January 5, 2015
- PBGC Participant and Plan Sponsor Advocate Suggests Improved Communication, Coordination in First Annual Report
- Council Issues Benefits Passport Summarizing Global Benefits Committee Meeting
- Council Comments on QPAM Exemption
- Treasury Formally Launches myRA Program
- IRS Issues Revenue Bulletin, Updated Procedures for Determination Letters, User Fees
PBGC Participant and Plan Sponsor Advocate Suggests Improved Communication, Coordination in First Annual Report
The Pension Benefit Guaranty Corporation’s (PBGC) Participant and Plan Sponsor Advocate, Constance Donovan, issued her first annual report on December 31, 2014, generally praising the agency’s commitment to the defined benefit plan system but identifying a number of ways in which relations with its customers can and should be improved.
The advocate position was established by the Moving Ahead for Progress in the 21st Century (MAP-21) Act of 2012 to assist participants and sponsors in resolving persistent problems with the PBGC. Since the beginning of her tenure in 2013, Donovan has been helpful in facilitating the Council’s own advocacy on such issues as ERISA Section 4062(e) enforcement (regarding cessation of certain business operations) and inadvertent nondiscrimination violations arising from frozen plans.
The report identifies four persistent problems requiring improvement:
- Lack of clarity in communications with participants and plan sponsors.
- Lack of process for handling certain participant and plan sponsor issues outside of the routine transactions that PBGC performs quite well.
- Lack of coordination among and between PBGC departments.
- A “growing adversarial and over-reaching approach by PBGC.”
A detailed examination of several plan sponsor issues, beginning on Page 19 of the report, focuses on this adversarial approach. Plan sponsors cited in the report suggest that “the business community relationship with PBGC has turned decidedly much more antagonistic and unwilling to negotiate with a free exchange of information from both parties, often with PBGC insisting that the plan sponsor be prepared to settle without first being told of PBGC’s rationale for its enforcement action.”
The Council is cited by name with regard to a specific case in which we requested a meeting with PBGC to discuss a complicated actuarial issue. The report notes that “PBGC refused to meet until after the specific case this involved is fully resolved including any litigation, and that could take years. Therefore, if the plan sponsor wanted to contest this issue in court, PBGC would not meet with [the Council] on the issue until after the litigation was resolved.”
Among the specific issues cited in the report, along with 4062(e) enforcement, is the ongoing concern about pension plan “de-risking” – in which plan sponsors pursue strategies to reduce the volatility and risk inherent in pension plan funding – and its connection to PBGC premium increases.
According to the report, “PBGC needs to understand what is driving companies to de-risk, including increasing premiums and other PBGC-related issues, such as how PBGC values its liabilities, which plan sponsors and some participant advocacy groups believe are overstated and thus lead to premium increases which leads to plan de-risking.” In June 2014, the Council commissioned a report examining this relationship, and for many years, the Council has urged more transparency in PBGC’s liability calculation methodology, including an analysis examining the true dimensions of the PBGC’s deficit.
Council Issues Benefits Passport Summarizing Global Benefits Committee Meeting
On December 30, 2014, the Council issued Benefits Passport 2014-03, describing the Council’s most recent Global Benefits Committee meeting, in which member companies with multinational operations discussed their experiences providing employee benefits to global populations.
The international benefits arena has become one of the fastest growing areas of Council activity. As many member companies have an increasing portion of employees, markets and revenue outside the United States, understanding global benefits and compensation challenges has become more important than ever. The Council’s Benefits Passport series provides updates and informational memoranda examining international benefits developments and what it means for U.S. companies operating overseas and non-U.S.-based companies operating in the United States. Past issues and other international resources can be found on the International Benefits page of the Council website.
Benefits Passport 2014-03 outlines the Global Benefits Committee’s discussions on the following topics:
- The International Employee Benefits Association (IEBA) and the value that would be gained with the addition of a U.S. branch. Current branches now exist in several European countries.
- Identifying the Council’s specific role regarding global benefits both within and outside of the United States. The discussion was broken into two parts: an examination of available opportunities and the goals of engaging in those activities and an open forum on topics identified by committee members to be considered for further action.
- International health care trends and developments.
Benefits Passports are sent separately to members who elect to join our separate international benefits distribution list, which includes several hundred individuals from member companies. If you are interested in being included on this list, please send an e-mail to Deanna Johnson (firstname.lastname@example.org), director, membership, with the subject line “International Benefits.”
