| ...from the HR Perspective |
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| Human Resource Update |
May 2014
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We Are Not Alone
We are a member of GAPS (Global Association Pension Services), an international organization headquartered in the Netherlands with member firms in the EU and the Americas. Through GAPS each member firm has the ability to provide international benefit and human resource services such as actuarial certifications and valuations (both funding and financial), defined contribution, defined benefit and welfare plan design, communications and administration. Some member firms provide an even wider range of services including but not limited to executive compensation design, third country national plans, off shore plans, management structure and organizational effectiveness. GAPS was formed in 2009, our firm was one of the founding members and I am a member of the Steering Committee.
New laws and regulations are regular discussion subjects at every GAPS membership meeting. Governmental involvement in retirement and other benefit plans has become a recurring event. The US has led the world in retirement plan legislation with laws and regulations occupying many thousands of pages. Perhaps the relative ease with which a well-intentioned and politically popular laws may be passed in the US contributes to the glut of rules.
Looking at other countries in a broad general manner, laws may be sparser and permit more design flexibility. Discrimination testing is usually either more lax or non-existent. Limits may or may not exist, and if so are usually imposed for tax reasons and not for altruistic or social engineering reasons. However, that may be changing. From time to time we will be including articles written by other GAPS members relating important changes occurring in their countries. We have included two articles in this newsletter:
PPF To The Rescue? An insightful article from Quantum Advisors in the UK about the PPF's (Pension Protection Fund) involvement in corporate insolvencies and restructuring. The PPF is the UK equivalent of our PBGC (Pension Benefit Guaranty Corporation); and
Netherlands Pension Proposal A sound review by Baker Benefit Consultants in the Netherlands about the introduction of a limit on the amount of pay that may be used in calculating retirement benefits, and decreases in permissible yearly benefit accrual rates.
As you will see, we are not alone in the challenges faced in retirement plan design, valuation and administration. In regard to complexity and scope, other countries are catching up to the US, may pass us, and some have rules that we have yet to think of.
A final comment about the ever changing law/regulation landscape - this newsletter covers changes to rollovers, HSA limits, special enrollments for healthcare, PBGC premium payments and updated COBRA notices. The US is trying to maintain its position as the legislative leader!
We would be pleased to assist you with your human resource, benefit, compensation and other challenges here and in other countries through our GAPS affiliates! Please call if we may be of assistance.
Sincerely,
Michael F. Yates,
President
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If you find value in this newsletter please let us know. Feel free to call me with a comment and/or ask a question at any time (908-689-4200) or send me an email (myates@mfyco.com). We offer this timely information as another benefit of your relationship with our company. If you feel a friend or colleague would benefit from receiving our newsletter, please feel free to forward a copy.
You can view all of our newsletters by clicking the 'newsletter archives' link at our company website www.mfyco.com. |
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PPF (UK) To The Rescue?
Victoria Cook of QUANTUM ADVISORY, UK
The Pension Protection Fund (PPF) has been involved in a number of UK restructuring and insolvency negotiations recently which has led to more scrutiny due to the high-profile nature of these cases. This has resulted in an often misleading view of their role in these deals and speculation as to when they might enter into one.
Malcolm Weir, Head of Restructuring and Insolvency for the PPF, recently delivered a message to clarify their position and the extreme circumstances in which they may consider entering into a restructuring or rescue attempt.
Rescue attempts
In some cases the PPF becomes involved in the restructuring (or rescue) of a business that is moving toward insolvency in the hope that the pension scheme will be better off than if the business ceased to continue. This process usually involves removing the pension scheme liability from the company so that the company can continue to operate. The PPF are keen to emphasize that they will only partake in such 'rescue attempts' under strict conditions.
The conditions
The employer's insolvency must be inevitable - i.e. if a deal was not made then the pension scheme would fall into the PPF anyway and the levy payers would fund the deficit.
The pension scheme will receive money or assets which they would not have received under insolvency - e.g. a substantial cash sum.
What the pension scheme is offered in the deal is fair compared to what other creditors and shareholders will receive.
The pension scheme receives an equity share in the company of:
- 10% if the future shareholders are not currently involved in the company
- 33% if the future shareholders are currently involved in the company
The scheme would not have been better off if the Pensions Regulator issued a contribution notice or financial support directive.
The bank charges must be reasonable if refinancing is involved - otherwise this could negate the positives of negotiating the deal.
