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EBSA Assistant Secretary of Labor
The U.S. Department of Labor (DOL) has a new head of the
Employee Benefits Security Administration (EBSA) in Preston
Rutledge-the former senior tax and benefits counsel on the
Majority Tax Staff of the Senate Finance Committee, and top aide
to Republican Senator Orrin Hatch, R-Utah. The role of head of
EBSA, formally called the assistant secretary of labor for the
Employee Benefits Security Administration, puts Rutledge at the
helm of one of the lead regulatory bodies tasked with policing the
tax-qualified retirement investing industry. Rutledge will play a
lead role in determining what the Trump administration will do
with the major Obama-era DOL fiduciary rule expansion.
Tax Bill Impacts Provisions of ERISA Plans
The Tax Cuts and Jobs Act, signed by President Donald Trump
on December 22, makes some changes to Employee Retirement
Income Security Act (ERISA) plans, nonqualified deferred
compensation (NQDC) plans and employer-sponsored 529
plans. Currently, terminated employees have 60 days to roll over
an outstanding loan balance to an individual retirement account
(IRA) to avoid having the loan treated as taxable income. The
tax bill extends this period up to the due date for filing their
tax returns. With respect to NQDC plans, the bill modifies the
definition of a " covered employee " at a publicly traded company,
for whom an annual deduction up to $1 million applies. A
covered employee includes the principal executive officer,
principal financial officer and the three highest-compensated
employees during the tax year. Further, if an individual was a
covered employee at a company in a taxable year after December
31, 2016, he will be considered a covered employee for all future
years. In addition, a tax-exempt organization will be subject to
a 21% excise tax on income in excess of $1 million paid to its
highest-paid employees, and any parachute payment defined as a
payment exceeding three times the average annualized compensation
for the five years preceding separation of service. With
regard to transfer of employer stock to an employee in connection
with his performance, the employee may defer, for income
tax purposes, the income attributable to the stock, but this must
be done no later than 30 days after the stock is vested or becomes
transferable, whichever comes first. College savings plans are
amended to permit 529 account owners to take a $10,000 distribution
each year and apply it not just to college expenses but also
to public, private or religious elementary or secondary schools.
Larger Automatic IRA Cash-Outs
The Retirement Plan Modernization Act, a House bill with bipartisan
support, seeks to make it easier for small businesses to offer
retirement plans while also maintaining important flexibility and
cost efficiency. As laid out in the text of the short bill, H.R. 4158
seeks to help small businesses better manage the administrative
expenses of retirement plans by providing an update to the
automatic individual retirement account (IRA) rollover limit for
former employees' assets. Under current law, automatic IRA rollovers
occur if a participant is no longer employed by the employer
sponsoring the plan and his balance is between $1,000 and
$5,000. Congress has periodically adjusted the cash-out limit over
the years to reflect increasing costs of administration; however,
the last time the limit was updated was 1997. The Retirement
Plan Modernization Act would raise the automatic rollover limit,
based on the rate of inflation, from $5,000 to $7,600 and allow for
future increases to, similarly, be indexed for inflation.
DOL Delays Full Implementation Again
The Department of Labor (DOL) has decided to delay implementation
of the special transition period for the fiduciary rule's best
interest contract exemption (BICE) and the principal transactions
exemption, plus of the applicability of certain amendments
to prohibited transaction exemption (PTE) 84-24, for 18 months,
from this January 1 to July 1, 2019.
Maximum Taxable Wages Reduced
The Social Security Administration (SSA) has reduced the
maximum amount of earnings subject to Social Security tax
for 2018 to $128,400 from $128,700. The agency said the lower
taxable maximum amount is due to corrected W-2 forms it
received in late October from a national payroll service provider.
The Internal Revenue Service (IRS) uses the Social Security
Administration's taxable maximum to determine the taxable wage
base for permitted disparity in defined contribution (DC) plan
contributions. Permitted disparity allows for larger contributions
or benefits with respect to compensation in excess of the Social
Security wage base. The IRS issued Revenue Ruling 2017-22 on
November 14, which set the wage base at $128,700. It is expected
this will be amended following the SSA's new announcement.
IRS Issues Mortality Rates, Tables for 2019
The Internal Revenue Service (IRS) has issued Notice 2018-02,
which specifies updated 2019 mortality improvement rates and
static mortality tables to be used for defined benefit (DB) plans
under Section 430(h)(3)(A) of the Internal Revenue Code (IRC)
and Section 303(h)(3)(A) of the Employee Retirement Income
Security Act (ERISA). The updated rates and static tables apply
for purposes of calculating the funding target and other items for
valuation dates occurring during calendar year 2019. The notice
also includes a modified unisex version of the mortality tables
for determining minimum present value under Section 417(e)(3)
of the IRC and Section 205(g)(3) of ERISA for distributions with
annuity starting dates that occur during stability periods beginning
in the 2019 calendar year. -PS
For in-depth coverage of these topics and more
go to plansponsor.com/compliance.
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