PLANSPONSOR - February/March 2018 - 8

Compliance Update
Summaries of the latest news from Washington and the courts-what's coming,
what's contemplated and what's critical for plan sponsors to know
Budget Provisions
Affecting Plans
There are several provisions in the
Bipartisan Budget Act of 2018 that affect
retirement plans: If the Internal Revenue
Service (IRS) has levied a participant's
employer-sponsored retirement account
or individual retirement account (IRA)
and subsequently returned the money
and interest, the bill allows for the person
to recontribute the amount to the retirement
plan or IRA. The contribution will
be treated as a rollover and the interest
treated as earnings within the plan. The
plan or IRA must permit rollovers, and
the contribution must be made no later
" than the due date (not including extensions)
for filing the return of tax for the
taxable year in which such property or
amount of money is returned. " The rule
regarding the allowance of repayment
of a levy applies to 401(k), 403(b) and
457 plans; it is effective for taxable years
beginning after December 31, 2017. The
bill also calls for the secretary of Treasury
to amend regulations to delete the sixmonth
prohibition on contributions to
a retirement plan following a hardship
withdrawal. The allowance of hardship
withdrawals is also extended in the bill
to: contributions to a profit-sharing or
stock bonus plan; qualified nonelective
contributions (QNECs) and qualified matching contributions
(QMACs); and earnings on the contributions now allowed. The
bill provides relief from the early withdrawal penalty on distributions
of up to $100,000 from an employer plan for victims of
California wildfires. It, further, calls for creation of a joint select
committee to solve the multiemployer pension crisis.
Fidelity Stable Value Fund Suit
A federal appellate court has affirmed the dismissal of a lawsuit
alleging that Fidelity Trust Co. offered and mismanaged a stable
value fund for its own benefit rather than that of 401(k) plan
participants. The suit, Ellis v. Fidelity Management Trust Co.,
accused Fidelity of engaging in imprudent investment strategies
8 PLANSPONSOR.com February-March 2018
The bill also calls
for the secretary
of Treasury
to amend
regulations to
delete the sixmonth
prohibition
on contributions
to a retirement
plan following
a hardship
withdrawal.
for the Fidelity Group Employee Benefit
Plan Managed Income Portfolio
Commingled Pool (MIP), a stable value
fund offered as an investment option
in some 401(k) plans for which Fidelity
was trustee. According to the 1st U.S.
Circuit Court of Appeals opinion, in the
wake of the 2007 through 2008 financial
crisis and the ensuing economic
decline, Fidelity fund managers
expressed concern about the availability
of wrap insurance for the company's
various funds, including the MIP,
going forward. Further, the 1st Circuit
pointed out, during the years covered
by the lawsuit, the MIP fully achieved
its objective of preserving the investors'
capital. The rate of return (ROR)
they earned, however, lagged behind
that from many other stable value funds
offered by competitors. The court noted
that markets did improve, that the added
safety turned out not to be required, and
that competitors whose investments
were more aggressive achieved both
asset protection and higher returns. But
fund managers make different predictions
about future market performance,
and the differences ultimately generate
a distribution curve of returns as some
funds do better than others.
California Proposal Seeks Shift
From Public DB to DC
Under a new bill in the California legislature, that state's human
resources (HR) department would administer and oversee a
defined contribution (DC)-type program for state employees,
redirecting matching contributions that otherwise would be
paid into the state pension system. California State Senator
Steve Glazer introduced S.B. 1149 in February to allow new state
employees the choice to opt out of pension plan benefits and
instead choose a " self-directed and portable retirement plan. "
Glazer says the bill would provide for matching contributions at
the same level the state now contributes to the California Public
Art by Julie Benbassat
http://www.PLANSPONSOR.com
PLANSPONSOR - February/March 2018

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