Legal fees are paid by the other party for the trustees and the PPF.
The cash sum and the equity share would be used to fund compensation payments.
In short, if the deal did not go ahead then the PPF would be worse off, and the deficit would have to be funded by the PPF levy payers.
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Rollovers to Qualified Plans
(IRS Revenue Ruling 2014-9)
On April 21, 2014, the IRS issued guidance on Rollovers to Qualified Plans (Revenue Ruling 2014-9). Rev Rul 2014-9 provides two new safe harbors for plan administers of plans receiving direct rollovers from other plans or from an employee's IRA to use to satisfy the due diligence requirements of IRC section 401(a)(31). The Rev Rul provides that absent any evidence to the contrary, it is reasonable for the plan administrator of the receiving plan to conclude that the potential rollover contribution is a valid rollover contribution by using the applicable safe harbor. Both safe harbors assume that the administrator or trustee for the distributing plan or IRA has communicated the source of the funds, either by a notation on the check or check stub, or by other means in the case of an electronic transfer.
· Plan to Plan Direct Rollovers. An administrator of the receiving plan may reasonably rely on EFAST2 Form 5500 series filings by the distributing plan in evaluating whether the distributing plan is a qualified plan for rollover purposes. The EFAST2 data base is maintained by the Department of Labor (DOL) at www.efast.dol.gov, and it can be searched for the most recently filed Form 5500 for the distributing plan. On that filing, if line 8a does not include code 3C (for a plan not intended to be qualified under IRC sections 401, 403 or 408), the administrator for the receiving plan may assume the distributing plan is qualified if there is no information to the contrary. Further, the administrator of the receiving plan may reasonably assume that any required minimum distribution amount for the year of transfer was distributed before the rollover.
· IRA to Plan Rollovers. An administrator of a receiving plan could reasonably conclude that the source of funds was an employee's noninherited traditional IRA where, the check or the check stub identified the source of the funds as the employee's IRA. An administrator of the receiving plan could also reasonably conclude the amount in question was intended as a rollover contribution if the check was made out to the trustee for the plan for the benefit of the employee. Further, if the employee certifies that the distribution included no after-tax amounts, and that he/she would not reach age 70.5 by the end of the year during which the transfer occurs, it would be reasonable for the administrator to conclude that the distribution could be rolled over. However, if the employee cannot certify that he/she will not reach age 70.5 by the end of the year of transfer, the administrator of the receiving plan may not treat the distribution as a valid rollover without obtaining further information regarding the status of the required minimum distribution.
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Invitation to MFYCO Facebook
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Netherlands Pension Proposal
Baker Benefit Consultants, Netherlands
On January 1, 2015 or shortly thereafter the current proposal with regard to further reduction on fiscally maximum allowed pension accrual comes into effect. This applies to both Defined Benefits as well as Defined Contribution plans. Also a maximum pensionable salary will be introduced. Schematically, this means:
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Pensionable Salary
€100,000 adjusted with inflation
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System
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Maximum Yearly Accrual Rate
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2014
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2015
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Age
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Age
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65
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67
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65
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67
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Final Pay
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1.63%
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1.90%
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1.422%
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1.657%
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Average Pay
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1.84%
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2.15%
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1.605%
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1.875%
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Defined Contribution
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Age Dependent
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Age Dependent-decrease of ~13%
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Fiscal pension framework on Defined Benefit pension plans
The maximum accrual rates for a final pay or an average pay pension plan based on a normal retirement age of 67 are officially published. The maximum accrual rates based on a plan retirement age of 65 are an estimate.
Fiscal pension framework on Defined Contribution pension plans
New age related DC-tables will be presented later. In line with the austerity at Defined Benefit pension plans the maximum DC-table will be approximately 13% lower for each age category.
Introduction of a maximum pensionable salary
If applicable, the biggest change in the proposal is the introduction of a maximum pensionable salary cap for fiscal friendly pension accrual. For the year 2015 the cap is set at € 100.000. This cap will be indexed yearly and will be in use for all type of pension plans. The cap will most probably not be used on the additional disability pension provided by the employer.
For further pension accrual over the salary part above the cap employees could use additional pension products financed out of net salary. For example, if someone purchases a net annuity, tax has been paid upfront on the premium, so the future payments will be free of tax. If your company employs many high-earners who could and would like to make use of this possibility, under certain restrictions it is possible to create a 'group net pension savings arrangement' to provide economy of scale advantages to the employee. Participation in such a group is voluntary based.
