ben hartsock, counsel, discover financial services october ... · student loan repayment benefits...

Welcome

Let’s Chat: When Should I Contact Benefits Counsel?

October 4, 2018

Let’s Chat: When Should I Contact Benefits Counsel?

▪ There are NO stupid questions ….

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Considerations

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▪ ERISA ▪ HIPAA▪ COBRA▪ QDRO▪ 409A▪ QDIA▪ 5500▪ EBSA▪ QMAC▪ QNEC▪ 280G▪ IRA▪ SPD▪ ACA / PPACA▪ SMM

▪ SBC▪ WHCRA▪ 1094 & 1095▪ HSA▪ MEP▪ PBGC▪ IRS▪ EOB▪ MCSO▪ CHIPRA▪ SAR▪ 402(g)▪ MEWA▪ HMO▪ FSA

▪ MRD▪ DOL▪ 162(m)▪ EPCRS▪ 401(k)▪ TPA

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Analyze the Situation / Risk Assessment

▪ Scope▪ Impact▪ Potential Penalties / Damages▪ Possible Mitigants▪ Objectives

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Common Issues Reviewed by ERISA Counsel

▪ Plan Amendments▪ Claims and Appeals Procedures▪ ERISA Document Requests▪ Plan Communications▪ New Regulations▪ Vendor Contracts▪ Regulatory Audits▪ Plan Corrections▪ Fiduciary Governance▪ ETC., ETC., ETC.

ERISA

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A New Option: Employer-Provided Student Loan Benefits

Jeffrey Holdvogt, PartnerMcDermott Will & EmeryOctober 4, 2018

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Student Loan Repayment Benefits

▪ Student loan benefits gaining significant traction in recent years

▪ Tool to attract and retain talent– Easy to understand– Student loan debt = significant problem, particularly for

younger employees with advanced degrees

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Student Loan Repayment Benefits (cont.)

▪ Appeals to recent graduates with high student loan debt that prevents or inhibits them from contributing to retirement plan– Benefit tied to retirement plan can get employees started in

retirement plan

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Student Loan Benefit Options

▪ Benefit may involve loan refinancing/consolidation, or additional benefits to incentivize student loan repayment

▪ Student loan reimbursements – taxable direct payments on bonuses

▪ Retirement Benefits – contributions to tax-qualified retirement plan designed to incentivize student loan repayment

▪ Reimbursements directly from retirement plan?

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Options for Retirement Plans

▪ Consider an employer contribution to the 401(k) plan that is tied to an employee’s student loan repayments– Provide additional benefit or reallocate existing/available

dollars that would have been spent on the 401(k) plan matching contribution

▪ Student loan repayment benefit must be carefully considered and structured to avoid compliance concerns and technical traps for the unwary

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Options for Retirement Plans (cont.)

▪ Employer must ensure nondiscrimination testing compliance for both new contribution and 401(k) plan matching contributions

▪ Need a policy or procedure to verify the loan repayments before making special non-elective contribution– Outside vendor often appropriate to track and verify student

loan repayments

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Recent IRS Private Letter Ruling

▪ Employer may make a non-elective (profit-sharing type) contribution to the 401(k) plan for employees making student loan repayments– In this sense, the contribution could be thought of as “matching”

student loan contributions, although the contribution is not tied to whether or not the employee makes contributions to the 401(k) plan▪ Does not trigger anti-conditioning rule because contribution not conditioned

on employee electing to make or not make 401(k) contributions

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Recent IRS Private Letter Ruling (cont.)

▪ The contribution could be offset by making employees who receive it ineligible for the 401(k) plan matching contribution

▪ The contribution is subject to nondiscrimination testing in order to avoid potential concerns over discrimination in favor of highly compensated employees (HCEs)

▪ Making employees who receive the contribution ineligible for the 401(k) plan matching contribution may also negatively impact ACP test due to loss of non-HCEs receiving matching contributions

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Example

▪ Employer implements a payroll-deduction program to repay student loans (for proof that loans are being paid) and provides a special non-elective contribution equal to 100% of each repayment, up to 3% of an employees’ pay per pay period (i.e., equal to the 401(k) plan match of 100% up to 3% elective deferrals)

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Example (cont.)

