October 27, 2014
- Council Requests Additional IRS Guidance on Rollover Notices
- Society of Actuaries Releases Final Mortality Reports
Council Requests Additional IRS Guidance on Rollover Notices
In an October 27 letter, the Council urged the Internal Revenue Service (IRS) to issue “soft” guidance as soon as possible clarifying the requirement under the tax code that plans provide a written explanation before making an eligible rollover distribution from a retirement plan.
Under Internal Revenue Code Section 402(f), plan administrators are required to provide a written explanation to any recipient of an eligible rollover distribution. In 2009, the IRS released Notice 2009-68, which contains two safe harbor explanations (one for payments not from a designated Roth account, sometimes referred to as a Special Tax Notice, and another for payments from a designated Roth account) that may be provided to recipients of eligible rollover distributions from an employer plan in order to satisfy Section 402(f).
The IRS released Notice 2014-54 on September 18, along with proposed regulations, allowing taxpayers to choose how to split after-tax contributions between traditional and Roth Individual Retirement Accounts (IRAs) whenever after-tax and pre-tax amounts are simultaneously disbursed to multiple destinations. (See the Council’s September 18 Benefits Byte story for more details). The allocation rules in Notice 2014-54 are required to be effective for distributions on or after January 1, 2015, and can be applied on or after September 18.
Because the safe harbor Special Tax Notice provided under Notice 2009-68 is not compatible with Notice 2014-54 and the proposed regulations, it must be revised. The IRS has stated its intent to revise the safe harbor notice, but plans will need time to reflect the new safe harbor explanation before the rules are effective on January 1, 2015. “Therefore, the Council recommends that Treasury and IRS provide preliminary clarification in the form of “soft” guidance, such as a simple indication that, until the new safe harbor language is issued, the [IRS] and Treasury will treat a plan administrator as complying with Code Section 402(f) if the plan administrator uses the safe harbor language in Notice 2009-68, whether or not the relevant language which is contrary to Notice 2014-54 is removed. Alternatively, the soft guidance could provide a plain English explanation of the new rules in Notice 2014-54 that could be temporarily provided to participants.”
The Council may choose to submit additional comments relating more directly to the proposed regulations before the December 18 deadline. To provide input or for more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.
Society of Actuaries Releases Final Mortality Reports
The Society of Actuaries (SOA), a professional organization serving 24,000 actuarial members, released its final mortality table reports on October 27.
Along with the final versions of the RP-2014 Mortality Table Report and the MP-2014 Mortality Improvement Scale, the SOA’s Retirement Plans Experience Committee (RPEC) issued formal responses to comments on the earlier mortality table exposure draft and responses to comments on the mortality improvement scale exposure draft.
These documents establish a new basis for mortality assumptions for retirement programs in the United States. With respect to pension funding, benefit restrictions, insurance premiums and other related purposes, SOA’s assumptions are usually taken into account by the government in formulating updated mortality assumptions, though those updates may not take effect until at least 2016. For accounting purposes, the assumptions may be taken into account earlier in some cases.
In recent months, the Council had been in close contact with SOA representatives and sent letters on May 30 and October 17, expressing concerns with RPEC’s process while urging the RPEC not to rush the release of its final mortality table reports. The Council recognizes the appropriateness of updated assumptions to reflect greater longevity. But there was considerable concern among plan sponsors and within the profession that important data provided to SOA was not considered during the process of developing the reports. The SOA responded to the Council on October 23, asserting that the RPEC had taken great care to weigh outside input in the development of its reports.
As expected, the new tables show that longevity in the U.S. is increasing. For example, the updated reports show that among males age 65, overall longevity rose by two years from 84.6 years in 2000 to 86.6 years in 2014. For women age 65, overall longevity rose by 2.4 years from 86.4 years in 2000 to age 88.8 years in 2014. Based on the data, SOA estimates there could be a four to eight percent increase in private pension plan liability, though the average cost impact will vary greatly according to the design and demographic profile of each plan.
For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.