Whether net pension products will achieve much popularity will be the question. Net pension accrual only offers small fiscal advantages, probably not enough to cover the cost loadings charged by the insuring party. An alternative for the high-earners is to invest the money themselves or use it to repay part of their mortgage.
A consequence of the introduction of a maximum pensionable salary could be that employees with an income above the cap will ask for a salary compensation equivalent to the savings made by your company. Also these employees could have a need for an additional death cover. Together with you we can examine what additional arrangements are desired for your company.
Questions
The new legislations calls for questions. Some questions which might occur are:
* What could and should I change as an employer?
* What do the changes mean for pension cost and pension accrual?
* Is a cost neutral solution possible?
* Is it necessary to search for (pension) compensating measures?
* Do I have to offer a group arrangement to provide economy of scale advantages to my employees?
* Does offering an additional pension product fits the employer´s policy?
* What do I need to communicate towards the employees concerned?
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2015 HSA Limits for Contributions and Deductibles
The Internal Revenue Service recently announced, in Revenue Procedure 2014-30, higher 2015 limits on contributions to health savings accounts (HSAs) and for out-of pocket spending under high-deductible health plans (HDHPs) linked to them. The higher limits reflect a cost of living adjustment and rounding rules under Internal Revenue Code Section 223. The limits are as follows:
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2015 Contribution and Out of Pocket Limits for HSAs and HDHPs
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New Limit
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Increase from 2014
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HSA Contribution Limit (employer + employee)
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Individual:
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$3,350
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$50.00
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Family:
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$6,650
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$100.00
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HSA Catch Up Contribution (Age 55 or older)
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$1,000
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No Change
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HDHP Minimum Deductibles
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Individual:
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$1,300
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$50.00
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Family:
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$2,600
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$100.00
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HDHP Maximum Out of Pocket Amounts (excludes premiums)
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Individual:
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$6,450
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$100.00
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Family:
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12,900
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$100.00
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We invite you to share our newsletter. (It's a lot to think about!)
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Special Enrollment Periods
On May 2, 2014 Health and Human Services (HHS) released a bulletin on special enrollment periods and hardship exemptions for persons meeting certain criteria. The four areas addressed are: hardship exemption for persons who obtained coverage that was effective as of May 1, 2014, special enrollment periods for individuals eligible for or enrolled in COBRA, special enrollment periods for individuals whose individual market plans are renewing outside of open enrollment and special enrollment periods for hardship exemptions for AmeriCorps/VISTA/National Civilian Community Corps members. In this article we will be addressing individuals eligible for or enrolled in COBRA.
Special Enrollment Periods for Individuals Eligible for or Enrolled in COBRA
COBRA gives group health plan participants and beneficiaries the right to choose to continue their group health coverage for limited periods under certain circumstances such as termination of employment, reduction in hours worked, transition between jobs, death, divorce, and other life events, known as a qualifying event. See ERISA §601-608.
Special enrollment periods apply to qualified health plans (QHP) [an insurance plan that is certified by the Health Insurance Marketplace, provides essential health benefits, follows established limits on cost-sharing (like deductibles, copayments, and out-of-pocket maximum amounts), and meets other requirements], in the Marketplace to persons eligible for COBRA when (1) such persons initially are eligible for COBRA due to a loss of other minimum essential coverage; and (2) when such persons' COBRA coverage is exhausted. In addition, COBRA beneficiaries are able to choose QHPs in the Marketplace during the annual open enrollment period and if they are determined eligible for any other special enrollment periods outside of the open enrollment period.
As a result of HHS' concern that former COBRA Notices did not address or did not sufficiently address, Marketplace options for persons eligible for COBRA and COBRA beneficiaries, HHS is providing an additional special enrollment period based on exceptional circumstances so that persons eligible for COBRA and COBRA beneficiaries are able to select QHPs in the Federally-facilitated Marketplace (FFM).
Affected individuals have until July 1 (60 days from date of bulletin) to select QHPs in the FFM. Individuals should contact the Marketplace call center at 1-800-318-2596 to activate the special enrollment period. When calling they should notify the Marketplace call center that they are calling about their COBRA benefits and the Marketplace. Once determined eligible, consumers can then view all plans available to them and continue the enrollment process over the phone or online through creating an account on healthcare.gov or logging into their existing account.