▪ The 401(k) plan is amended to provide that employees receiving the special non-elective contribution receive the 401(k) plan match only to the extent the non-elective contribution does not reach 3% of pay

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Example (cont.)

Outcomes:1. An employee who makes a loan repayment of 3% or

more receives the special non-elective contribution of 3% of pay (but no 401(k) plan match)

2. An employee who does not make a loan repayment, but makes elective deferrals of 3% or more, will receive the 3% 401(k) plan match

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Challenges with Student Loan Retirement Benefits

▪ Challenge in finding appropriate vendor and procedures to refinance student loans or track and verify payments

▪ If providing a 401(k) plan benefit, structuring benefit to ensure compliance

▪ Communicating new benefit to participants

Rules of the Game: Best Practices for Your Investment Policy Statement

October 4, 2018

Committee Duties

▪ Prudence▪ Loyalty and Impartiality▪ Diversification▪ Monitor and Supervise▪ Ensure Reasonable Plan Costs▪ Avoid Prohibited Transactions

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If It Is Not Written Down…

Committee Documentation▪ By-Laws or Charters▪ Plan and Trust Documents▪ Meeting Reports or Minutes▪ Investment Policy Statement

…It Did Not Happen

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Investment Policy Statement (IPS)What is it?▪ A document that outlines the roles, responsibilities, and

processes for overseeing the plan investment menu▪ The IPS helps to address the following:

– Who is responsible?– The process of selection– The process of monitoring– The process of replacing

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Investment Policy Statement (IPS) (cont.)

Why is it important?▪ The IPS is an integral part of fiduciary risk management.

The document clearly outlines the procedures for selecting plan investments, the process for monitoring plan investments and the process for making decisions

▪ The document provides an outline of prudent processes to be used for plan investment oversight by the plan fiduciaries

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Process for Development▪ Framework▪ Flexibility▪ Objective Components▪ Subjective Components▪ Actionable Outcomes

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Core Components ▪ Statement of Purpose ▪ Policy Goals & Objectives ▪ Roles & Responsibilities

– The Company or Plan Committee as Fiduciary– Investment Consultant/Advisor

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▪ Plan Investment Asset Classes ▪ Investment Selection ▪ Investment Evaluation ▪ Replacement of Selected Investment Options ▪ Conclusion

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Unique Considerations▪ Qualified Default Investment Alternatives

– Stable Value– Target Date Funds

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▪ Defined Benefit Plan– Asset Allocation– Desired Return– Funded Status and Plan Goal

▪ Nonqualified Plan▪ Fee Policy

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Ongoing Monitoring ▪ Compare performance to framework▪ Review the framework based on the following

changes– Plan structure– Plan goals– Committee member or structure

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– Advisor or service partner change– Service offering change (3(21) vs 3(38))

▪ Update and document as needed

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What’s Happening in Washington?

Emily Rickard, AssociateMcDermott Will & EmeryOctober 4, 2018

▪ Two primary laws – Internal Revenue Code (the “Code”)– Employee Retirement Income Security Act of 1974

(“ERISA”)

What Governs Benefit Plans?

What Governs Benefit Plans? (cont.)

▪ Four primary agencies – Department of Labor (DOL) – Internal Revenue Service (IRS) – Pension Benefit Guaranty Corporation (PBGC)

▪ Primarily affects defined benefit plans

– Department of Health and Human Services (HHS)

What’s New?

▪ No More “Fiduciary Rule”▪ Compliance Changes – Some Plan Amendments Required!▪ Uses of Forfeitures▪ Association Health Plans▪ Executive Order on Retirement Policy▪ “Tax Cuts 2.0”▪ Focus on Cybersecurity

What’s New? No More “Fiduciary Rule”

▪ Chamber of Commerce of the USA v. U.S. DOL(Mar. 15, 2018) vacated the fiduciary rule – DOL’s expansion of the statutory term “fiduciary” not

authorized under ERISA▪ DOL did not appeal ruling

– Field Assistance Bulletin 2018-02 creates safe harbor

What’s New? No More “Fiduciary Rule” (cont.)

