American Benefits Council
Benefits Byte


June 2, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

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EBSA Reopens Comment Period on Target Date Funds Proposal

The U.S. Department of Labor (DOL) Employee Benefits Security Administration (EBSA) has officially reopened the comment period for its regulatory project addressing the use of target date funds as a qualified default investment alternative (QDIA). The agency had indicated it would do so in its recent semiannual agenda (see the May 29 Benefits Byte)

EBSA initially issued proposed regulations in November 2010 that would amend the QDIA rules “to provide more specificity as to the information that must be disclosed in the required notice to participants and beneficiaries concerning investments” in QDIAs and amend the participant-level disclosure regulations to “require the disclosure of the same information concerning target date or similar investments to all participants and beneficiaries in participant-directed individual account plans.”

Specifically, the proposal would require fund providers to furnish an explanation of a target-date fund’s asset allocation, how that asset allocation changes over time (often called its “glide path”) and additional disclosures to participants.

The Council filed written comments on the EBSA proposal in January 2011 after having testified at a joint DOL/Securities and Exchange Commission (SEC) hearing on target date funds in June 2009. The project was, until recently, listed as being in the final rule stage.

The DOL’s decision to gather additional comments on the proposed regulations was likely made in light of SEC’s concurrent project to amend its advertising rules to require target date retirement funds' marketing materials to provide investors enhanced information about those funds. The SEC issued proposed regulations in June 2010 and approved a set of additional recommendations in April 2013. On April 9 of this year, the SEC requested additional comments on the proposal.

EBSA is soliciting new comments due through July 3. For more information or to provide input for a possible Council comment letter, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

IRS Private Letter Rulings Permit Lump-Sum Offerings to Employees in Pay Status

The Internal Revenue Service issued a series of “private letter rulings” (PLRs) in late May, addressing certain actions common to de-risking activity by defined benefit pension plan sponsors.

A PLR is a written statement, issued in response to a written request submitted by a taxpayer, that interprets and applies tax laws to the taxpayer’s represented set of facts. A PLR may not be relied on as precedent by other taxpayers or by IRS personnel.

The newly issued PLRs address the offering of lump sums to retirees in pay status. The four (separately) requesting parties had all asked for confirmation that such lump sum offerings were permissible under the Internal Revenue Code’s minimum distribution rules. All four parties were granted favorable rulings, with the explicit caveats that the rulings do not cover any issue other than the one addressed.

The PLRs also do not apply to the calculation of the amount of lump sum distributions. The U.S. Treasury Department had reportedly been considering the issuance of guidance on plan valuation before announcing informally that it is inclined not to pursue that project.

For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy.

Council Writes Society of Actuaries Regarding Defined Benefit Plan Mortality Tables

In a May 30 letter to the Society of Actuaries (SOA), a professional organization serving 24,000 actuarial members, the Council expressed support for a cooperative and collaborative review of important mortality table standards put forth by the SOA earlier this year. These documents would have a substantial impact on defined benefit pension plans.

In February, the SOA Retirement Plans Experience Committee (RPEC) released an exposure draft of the Mortality Improvement Scale MP-2014 and an exposure draft of the RP-2014 mortality tables. These documents, based on a comprehensive study of uninsured retirement plan mortality experience begun by the RPEC in late 2009, establish a new basis for mortality assumptions for retirement programs in the United States. For pension-related purposes, the mortality projection scale presented in this report, denoted MP-2014, replaces both Scale AA, which was released in 1995, and the interim Scale BB, which was released in 2012.

For accounting purposes, auditors may rely heavily on the assumptions published by the SOA. For purposes of funding, benefit restrictions, PBGC 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.

The Council’s letter did not comment directly on the details or conclusions of these exposure drafts, instead highlighting certain matters of process for SOA’s consideration. Council members have shared two principal concerns:

  • Too much data may have been disregarded in compiling the Exposure Drafts and the excluded data could well have made a material difference in the conclusions.
  • The language of Mortality Improvement Scale MP 2014 may overemphasize the use of SOA’s projections and underemphasizes needed flexibility for actuaries to exercise their professional judgment regarding future mortality improvements.

As the Council noted in its letter, “It is unusual for the Council to comment on the process followed by another organization in developing its conclusions. But it is precisely because of the very high regard we hold for the Society, and the deference accorded to the Society by policymakers who rely upon its expertise, that we bring to your attention the extensive comments we have received. Consequently, we urge the Society to do everything possible to attain maximum consensus within the actuarial community before finalizing the studies.”

For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).