom are family members who may have to reduce their working hours, or leave the workforce for periods of time to provide care to their family members.

• Lost time in the workforce means lost earnings, but also lost access to workplace retirement savings plans as well as potential employer contributions to those plans.

• Policy proposals that acknowledge caregivers’ time out of the workforce and the lost opportunity for retirement contributions during that unemployment period is a positive development.


Expanding Access to Retirement Savings for Caregivers ActLegislative Activity

STATUS: Introduced in the House by Rep. Harley Rouda (D‐CA) and Jackie Walorski (R‐IN)


The SECURE Act passed the House on May 24, 2019. The bill has broad impact across retirement savings and benefits. Elements of the bill include, but are not limited to:

Employer Plans• Increase safe harbor caps on auto enrollment and auto increase• Provide for portability of lifetime income investments• Require access to deferrals only for long‐term, part‐time employees without

matching contributions (unless otherwise eligible under the plan)• Require lifetime income disclosures on participant statements• Establishes fiduciary safe harbor for plan sponsor selection of annuity providers• Creates open Multiple Employer Plans with Pooled Plan Providers• Provides relief for closed Defined Benefit plans on aggregation and testingEmployer Plans and IRA • New withdrawal for birth or adoption of a child, maximum $5,000 per child, not

subject to withholding, and eligible for rollover• Reduction in “stretch” distribution payout periods for beneficiaries to 10 years,

with exceptions for the following beneficiaries: spouse, minor child, chronically ill or disabled adult, or individual less than 10 years younger than account owner

IRA • IRA contributions based on non‐tuition fellowship and stipend payments• Post 70 ½ contributions as long as you have earned income• Increased required distributions beginning date from 70 ½ to 72529• Permit withdrawals for repayment of student loans• Permit withdrawals for payment of higher education expenses related to

apprenticeship programs

• The SECURE Act has passed in the House but still needs to be passed in the Senate.

• As of the writing of this Brief, the Senate is still considering passing the Act but has not yet moved the bill forward.

• The recent “must pass” spending bill did not pick up the SECURE Act provisions.

• The next opportunity for the Senate to take the bill again will be in November when Congress will have to pass another spending bill to avoid a government shutdown, or at year‐end in a catch‐all tax and spending bill.

• The bill cannot become law until the Senate passes and the President signs it.

• The provisions in this legislation have significant bi‐partisan support in both the House and the Senate so we are watching this carefully while it is being considered by the Senate.

• Many of the provisions in the bill have been supported by the benefits community for years and will improve access to, and expansion of, workplace retirement savings.


SECURE Act passes House Legislative Activity

STATUS: Unchanged ‐ Still awaiting passage in the Senate



Regulatory Updates

• Secretary Acosta Resigns/Secretary Eugene Scalia is Confirmed• DoL Issue Missing Participant Guidance• DoL E‐delivery Under Review at OMB• DoL Issues Final Association Retirement Plan Regulations• IRS Expands Definition Of Preventive Care Benefits For HSA‐eligible HDHPs• Treasury/IRS Release Final Hardship Distribution Regulations• IRS Guidance on Uncashed Checks

Secretary Acosta Resigns/Secretary Eugene Scalia is Confirmed. On July 12, 2019, Labor Secretary Alexander Acosta announced he would resign following continued attention to his previous work as a federal prosecutor in Miami.

• On September 25, 2019, the Senate confirmed the President’s nominee to replace Acosta; Eugene Scalia to be the next Secretary of Labor.

• Scalia is the son of the late Supreme Court Justice Antonin Scalia, and has served as the Solicitor of the Department of Labor (DoL). Scalia most recently was the lead litigator successfully challenging the Obama Administration’s DoL fiduciary rule.

DoL Issues Missing Participant Guidance. On July 31, 2019, DoL published a final prohibited transaction exemption (PTE) for an “auto‐portability” service.

• The service is designed to automatically transfer account balances between retirement plans maintained by an individual’s former and current employers.

• The exemption is limited to transactions involving account balances of $5,000 or less, and is limited to five years, although it may be renewed.

