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Washington policy update: April 2019 Benefits and Compensation Bulletin

April 9, 2019
  • DOL Proposes to update overtime rule salary test: Continuing a journey that started in the Obama Administration, the Department of Labor (DOL) has issued a new proposed rule to update the salary threshold for determining if an employee can be classified as “exempt” from the Fair Labor Standards Act’s (FLSA) overtime rules. Under current rules, an employee otherwise meeting the requirements for exempt status must nonetheless be categorized as non-exempt if his or her annual salary is less than $23,660 – the threshold that has been in effect since 2004. During the Obama Administration the DOL proposed increasing the salary threshold to $47,476 per year, but a Federal court struck down the proposed change just before it took effect. The new proposed rule would increase the threshold to $35,308 per year. Although not as dramatic an increase as the previous proposal, employers may want to begin assessing how many of its employees might need to be re-classified if/when the new proposed threshold takes effect. The DOL is currently accepting comments on the proposed rule.

  • IRS Will Not update 401(a)(9) Regulations to specifically prohibit Retiree Lump-Sum Windows: The IRS has issued Notice 2019-18 to provide that it no longer intends to amend the IRC § 401(a)(9) regulations to specifically prohibit pension plans from being amended to offer lump sum windows to retirees currently receiving an annuity. In 2015 the IRS effectively shut down this practice by announcing its intention to amend the 401(a)(9) regulations to preclude these retiree lump sum windows effective retroactive to July 9, 2015 (subject to certain limited exceptions), the date Notice 2015-49 was issued. According to Notice 2019-18, the IRS no longer intends amend the regulation and, until further guidance is issued, it will not assert that a plan amendment to offer a retiree lump-sum window violates IRC § 401(a)(9) – although it will continue to evaluate these plans for compliance with other plan-qualification requirements. Furthermore, in the case of plans eligible to apply for and receive determination letters, the IRS will no longer include a caveat expressing no opinion on the tax consequences of a retiree lump-sum window. However, the Notice advises IRS and Treasury will continue to study the issue of retiree lump sum windows, and will not issue any private letter rulings relating to retiree lump-sum windows.

  • PBGC Mediation Program: In October 2017, the Pension Benefit Guaranty Corporation (“PBGC”) launched a pilot program offering mediation in certain termination liability collection and early warning program cases. In January of 2019, that program became permanent and was also extended to fiduciary breach cases. Goals of the mediation program include : 1) early resolution of disputes, 2) improved relations with stakeholders, 3) reduced costs of negotiations and proceedings, and 4) making alternate dispute resolutions an integral part of the agency’s dispute resolution process. Mediation is voluntary but certain cases are ineligible (limited ability of plan sponsor to pay, pending litigation, limited time with sponsor refusal to sign a tolling agreement). The PBGC and plan sponsors share the cost of mediation sessions which are handle by the Federal Mediation and Conciliation Service who has been engaged by PBGC to service as intermediaries.

  • Changes to Voluntary Correction Program (“VCP) submissions: Revenue Procedure 2018-52 effective January 1, 2019 provides for some significant changes in the submission process for VCP filings. For the period January 1, 2019 through March 31, 2019, filers have the option of an electronic or paper submission of their VCP filing. However, beginning April 1, 2019, all VCP submissions must be entirely electronic using Pay.gov and any paper submission will be returned. Electronic filing requires establishment of a Pay.gov account, application of instructions per the January 2019 revisions of Form 8950, assembly of required attachments and documents converted to pdf and contained in a single file not exceeding 15 mb, uploading and submission of filing/documents using Pay.gov, and payment using one of the available electronic payment methods. A receipt and confirmation of the submission is provided. Documents that can’t be included in the pdf are faxed to the IRS with inclusion of the Pay.gov tracking ID number, applicants EIN and other identifying information. Plan sponsors are able to delegate a legal representative to sign and submit filings on their behalf by completing and including penalty of perjury statements as well as Power of Attorney and Declaration of Representative (Form 2848) forms.

  • US Government of Accountability Office (GAO) publishes study: On February 6, 2019, the GAO published The Nation’s Retirement System: A Comprehensive Re-evaluation Needed to Better Promote Future Retirement Security. The study discusses the fiscal risks associated with the US retirement system including federal programs, employer sponsored plans, and individual savings. The study states that since 2010, Social Security has been paying out more in benefits than it receives and by 2034, Social Security will only be able to pay 77% of scheduled benefits. The financial struggles of Social Security are primarily due to increased life expectancies and decreased fertility rates. In 2016, only two-thirds of private sector employees had access to an employer sponsored plan, with a large majority of the plans being a 401(k) defined contribution (DC) plan. Under a DC plan, participants must have a certain level of financial knowledge to maintain their retirement income. For example, they need to understand how to invest their funds, spend down the amount at retirement, and avoid unnecessary tax implications. Over the last 50 years or so, the personal savings rate has decreased from a high of 14.2% in 1975 to 6.8% in 2018, with a few dips in between. The study discusses that a comprehensive evaluation of the retirement system, including Social Security, employer sponsored plans, and individual savings, is necessary to find effective solutions to manage the risks faced by Americans, so they can have secure retirement income. You can read the full study here: https://www.gao.gov/assets/700/696766.pdf

  • Withdrawal Liability Method for Multiemployer Plans: On February 6, 2019, the PBGC published a proposed rule that provides simplified methods for a plan sponsor to disregard reductions and suspensions of nonforfeitable benefits and certain contribution increases while calculating an employer’s withdrawal liability. Comments on the proposed rule must be submitted by April 8, 2019.

Robert Davis is a managing director in Deloitte Consulting LLP and leads the Washington Rewards Policy Center of Excellence, dedicated to informing practitioners and clients about legislative and regulatory developments relating to employer-sponsored rewards programs.

Originally published at Capital H blog