July 9, 2018
To our clients and friends:
This is another in a series of newsletters designed to keep you clearly informed of current events in the area of retirement plans. (plus other stuff I find interesting …)
Follow-up from last time – more on law changes for Hardships and Loans:
In our last Issue # 98, I discussed some changes that will relax the Hardship Distribution rules on 401(k) plans in 2019. This will require a plan amendment to become effective. One other important Hardship change that I didn’t mention is that the taxability has been greatly improved. If the payout is less than $ 100K, then you may not believe this good tax deal:
- No 10% excise tax if you are under age 59 ½
- You may spread your income tax on the payout evenly over three years
Another significant improvement, effective immediately, has to do with outstanding loans when a plan participant terminates employment. Typically, this results in (a) a defaulted loan, and (b) taxes, plus perhaps the 10% excise tax, on the defaulted loan amount. The new law (“Tax Reform Act”) relaxes these provisions. Now (effective immediately, no plan amendment required), the plan members can pay the loan back to themselves and avoid this taxation. They would do this by putting the money still owed into their IRA, by the due date of their tax return for that year. They would still receive a 1099 Form, but the distribution would not be considered “taxable”.
It is good to see Congress recognizing these problems with the system and fixing them!
We rarely discuss the issue of QDRO’s, so this is the time 😊. Most plan documents have a provision for a QDRO. What is a QDRO? It is a “qualified domestic relations order”, signed by a Judge. It is a tricky area, so we all need to be careful. Without a valid QDRO, a plan does not have permission to pay out any of the plan members’ account to an ex-spouse. With a QDRO, it must do so.
The QDRO itself is negotiated as part of the divorce settlement. It starts out as a DRO (lacking the “Q” for “qualified”.) Then, it’s presented to the Plan Administrator. (We often assist here as the third-party administrator, or TPA,) The Plan Administrator then must determine if it meets all of the fancy QDRO rules. If it does, then it is deemed to be a “Qualified” order, and it is enforced. It typically says that the plan member must now share some of their plan benefit with their ex-spouse.
There is also a notification process at each point along the way, where the Administrator first notifies all affected parties that it got a DRO. At that point, it places a freeze on the plan member’s account. Once it determines if it is a QDRO, it follows up and tells them that result.
To be deemed “qualified”, the Order must contain basic information, such as the Plan name, the parties’ names, SSN’s, addresses, etc. It must not create new rights or forms of payouts under the Plan. It must clearly specify the amount of benefit payable to the “Alternate Payee”. It can’t step on the toes of any other Alternate Payee already specified. Plus other legal stuff. Let us know if you have any questions on this technical, yet important area. A printout of the Plan’s QDRO procedures may also be helpful, so let us know if you’d like to see a sample.
Poker Actuarial Department:
As regular readers may recall, I like to play poker (a lot.) I’ve observed a couple of things, and I’m wondering if you notice them, too? Obviously, many more players are male than female. Without exception, 5 – 10% of all players are female. Why is this? I have my own ideas, but I’d like to hear yours. Beyond that, I notice that most players do not wear a wedding ring. Why is that? It is not uncommon to see not see any player at all with a ring, although there are more ring-wearers in Pittsburgh than in LV. There are some theories about this, but I’d like to hear yours. (If you like this topic, we can talk about poker players and other people washing their hands after using the restroom next time – or not.)
Trends in 401(k) Payouts:
We are always working with investment company “platforms” (ex: John Hancock, Empower, American Funds, Mass Mutual, to name just a few) in coordinating payouts to terminated or retired plan members. This is, obviously, a pretty vital function, along with potential security risks. Accordingly, we are seeing trends towards greater security protocol, as may be expected. For example, payouts of over $ 20,000 from Transamerica will result in a phone call from them to the participant, to confirm the correctness. The industry is much more on the lookout for large transactions.
In the interest of making this large volume of transactions more efficient, we are also seeing trends toward more electronic payouts, rather than having the employee submit “paperwork” to get their money. For example, at Principal, payouts can only be done this way. The point of this article is not to highlight any specific firm, as they are all good and things are constantly changing. Instead, just to call your attention to the rapidly changing landscape.
‘ sup at metro?
We are pleased to congratulate Emma Joyce and Alex Romano, both of whom recently passed an ASPPA exam along the way to their next professional credential goal of Qualified Pension Administrator. (“QPA”). We also must congratulate Ingrid Peet for passing the ASPPA DC-1 Exam.
We also want to welcome Josh Byers to our team, working in our Ripley, WV office. Josh had previously been at United Bank, working in their Retirement Plan area. By the way, we are looking for an Administrative Assistant for that office, if you know anyone?
We are also very pleased to bring back Jessica Klauss, as an Administrative Assistant. Jess had been with us for several years, and we are very pleased to reconnect with her.
One thing that I learned a couple of decades ago, amidst high turnover at Metro, was the importance of building a solid team, where people could follow a career path, perform challenging and important work, along with other professionals, with reasonable compensation. Obviously, Diane, Russ, and Leigh (the 3 Metro owners) are continuing that tradition. Here is the list of Metro employees who have been with us for more than 5 years:
- David Lipkin, 32 years
- Diane Barton, 29 years
- Shelia McLaughlin, 24 years
- Russ Smith, 21 years
- Leigh Lewis, 19 years
- Mike Steve, 18 years
- Michele Cieszynski, 18 years
- Leann Malloy and Bryon DiGiorgio, 12 years
- Linda Fulton and Jen Stenson, 11 years
- Chris Lestitian, 10 years
- Krysta Powell and Nancee Labella, 8 years
- Jaymie Philson, 7 years
- Tracey Farquhar, 6 years
- Chastity Crihfield and Kristie Guzik, 5 years
Please join me in congratulating these fine people for their dedicated service here at Metro Benefits!
David M. Lipkin, MSPA, FSA, Editor
Metro Benefits, Inc. is a regional consulting firm, based in Pittsburgh, PA and Charleston, WV. We provide a wide range of services for qualified plans. While we make every effort to verify the accuracy of the information that we present here, you should consult with your Plan attorney or other advisor before acting on it.