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Metro Newsletter #101

March 7, 2019

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…).

This is the Quick, pre-Spring “Update” Issue of Metro News:

Nothing too deep here. We’re busy at this time of year, and we assume that you are, too. As a result, we are just touching base on a few timely issues. Should be a quick read 😊

End of Season update  – 1099 Forms and Age 70 ½ required payouts:

Our 1099 season is basically complete. We have sent out the Forms to the plan members, and we will upload them to the IRS shortly.

Age 70 ½ required payouts are due by 4/1/19, for some people. These would be those who:

  1. Turned age 70 ½ in 2018, and
  2. Chose to not take their 2018 required payout by 12/31/18, and instead deferred it until 4/1/19.

These people will be due a second minimum required payout by 12/31/19. Please let us know if you have any questions on these issues.

Metro Updates:

We have added a new employee to our Ripley, WV team. Her name is Ronelle Flint, and she began working for us as a Pension Analyst last month.

Who Are We?

We sometimes get stuck in our daily, or annual routines when we work with you and your Plans. I wanted to step back, and take a moment and (briefly) remind you who Metro Benefits, Inc. is, and what we do.

We provide administrative services for over a thousand 401k plans. Our roles are to make sure that they are (a) well-designed, i.e., that they carefully accomplish the Employer’s goals, and (b) compliant, i.e., they are meeting the various aspects of Tax Law and IRS/DOL regulations. Sometimes the compliance aspect can be very technical and confusing.

We also provide actuarial services to defined benefit/cash balance pension plans. We assist plan sponsors in evaluating and addressing various aspects of pension risk for these (fun) plans.

When we design a plan, we typically prepare the plan document. Over time, as the regulations and laws change, we need to keep the plan document current, by amending it. The IRS requires that plan documents be restated every 6 years or so. Some plans choose to hire their own ERISA attorneys to perform this document work, and that is totally fine with us. We do make an effort to keep all of the various team members in the loop.

One thing that we do not do, nor are we ever likely to do, is provide investment advice. We leave this vital function to those properly trained to do so. We often team up with investment advisors to deliver services to a Plan.

And now, we are able to provide these services in a different way, if you wish. This gets into the topic of “3(16) Plan Administrator”. Section 3(16) of ERISA defines a role, called “Plan Administrator”. This is a legally-important role of keeping the plan straight, handling paperwork, notices, etc. Note the broad overlap between this job description and what we normally do.

To capitalize on this commonality, we are now offering “3(16) Fiduciary Services”. This would, legally, take the burden of “Plan Administrator” off of the Employer’s shoulders.  Rather than Metro preparing the work for the Employer to then “execute” it, by signing off or performing an e-transaction as “Plan Administrator”, we can simply accomplish that task ourselves, on your behalf. Let your Managing Consultant know if you’d like to learn more about the costs and benefits of this new service option.

It is also the Season for  ….

401(k) testing corrections.

Recall that, in the old days, this annual test was a really big deal for every 401k plan. It measures the difference between the rates of salary deferral for “highly compensated” employees (“HCE’s”), compared to the rank and file. If the HCE’s defer proportionately more, then they must get a refund. It used to be very exciting and hassly. What changed?

First, Congress amended the Tax Code to provide for “prior year” testing. Under this option, available to most 401k plans, the HCE’s could, for example, base their 2019 limits on the actual deferral averages of the other employees for 2018. So it’s like knowing the answer to the test before it even starts. (That being said, we still have plans that fail the test even knowing this information.)  This prior year option is selected in the plan document.

The other (big) improvement that Congress made was the creation of the “Safe Harbor” 401k. Under this arrangement, the Employer makes a 3% of pay, fully vested contribution for all eligible plan members. (This can also be done via a generous match, instead.) A Safe Harbor plan gets a free ride on discrimination testing, hence its popularity. We have lots of these.

So, back to the beginning of this topic. Any 401k plans that are not Safe Harbor, must have their 2018 testing done by 3/15/19. If the tests are failed, then a refund must be made to the HCE’s by that date. Otherwise, the Company will need to pay an excise tax on the excess. (An “excess excise”?). Further, the IRS regards it as a very serious violation if the excess is not corrected within 12 months after the plan year; it could disqualify your plan, taking away the tax benefits.  

And, finally ….

A new baseball season is upon us. Go Pirates!  I don’t think it is a coincidence that the home opener this year is on April Fool’s day. But I am pretty sure that we can be hopeful for something?

Let me know what you are hoping for!

Best Wishes,

David M. Lipkin, FSA, MSPA  Editor
[email protected]fits.com
(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.