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Call: 908-689-4200 to contact a
MFYCO professional consulting associate.
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PBGC's New Premium Payment Rules
The Pension Benefit Guaranty Corporation (PBGC) has amended its premium payment rules beginning in 2014. Under the new rules, a plan must submit a premium filing even if it doesn't the PBGC a premium payment.
Here are the highlights of the changes to PBGC's premium payment rules:
· Due dates for many plans are changed. Under the new rules, the normal premium due date is the 15th day of the 10th full calendar month in the plan year - generally October 15th for calendar year plans. For small plans, the pre-2014 due date was the last day of the 16th full calendar month after the end of the plan year before the one for which the premiums were being made (April 30th for small calendar year plans). Since, the difference between the pre-2014 and the new due date may be problematic for small plans, the PBGC has issued a transition rule for these plans.
· Change in variable rate premiums calculation. Before the rule change, small plan variable rate premiums were based on the current year's unfunded vested benefits. Under the new rule the small plan variable rate is based on the previous year's unfunded vested benefits. Small plans may opt out of the lookback rule for 2014 and thereafter.
· Change in variable rate premiums. The new variable rate premium per $1,000 of unfunded vested benefits is $14 - up from $9.
· Change in MAP-21 Variable Rate. The new MAP-21 cap on the variable rate premium cap is $412 times the number of participants - up from $400.
· Change in flat rate premium. The new per participant flat rate premium rate for single employer plans is $49 - up from $42. The per participant flat rate premium rate for multi-employer plans remains at $12.
· Premium payments can be made electronically.
· Change to e-filing procedures. Under the new rules a plan administrator can certify an e-filing manually, rather than having to do so electronically by signing onto the My PAA website.
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What would you like to see in a future issue?
Contact our office with your suggestions.
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Updated COBRA Notices
On May 2, 2014, as part of the implementation of various provisions of the Affordable Care Act (ACA), the Department of Labor (DOL) released updated model General and Election Notices for COBRA.
Under COBRA, an individual who was covered by a group health plan on the day before a qualifying event (e.g. termination of employment) may be able to elect COBRA continuation coverage. Individuals with such a right are referred to as qualified beneficiaries. Group health plans must provide covered employees and their families with the General Notice explaining their COBRA rights. A group health plan must also provide an Election Notice which explains their rights to COBRA coverage and how to make an election. The model general notice briefly discusses the Health Insurance Marketplace (HIM) coverage option and the election notice includes what the HIM is and how to enroll and what to consider when choosing coverage.
General Notice
The General Notice must be furnished to each covered employee and their spouse if covered under the plan not later than the earlier of (1) 90 days from the date on which the covered employee or spouse first becomes covered under the plan or (2) the date on which the administrator is required to furnish an election notice to the employee or to his or her spouse or dependent. The General Notice is required to include:
· The name of the plan and the name, address, and telephone number of someone whom the employee and spouse can contact for more information on COBRA and the plan;
· A general description of the continuation coverage provided under the plan;
· An explanation of what qualified beneficiaries must do to notify the plan of qualifying events or disabilities;
· An explanation of the importance of keeping the plan administrator informed of addresses of the participants or beneficiaries; and
· A statement that the general notice does not fully describe COBRA or the plan and that more complete information is available from the plan administrator and in the plan's summary plan description (SPD).
Election Notice
The election notice must be provided to the qualified beneficiaries within 14 days after the plan administrator receives notice that a qualifying event has occurred. The election notice is required to include:
· The name of the plan and the name, address, and telephone number of the plan's COBRA administrator;
· Identification of the qualifying event;
· Identification of the qualified beneficiaries (by name or by status);
· An explanation of the qualified beneficiaries' right to elect COBRA continuation coverage;
· The date coverage will terminate (or has terminated) if COBRA continuation coverage is not elected;
· How to elect COBRA continuation coverage;
· What will happen if COBRA continuation coverage isn't elected or is waived;
· What COBRA continuation coverage is available, for how long, and (if it is for less than 36 months), how it can be extended for disability or second qualifying events;
· How COBRA continuation coverage might terminate early;
· Premium payment requirements, including due dates and grace periods;
· A statement of the importance of keeping the plan administrator informed of the addresses of qualified beneficiaries; and
· A statement that the election notice does not fully describe COBRA or the plan and that more information is available from the plan administrator and in the plan's SPD.