If there are other colleagues within your company/organization who are responsible for international benefits issues, we encourage you to share this e-mail with them. They, too, are invited to sign-up to receive international benefits updates by clicking this link and filling out the form with the phrase “International Benefits” in the “comments and suggestions” field. For more information about the Council’s international benefits outreach, contact Lynn Dudley, senior vice president, global retirement and compensationpolicy, at (202) 289-6700.
Council Comments on QPAM Exemption
In December 31 written comments to the U.S. Department of Labor (DOL) Employee Benefit Security Administration (EBSA), the Council underscored the importance of the qualified professional asset manager (QPAM) exemption to the ERISA prohibited transaction rules. This exemption is applicable to professional asset managers meeting detailed conditions, including the anti-criminal conviction rule.
The matter arises in connection with a proposed prohibited transaction exemption that would allow Credit Suisse affiliates to continue to provide services as QPAMs to retirement plan clients despite an unrelated prior criminal conviction. The Council’s comments do not relate to the merits of this proposed exemption, but instead addresses the importance the QPAM exemption and the process the DOL undertakes for individual exemptions modeled after QPAM.
The letter asserts that QPAM is critical to employee benefit plans. Without this exemption, it would be difficult for plans to engage professional asset managers, and plans would be severely limited in the investments that could be held in their portfolios and the counterparties with whom they could trade.
The letter also recommends that DOL should focus solely on the standards that Congress set in ERISA for the granting of an exemptionand ensure that any conditions (1) protect participants and beneficiaries and (2) are administratively feasible.
Treasury Formally Launches myRA Program
In December 2014, the U.S. Department of the Treasury launched the myRA program for employees and employers. A Treasury website dedicated to the program is now live.
The myRA program is an executive branch initiative that provides savings vehicles similar to Individual Retirement Accounts (IRAs), intended to expand workplace retirement savings. Initially announced by President Obama in his 2014 State of the Union address, myRAs are provided through employers and are targeted at individuals who do not already have access to an employer plan, although they can be offered in conjunction with an existing employer plan (see the January 29, 2014 Benefits Byte for more details). The accounts are invested only in a new class of nonmarketable, electronic Treasury retirement savings bonds that replicate the variable rate of the Government Securities Investment Fund (G Fund) of the Thrift Savings Plan for federal employees. Treasury issued final regulations authorizing the new retirement savings bonds on December 12, 2014.
The official Treasury website provides resources on myRAs for both individuals and employers, including a savings calculator and Frequently Asked Questions for employees and a guide and promotional materials for employers. Currently, myRA accounts can only be funded by direct deposit through an employer. An individual can fund a myRA account through any employer as long as they offer direct deposit and they are able to set up a portion to be directed to the account. The website states that in the near future, Treasury will be making other methods available for individuals to contribute to their myRA account.
As we reported in the December 17 Benefits Byte, in a December 15 letter, the U.S. Department of Labor (DOL) concluded that an employer permitting its employees to contribute to a myRA through payroll deduction does not constitute sponsoring “an employee pension benefit plan” subject to ERISA.
IRS Issues Revenue Bulletin, Updated Procedures for Determination Letters, User Fees
On January 2, the Internal Revenue Service (IRS) issued Internal Revenue Bulletin 2015-1, updating procedures for 2015 for employee plans and exempt organizations.
The bulletin includes the following plan guidance effective for the new calendar year:
- Revenue Procedure 2015-6 provides guidance on the changes to the determination letter process for employee plans, reflecting the changes made by the Employee Plans reorganization where the technical work was moved from the Tax Exempt and Government Entities (TE/GE) Division to the Office of Associate Chief Counsel (see the December 4 Benefits Byte).The new procedure also changes the treatment of incomplete applications (see the December 23 Benefits Byte).
- Revenue Procedure 2015-8 provides the user fees that must be included with requests for determination letters or other guidance. In addition to the annual update of fees, there are a number of changes related to the reorganization of the Employee Plans division.
Other revenue procedures in the bulletin include guidance on the following:
- Rev. Proc. 2015-1, on letter rulings and information letters.
- Rev. Proc. 2015-2, on technical advice memoranda.
- Rev. Proc. 2015-3, on areas or matters on which the IRS will not issue letter rulings or determination letters.
- Rev. Proc. 2015-4, on rulings and information letters under the jurisdiction of the Office of Division Commissioner, TE/GE.
- Rev. Proc. 2015-7, on international matters on which the IRS won't issue letter rulings or determination letters.
All of the revenue procedures are effective as of January 2, except for Rev. Proc. 2015-6, which is effective February 1.