DoL E-delivery Guidance at OMB. On August 16, 2019, the Department of Labor (DoL) sent to OMB a proposed regulation regarding participant disclosures. The order also referenced electronic delivery, and statements from DoL officials indicate that this proposed regulation will address e‐delivery.

DoL Issues Final Association Retirement Plan Regulations. On July 29, 2019, the Department of Labor (DoL) released final rules about a multiple employer plan (MEP) that will be treated as a single plan for purposes of ERISA. DoL refers to this type of MEP as an “Association Retirement Plan” or “ARP.” DoL’s final regulations do not affect the “unified plan rule” (also known as the one‐bad‐apple rule) for MEPs, which is within the purview of the Department of the Treasury and Internal Revenue Service.

• The DOL has been very active with proposed and final regulations this quarter. It is good to see the focus on guidance that can be helpful to expand retirement coverage and make plan administration easier.

• The Association Retirement Plans project could be impacted by the fact that the similar Association Health Plans guidance issued by the DoL in 2018 was recently overturned by a Federal Court. Additionally, if the SECURE Act becomes law, the open MEP provision in it may make Association Retirement Plan guidance unnecessary, as it would change the law and make a regulation redundant.

• Simplifying notices and disclosures for participants, beneficiaries and employers is always a good thing, so we are following any additional guidance on e‐delivery.


DoL UpdatesRegulatory Updates

STATUS: Change in leadership at the DoL does not slow down the regulatory activity


IRS Expands Definition Of Preventive Care Benefits For HSA-eligible HDHPs. On July 17, 2019, the IRS issued Notice 2019-45, which substantially expands the definition of “preventive care” for purposes of high‐deductible health plans (HDHPs).

HSA‐eligible HDHP is not usually allowed to pay benefits until the minimum deductible established in the tax law is satisfied. There is, however, an exception for benefits that are preventive care as defined by the IRS. The new Notice expands the definition of preventive care to include a detailed list of specific medical services (such as tests and prescription drugs) purchased for the treatment of individuals diagnosed with specified chronic conditions, including common conditions such as diabetes, asthma, hypertension, and heart disease.

Treasury/IRS Release Final Hardship Distribution Regulations. On September 23, 2019, the Department of the Treasury and Internal Revenue Service (IRS) published final hardship distribution. The final regulations are substantially similar to the proposed version of the regulations. They address changes enacted in the Bipartisan Budget Act of 2018 (BBA), the 2017 Tax Cuts and Jobs Act (TCJA), and the Pension Protection Act of 2006 (PPA). The final regulations will require changes to plans with respect to hardship distributions made on or after January 1, 2020.

IRS Guidance on Uncashed Checks of Missing Participants. Revenue Ruling 2019‐19addresses uncashed participant distribution checks. The ruling indicates:

• The distribution is includable in the participant’s gross income (including the amount that the plan withheld) in the year of distribution,

• The plan should withhold as required by Internal Revenue Code section 3405, and; • The plan should report the distribution as a taxable distribution on Form 1099‐R for

the year of distribution, as if the participant had cashed the check.

• Each of these guidance projects are positive developments, which are helpful to plan sponsors and participants.

• The expansion of preventative care that can be covered and still have an HDHP and be HSA‐eligible is a positive improvement and recognition of the importance of preventative care.

• The final hardship distribution guidance was eagerly anticipated and has provided clarity on various hardship changes that occurred in recent legislation, much of which is effective 1/1/2020.

• The ruling on uncashed checks does not address various other missing participant fact patterns, but the recent guidance should generally reassure plans and their service providers about how they are handling withholding and reporting when distribution checks go uncashed. Additionally, the IRS has indicated it is continuing to evaluate other instances of missing participants to help plan sponsors manage them and maintain the qualified status of their plan, which is hopeful.


IRS and Treasury ActivityRegulatory Updates


https://www.irs.gov/pub/irs-drop/rr-19-19.pdf

Documents

RETIREMENT & BENEFIT PLAN SERVICES€¦ · Retirement & Benefit Plan Services Legislative & Regulatory Brief| 4Q19 2 Are Not FDIC Insured Are Not Bank Guaranteed. May Lose Value •