2015 Retirement Plan Updates

• Regulatory + Legislative Updates
• What’s Happening in Retirement Plan Designs
• Pending Legislation
• Fiduciary Responsibilities

UPDATE: American
Taxpayer Relief Act of 2012
In-Plan Roth Rollovers (IRAs)-
Prior to ATRA, a participant was
required to have a distributable
event.
Starting in 2013, no distributable
event is necessary to make such a
taxable conversion (however your
plan must allow for it).

Jan. 2015 begins the “One-Per-
Year” IRA Rollover Limit
Aggregate ALL IRA’s and treat them as one
One-Rollover-Per-Year means per 12
month period not per calendar year
Rollover from a traditional IRA to a Roth
IRA is not subject to the one-rollover-per-
year rule
Doesn’t apply to a rollover to or from a
qualified plan
Doesn’t apply to trustee-to-trustee
transfers

Myra
Training Wheels for Retirement Savings

MyRA
Obama’s 2014 State of the Union
Address introduces new IRA backed by
treasury bonds (executive order)
Treasury created it, and it takes little
time to set up with an investment
partner (MyRa.Treasury.Gov)
Must be a Roth IRA and funded
through payroll deductions
No risk of losing money

MyRA
Household income for single persons
must be less than $129,000 and for
couples must be under $191,000
$5,500/$6,500 Max. Annual
Contribution
At $15,000 or 30 years must be rolled
over to a private sector Roth IRA
Free account and after tax automatic
payroll deductions as low as $5
Rate of Return less than inflation

MyRA
PROS
Low balance to start $25
Direct Deposit Contributions
No minimum contribution
Free (no startup cost or fees)
Not subject to ERISA

MyRA
CONS
Low Earnings, (average return over the
last 10 years is 3.39%)
Invested in government bonds
$15,000 Limit
Employer must agree to cooperate
Payroll burden for employer
Is something better than nothing?
Once people start saving will they begin
to save even more?

New Form 5500
Requirements for MEPs
CSEC Cooperative Small Employer
Charity Pension Flexibility Act of 2014
Will require new reporting by Multiple
Employer Plans subject to ERISA
Requires an attachment of:
List of participating employers
A good faith estimate of the % of
total contributions

DOMA
U.S. v. Windsor
Found section 3 of DOMA to be unconstitutional
Did not deal with the issue of “full faith and credit”
i.e. the recognition of marriage performed legally in
one state by another state that does not recognize
same-sex marriages
IRS adopted state of celebration as the rule in Rev.
Rul. 2013-17 which became effective in September
2013
Employers in states that don’t recognize same-sex
marriages must treat same-sex couples as married
with respect to their company-sponsored
retirement plans

DOMA’s Effect on Retirement
Plans
If a plan sponsor has a participant
who was married in a state that allows
for same-sex marriage then the plan
sponsor must also recognize the
marriage for plan purposes
Beneficiary Designations
QDRO Qualified Domestic Relations
Orders (how do we know?)
Testing for HCE and Key Employees

DOMA-What Do Plan Sponsors
Do?
Check the plan document
Plan documents that directly contradict this
rule i.e. “marriage means between one man
and one woman” needed to be amended by
December 31, 2014
Ambiguous plan documents don’t need to be
amended
Plan sponsors don’t need to notify
participants
Good time to update beneficiary forms

Restatements-Happening
Now!
Restatements occur every 5-6 years
depending on the plan document used
The plan document is completely re-written
to integrate new legislation
Great time to amend the plan for
discretionary changes
PPA Preapproved Plan Document
Restatement deadline April 30, 2016
Missed deadlines=disqualified plans

PPA Restatement, What’s new?
Pension Protection Act of 2006
Mandatory Restatement Replacing EGTRRA
Automatic Enrollment provisions
Automatic enrollment opt out
Funding notifications
Investment advice rules
Contribution limits
QDIA

PPA Restatement, What’s new?
Will Permanently include:
Final 415 regulations
PPA Pension Protection Act of 2006
HEART Heroes Earning Assistance and Relief
Tax Act
WRERA Worker, Retiree, and Employer
Recovery Act
KETRA Katrina Emergency Tax Relief Act of
2005
GULF Opportunity Zone Act of 2005
Documents are based on IRS’s 2010
Cumulative List of Changes

