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Metro Newsletter #103

November 19, 2019

To our clients and friends:

This is another in a series of newsletters designed to keep you informed of current events in the area of retirement plans. There are some new developments to report.

Hardship rules simplified:

We recently released a Bulletin on this topic. You can find it here:
https://metrobenefits.com/new-irs-regulations-on-hardship-distributions/

The new procedures make the hardship distribution process easier for everyone. We have described the specific changes in our Bulletin. Please let us know if you have any questions on this important change.

DOL allows electronic disclosure of Notices:

Last month, the DOL announced that an Employer, if they follow certain rules, may now distribute various Notices electronically, instead of just on paper, as things had stood. Our professional association (“ASPPA”) had lobbied for over a decade for this change to be allowed. Obviously, it will greatly improve efficiency and reduce costs. (Estimated savings are $2.4 billion over 10 years). The new rules, once they are issued, will provide participants with an initial notice (on paper!), indicating that (a) plan information is available to them electronically, and (b) that they have an option to still get paper. More to follow as these proposed regs are finalized.

New limits for 2020:

The IRS has announced the new benefit limits for next year. Here are some of the key features:

  1. The overall 401(k) limit has increased from $56,000 per year to $57,000. This includes both Employer contributions and employee salary deferrals. These deferrals include both the pre-tax deferrals and the Roth, after-tax portion.
    1. The “deferral-only” portion of this has increased to $19,500, for 2020. This is in addition to the Catch up allowance, described below.
  2. For those age 50 and over, there is an additional deferral available of $6,500. (“Catch up”). For these people, then, the overall contribution limit is $63,500. ( = $57,000 + $6,500.)
  3. A Defined Benefit Pension (or Cash Balance) plan can now fund for an annual benefit of $230,000 per year, assuming that the plan participant’s pay is at least that high. This is a powerful tool, and would allow one to accumulate up to approximately $2.9 million at age 62. Let us know if you’d like us to explore this option for you. These plans can be combined with a 401(k) plan for maximum deductions.
  4. Any plan member who has compensation of over $125,000 in 2019 will be considered a “Highly Compensated Employee” for 2020. This means that their benefits need to be tested for discrimination against those of the other plan members. The compensation limit for this designation will increase to $130,000 next year, so if one earns at least that amount during 2020, they’ll be considered as an HCE for 2021. (Of course, anyone who owns more than 5% of a company, plus direct relatives, are also considered to be HCE’s, regardless of compensation.)

Metro Updates:

Tiffany Cummings recently joined our West Virginia office as an Analyst. Please join me in welcoming her to our team!

It’s that time of the Year (again)

This is your annual reminder that there are two year-end events that you should be aware of. First, those over age 70 ½ must receive their annual required payout. (“Required Minimum Distribution”). This is normally due by 12/31/19, but first-timers can elect an initial delay until 4/1/20. (But if you do delay, you’ll get two payouts during 2020.) Also, note that there is an exception for those still working who are not 5% owners. These “late retirees” need not receive any RMD until they actually retire.

Further, 1099-R forms must be sent out to all plan members who receive a 2019 payout by 1/31/20. This form is due even if the employee selects an IRA rollover, with no taxes due. If your plan is on a “platform” with a financial institution, then they normally prepare the 1099 Forms. Otherwise, we can help out.

We are sending out a mailing on these topics to our clients, but please let us know if you have any questions.

Interest Rates are down, so….

This item is about lump sums that are payable from traditional defined benefit plans. As you probably know, the higher the interest rate, the lower the lump sum. Since the interest rate is re-set every January 1 (or whatever the plan anniversary is), this can create a big change in one day. (Math people call it a “discontinuity”).

Anyway, as of 1/1/20, we expect that the new interest rate will be quite a bit less than what it was a year ago, resulting in higher lump sums. We are seeing differences of 10-15%. So, again, an employee getting a lump sum will get quite a bit more on 1/1/20 than they would have gotten 12/31/19.

Yes, we take the security and confidentiality of your data (very) seriously:

At Metro, we take the security of your data seriously. There are so many risks today for any computer that is connected to the internet that a multi-product, tiered approach is required. Here are some of the things we do to keep your data safe:

  • When we send or receive sensitive data via email, we typically use Citrix Sharefile. Sharefile is an industry-leading security software that provides end-to-end encryption, removing the data itself from the email; sending instead a link to a secure website where the data can be downloaded only by the recipient.
  • We have regular employee training on data security
  • We have a robust backup system that performs hourly backups of all data to an onsite server segregated from our regular network. In addition, we have an off-site backup.
  • Our networks are protected by best-in-class firewalls. Every bit of data that comes into our network is scanned by a gateway antivirus program before being allowed in.
  • All of our computers have monitoring and management software installed that automates all updates, and scans for problems as often as every 15 minutes, notifying our IT provider of any issues detected.
  • All of our computers have both managed antivirus and managed anti-malware software that automate updates & scanning and provide 2 tiers of real-time protection at the desktop.
  • Our office in West Virginia has an encrypted, one-to-one private network connection to allow secure access to our data.

So, the answer is “Yes”, we do take computer and data security very seriously. Please let us know if you have any questions or concerns on this topic.

Presidential Mortality

Being an actuary, who is also a presidential history buff, it won’t be a shock to find this item here. President John Tyler (who replaced William Henry Harrison, who had died after one month in office in 1841) was born in 1790. George Washington had just started as President the year before.

It turned out that Tyler’s wife passed away, so he remarried a wife who was much (much!) younger. He had kids at age 70. One of his son’s had similar circumstances.

Bottom line – as of the end of 2018, two of his grandchildren are still alive. Wow! 😊

And of Course:

Please accept our Best Wishes for a Happy Holiday Season and a Prosperous New Year from Metro 😊

Best Wishes,

David M. Lipkin, FSA, MSPA  Editor

[email protected]

(412) 847-7600

Metro Benefits, Inc. is a regional consulting firm, based in Pittsburgh, PA and Ripley, 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.