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2014 Retirement Plan Limits
(All limits are based on the calendar year. )
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2014
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2013
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Maximum Annual Defined Benefit
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$210,000
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$205,000
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$200,000
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Maximum DC Annual Addition ($$)
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$52,000
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$51,000
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$50,000
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Maximum 401(k) Deferrals
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$17,500
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$17,500
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$17,000
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Older EE Catch-Up Contribution
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$5,500
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$5,500
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$5,500
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Maximum Plan Compensation
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$260,000
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$255,000
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$250,000
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Highly Compensated Threshold
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$115,000
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$115,000
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$115,000
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Key Employee in a Top-Heavy Plan
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$170,000
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$165,000
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$165,000
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SSA Social Security Wage Base
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$117,000
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$113,700
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$110,100
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PBGC Maximum Monthly Guarantee*
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$4,943.33
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$4,789.77
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$4,653.41
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PBGC Maximum Annual Guarantee*
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$59,320
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$57,477.24
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$55,840.92
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Maximum DC Annual Addition (%)
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100%
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100%
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100%
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Social Security Tax - Employee
Social Security Tax - Employer
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6.2%
6.2%
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6.2%
6.2%
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4.2%
6.2%
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Medicare Tax
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1.45%
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1.45%
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1.45%
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DC Plan Deduction Limit
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25%
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25%
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25%
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Definition of Compensation for DC
Plan Deduction Limit
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Includes Deferrals
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*Life Annuity at age 65
If you have not received our business card with these numbers printed on it and would like one, please let us know! We would be happy to mail you one (or a few to share!)
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about MFYCO ...
- Michael F. Yates & Company, Inc. can help you with a variety of services ranging from retirement plans to providing results-oriented survey instruments, training and development programs for your employees. Our products and services are intended to help you maximize the effectiveness of your Human Resources function.
- These products and services incorporate our years of experience so that you receive rapid results and exceptional value. From onsite consulting, to strategic business integration, to Web enablement, we understand how Human Resources can be applied to solve your problems and achieve your goals. As a result, we can help you get the most out of your investment and turn your most precious resource into a competitive advantage.
- We offer Consulting, Retirement Planning, Pension and 401(K) both qualified and non qualified Plans, Welfare Plans, Communications, Computer Systems, Executive Plans, Compensation, Mergers, Acquisitions, Divestitures and Other Services.
We offer a true and honest, Client Partnership.
Take the Michael F. Yates & Company, Inc. challenge! Call us today ... 908-689-4200
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How to Track Government Recovery Spending
"The Board shall establish and maintain...a user-friendly, public-facing website to foster greater accountability and transparency in the use of covered funds. The website...shall be a portal or gateway to key information relating to the Act and provide connections to other government websites with related information."
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Michael F. Yates & Company, Inc.
_________________
101 Belvidere Avenue
P.O.Box 7
Washington, NJ 07882-0007
908-689-4200
fax: 908-689-6300
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Our staff and firm are proud members
of the following professional organizations:
Society of Actuaries
American Society of Pension Professionals & Actuaries
Society for Human Resource Management
GAPS (Global Association Pension Services)
WorldatWork
American Management Association
National Federation of Independent Business
Better Business Bureau
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The site ("from the HR perspective" hence herein referred to as MFYCO.com) is made available by Michael F. Yates & Company Incorporated. All content, information and software provided on and through 'from the HR perspective' and MFYCO.com ("Content") may be used solely under the following terms and conditions ("Terms of Use".)
YOUR USE OF THIS WEBSITE CONSTITUTES YOUR AGREEMENT TO BE BOUND BY THESE TERMS AND CONDITIONS. IF YOU DO NOT AGREE TO THESE TERMS, YOU SHOULD IMMEDIATELY DISCONTINUE YOUR USE OF THIS SITE.
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"Human Resources provides the leadership, supportive services, guiding principles, policies, structures and standards needed for a quality organization to survive in today's business environment."
MFYCO PRIVACY POLICY
Michael F. Yates & Company, Inc.
believes strongly in protecting the privacy of its users.
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Concluding Note
As always, any statements regarding federal tax law contained herein are not intended or written to be used, and cannot be used, for the purposes of avoiding penalties that may be imposed under federal tax law or to market any entity, investment plan or arrangement. |
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