Defined Benefit Plans
Extended Deadline for Preapproved
DB Plans
For opinion & advisory letter applications
From 1/31/14 to 06/30/2015
Delays 6 year cycle for preapproved DB
plans
Cash Balance Plans Permitted in
Prototypes & Volume Submitter
Documents
Will also allow preapproved ESOPs
Review will be based on 2012
Cumulative List

New Emphasis on “internal controls”
Procedures, policies, systems, computer
programs, activities of the plan administrator and
plan sponsor that ensure compliance
Plans with proper internal controls are better
administered
Rev Rul. 2014-9 Plan to Plan Rollover
Safe Harbor (relaxed rules; Code 3C)
Watch out for RMDs
Rev Proc. 2014-32: 5500-EZ Late Filing
(pilot program that ends June 2, 2015)
What’s New at the IRS

Notice 2014-35: IRS Relief for late-filed
8955-SSA
Final Regs. issued for DC plans, 403(b),
governmental 457(b) plans, and IRAs in
regards to Qualified Longevity Annuity
Contracts (QLACs)
Notice 2014-54 Changed longstanding
rules giving rise to a lot of interest in
voluntary after tax contributions
What’s New at the IRS

The DOL is concerned that the required
408(b)(2) notice is too long and no one
understands it
The DOL is considering requiring a “guide” or
table of contents with page numbers and
weblinks
The DOL is starting a list of service providers
in the industry who have a history of
misconduct (Fiduciary Offender List)
FAB 2014-1 changed the lost participant
standards (IRS & SSA locator services no
longer available)
DOL is still looking at Brokerage Windows
very closely
What is the DOL up to these
days?

IRS Issues
Guidance on the use of forfeitures to
reduce Safe Harbor Contributions
Guidance on mid-year amendments to
Safe Harbor Plans
Terminating Plan – PPA Amendments
Document record Retention (forever)
Self Correcting Participant Loan
Failures
What do we need from the IRS
& DOL?

DOL Issues
Self correction for late deferrals (can we
use the DOL calculator)
Brokerage Windows in Self Directed Plans
(fiduciary duties; rights and benefits)
Electronic Disclosures (different rules
than IRS; opt in; check valid email)
Benefits Statements(PPA 2006): will
require projections
Windsor Decision (retroactivity? Lawsuits
have started – Bayer denies pension
benefits to gay widower in 2008)
What do we need from the IRS
& DOL?

What’s Happening in
Plan Designs

Safe Harbor 401(k) Plans
Great for plans who fail testing
Free Pass on ADP/ACP* and
potentially on Top Heavy Testing
HCEs can defer more
Mandatory Contribution
Full vesting of mandatory
contribution

SH 401(k) Mandatory
Contributions
3% non-elective contribution or;
Employee not required to defer
Approximately 4% matching contribution or;
100% match on first 3% contributed by employee
50% match on the next 2% contributed by
employee
Alternatives to minimums
Enhanced matching contribution
100% match of first 4% contributed (minimum 4%)
100% match of first 6% contributed (maximum to
forgo ACP)
Limited to matching deferrals up to 6% but can
match at any amount even more than 100%

SH balances the scales for 401(k) plans

Before SH
Participant Comp 401(k)
Deferral
% Req. Refund Top Heavy
Contribution
Owner $200,000 17,000 8.5% $11,000 $0
Frank $50,000 $1,500 3.0% $0 $1,500
Dan $30,000 $0 0% $0 $900
TOTAL EMPLOYER CONTRIBUTION $2,400
Participant Comp 401(k)
Deferral
% Req. Refund Matching
Contribution
Owner $200,000 17,000 8.5% $0 $8,000
Frank $50,000 $1,500 3.0% $0 $1,500
Dan $30,000 $0 0% $0 $0
TOTAL EMPLOYER CONTRIBUTION $9,500 with 84.21% going to owner
With SH
*Owner has to make top heavy contribution even to those not participating in
the plan + refund his excess contributions.

Safe Harbor Plans
Exiting a Safe Harbor contribution
mid-year allowed only if:
The employer is operating at a loss for the
plan year, or
The safe harbor notice includes a “maybe
not” notice
Retroactively effective May 19,2009
SH notice must be given to employees
30-90 days before plan year begins
Deadline to establish a new plan is 3
months before the end of the plan year
(October 1st for a calendar year plan)

Automatic Contributions &
Auto Increase
Becoming more and more popular
Washington really likes them
Auto Increase and QDIA puts them on
automatic pilot for the participant
Vendors are making it easier on plan
sponsors
Can be Safe Harbor or Non and if Non
can get special deadline for testing
refunds if needed

Cash Balance Plans
A defined benefit plan that looks like a
DC plan in many ways
“Theoretical” account balance
Calculated by actuary
Plan assets are pooled + trustee
directed
If the trust performs better than predicted,
the required contribution decreases
If the trust performs worse than predicted,
required contribution increases over time

Cash Balance Plans
Higher Limits than a DC plan
 $210,000
Larger tax deductions
Flexible Plan Design
Used in conjunction with a DC plan for
even higher limits
$263,000
No investment decisions
Employer funds account each year
Covered by PBGC
Easy for employees to understand
I’m giving you $5,000 V.S. I’m giving you
1% of Final Average Pay times years of
service

Cash Balance Plans
PPA confirms they are not discriminatory
IRS Working towards volume submitter
and prototype plans for CB plans
Employer bears the risk + gets the
reward
Can be used in conjunction with a DC
plan

Fee Disclosures
Many think their plan is free
Especially bundled plans
Currently fee disclosures are too
complex to understand
DOL is working on a proposed
regulation regarding a 408(b)(2)
“Guide”
If the disclosure is too long or refers to
other document or websites the guide
will be required
It will have to contain specific
references to where to find the
information (page numbers, section
numbers, weblinks)

Hardship Distributions
IRS is looking into requiring more
substantiation for hardship distributions
Not all plans allow for hardship
Must be made on account of an immediate
and heavy financial need
“Safe Harbor” Reasons
Have unreimbursed medical expenses
Costs relating to the purchase of a principal
residence
Tuition and related fees and expenses for post-
secondary education
Payments to prevent eviction from or
foreclosure on principal residence
Payment of burial or funeral expenses
Casualty losses to a participant’s principal
resident that would be deductible

Conflict of Interest Rule
DOL is working to issue a new
“fiduciary rule”
Protect plan sponsors and individual
participants from advisor conflicts of
interest
Obama gave the DOL the green light for
the redraft of the rule that defines
fiduciary

Delinquent 5500-EZ Returns
Coming Soon
IRS is developing a VCP (Voluntary Correction
Program) for delinquent 5500-EZ Filers (owner only
plans)
Presently, 5500-EZ filers can’t use the DOL’s VCP
program and have no way of abating penalties, other
than through reasonable cause.
1 year pilot program released in May 2014 end June
2015
Penalty relief unavailable if plan admin receives
penalty notice

IRS Proposes to Require
Electronic Filing
Form 8955-SSA E-Filing Mandate for plan
years beginning January 2014
Form 5500-EZ (owner only plans) for plan
years beginning January 2015
Actuarial Schedules MS/SB for plan years
beginning January 2015

Tibble vs. Eddison International
Revenue sharing lawsuit finally got its day
before the US Supreme Court
Supremes focusing on how ERISA’s statue of
limitations was to be applied in challenging
fiduciary actions
Statute of Limitations 6 Years for
investments in plan at that time
Decision expected in June
Victory for the plaintiffs may affect every
qualified plan in the country

Tibble vs. Eddison International
Fee Cases – is there an Upshot?
Plaintiff lawyers have gotten smarter about
how to plead and pursue the cases
Plaintiffs must PROVE that fiduciaries breached
their duties
Use of retail funds may or may not be a violation
Use of funds from one family may or may not be a
violation
Revenue sharing is NOT an imprudent method
to pay plan fees but review
Process and documentation are the defining
factor – did the fiduciaries act prudently?
Watch plan procedures (especially Inv Policy
Statement)

Clark vs. Rameker
Court unanimously ruled that inherited IRAs
do not have bankruptcy protection
Inherited IRA is a RO IRA by a nonspouse
beneficiary
Not retirement funds for beneficiary
because they can take the money out and
often are required to do so before
retirement
May be better to leave the money in the
qualified plan
Problem: will the plan allow the beneficiary
to do so?
State law may give some protection that
federal law does not based on ruling

Tatum v. RJ Reynolds
Procedures are the most important aspect of
fiduciary activities
If the fiduciary can prove that they had reasonable
procedures in place and they followed and
documented them, the courts will turn towards
them
The first word in ERISA stands for EMPLOYEE not
employer; Fiduciaries must look out for the best
interest of the participants
Once breach and loss are proven the presumption
is the fiduciaries are responsible unless they can
prove that a prudent person would have taken the
same actions
It is not whether or not the stock lost money
The issue is whether the decision to sell the
stock was made prudently

Forum Clause Cases
Can a plan specify in its terms the Federal
court in which lawsuits can be brought?
The plan is the rule; venue clauses in the plan
document are enforceable and will be
enforced by the courts
Haughton v. Xerox
Smith v. Aegon
Both cases noted that they had previously
enforced arbitration clauses for ERISA
claims

Who is a fiduciary?
Anyone who…
Exercises discretionary authority or
control over the plan
Exercises authority or control
regarding the disposition of plan
assets
Renders investment advice for a fee
Has any discretionary authority or
responsibility regarding
administration

IRS’s Latest Area of Interest
Emphasis on “Internal Controls”
Procedures, systems, policies that
ensure compliance
Plan Operations Review
Operate the plan according to its
terms
Plan Document Updates
Law Changes
Changes in plan operations

DOL Audit Triggers
Late deposits marked on Form 5500
Employee Complaints
Late or Missing deposits
Untimely Distributions
Random Selection
Correspondence from other
government agencies
Late Filings
5500 issues or unusual reporting
Unusual assets reported on Form
5500

Common Errors Plan Sponsors
Make
Eligibility
Failure to include eligible employees
Failure to exclude ineligible employees
Distributions & Loans
Age 70 ½ Min. Distribution Rule
Impermissible In-Service Withdrawals
Failure to Follow Loan Provisions
Failure to properly calculate loan limits
Failure to withhold loan payments

Make
Payroll
Payroll miscalculations
Late Deposits
Missed Matching contributions
Failure to Follow plan’s definition of
compensation
Bonuses, Commission, etc.

Make
Testing
Failure to pass ADP/ACP Testing
Failure to limit compensation and
contributions
Failure to provide benefit or
contribution to non-key employees
Deferrals
Excessive Deferrals
Failure to satisfy IRC 415 Limits

Make
Service Providers
Selecting sub-standard service
providers
Investment Provider, Investment
Advisor, Recordkeeper, TPA, CPA,
Auditor, anyone being paid from
plan assets for any service
Failure to benchmark or review
service providers, fees and
investments

The #1 Mistake Plan Sponsor Make…
Failure to follow the terms of the plan document!

Why 401(k)s Have Failed (Forbes 4/24/13)
A Perfect Failure: Why the 401(k) Has Been a
Flop (Huffington Post 6/7/12)
Why the 401(k) is a “Failed Experiment” (PBS
Frontline 4/23/13)
Study: 401(k) retirement plans failing most
workers (Moneywatch 9/4/13)
President Obama’s State of the Union Address
(1/28/14) “fix an upside-down tax code that
gives big tax breaks to help the wealthy save,
but does little to nothing for middle-class
Americans”
Trends (Bad Rap)

Problems with 401(k) Plans:
Only 52% of people have access to a plan at work
Employees can’t afford to save
Participation rates are too low
Part time employees may be excluded
Tax breaks don’t work because the people who
need to save more typically are not those who
benefit from tax incentives
Trends

Tax Reform and Pension Reform are
being looked at now
Pension Reform believes the 401(k) is
a failure
Tax Reform views retirement plans as
an expenditure (10 year window)
Dynamic Scoring may help (takes into
account the economic effect of tax
legislation)
Trends in Tax Reform

Limit on size of account
Limit on pre-tax vs Roth deferrals
Stretch IRAs (non-spousal inherited IRAs
required to be distributed within 5 years)
Roth Conversions
Raising revenue to pay for specific
expenditures
Highway and Transportation Funding Act of
2014 (allowed higher interest rates to be
used for DB plans lowering the funding
requirements so there were smaller
deductions and more money for highways)
Trends in Tax Reform

Trends
Financial Wellness Services
Financial Education Seminars
Programs like Dave Ramsey’s CORE
Wellness
Automation + Auto escalation still
popular
Adoption of Roth accounts
Public Pension Plans moving to
401(k)-style individual accounts

For a copy of today’s
slideshow
Text 401K to 66866

Phone: (405) 848-401k
www.tristarpension.com
9150 N. May Ave. Suite A
Oklahoma City, OK 73120
Follow us @tristarpension

2015 Retirement Plan Updates

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