▪ Securities Exchange Commission (SEC) rulemaking– “Best Interest Standard”– Not just those that handle retirement assets

▪ Review vendor contracts!

What’s New? Compliance Changes

▪ Plan and Administrative Document Revisions– Changes to Hardship Withdrawal Paperwork

▪ Code Section 165 “casualty loss” limited (sunset after December 31, 2025)

– Changes to Code Section 402(f) Notices▪ Extended deadline to prevent “deemed distributions” of plan loans

– New Mortality Tables▪ Plan amendments might be necessary

What’s New? Uses of Forfeitures

▪ Effective July 20, 2018, new regulations permit the use of forfeitures to fund:– Qualified nonelective contributions (QNECs)– Qualified matching contributions (QMACs)

What’s New? Uses of Forfeitures (cont.)

▪ Removes requirement that QNECs and QMACs be “fully vested” at the time of contribution– Now must be fully vested as the time of allocation– May require plan amendments by year-end 2018

What’s New? Association Health Plans

▪ Effective August 20, 2018, new regulations relax criteria for “association health plans”– New definition of “employer” under Section 3(5) of ERISA

▪ Expanded “commonality of interest” test▪ Must have at least one “substantial business purpose” unrelated to

health coverage

What’s New? Association Health Plans (cont.)

▪ Expands access to affordable health coverage– Particularly for employees of small employers and certain

self-employed individuals▪ Staggered applicability dates

What’s New? Executive Order▪ August 31, 2018

– Policy statement ▪ Focus on modernization; elimination of “unnecessary costs”

– Digitizing notices (one year)– Required minimum distribution reform (180 days)

▪ IRS

– “Open” multiple employer plans (“MEP”) (180 days)▪ IRS and DOL

What’s New? Tax Cuts 2.0▪ Three bills introduced on September 10, 2018

– Could eliminate sunset of several Tax Reform provisions

▪ Family Savings Act – Contains a lot of the MEP reform items from retirement

enhancement and savings act (RESA)▪ RESA passed Senate Finance Committee unanimously last session

– Missing directive for IRS to work with DOL on fiduciary framework– Orin Hatch opposes

What’s New? Focus on Cybersecurity

▪ In late July, the IRS issued a list of six “must-have” for securing taxpayer data on computers:

▪ Significant overlap with the ERISA Advisory Council’s 2016 Report on Cybersecurity Considerations

1. Anti-virus software2. Firewalls3. Two-factor authentication

4. Backup software/services5. Drive encryption6. Data security plan

What’s Coming?

▪ Midterms!▪ Department of Education and the Workforce

– Consolidation of DOL and Department of Education (DOE)– Creates potential for “super” audits

What’s Coming? (cont.)

▪ Removal of the “common nexus” and “one-bad-apple” requirements – Fiduciary framework of the resulting “open MEP” architecture

at the individual plan sponsor level untouched▪ 2019 retirement plan, HSA, and FSA limits

– Update open enrollment materials!

Moderated Group DiscussionEmerging Issue Forum: Health Claims and Appeals, Open Enrollment, Wellness Programs, Voluntary Benefit Strategies

Jake Mattinson, AssociateMcDermott Will & EmeryOctober 4, 2018

Health Claims and Appeals

▪ Prompts:– Learning from personal experience– Legal requirements + best practices– Claim vs inquiry– Final disability claim regulations effective in 2018– Outsourcing claims administration

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Open Enrollment

▪ Prompts– Administrative challenges– IRS limits– Potential plan amendments– Accommodating big changes

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Wellness Programs

▪ Are they effective at reducing cost?▪ Notice of alternative standard▪ Alphabet soup: which law(s) apply?▪ EEOC regulations still around?

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Voluntary Benefit Strategies

▪ What is voluntary?▪ Subject to ERISA?▪ Current trends

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Grab Bag

▪ New benefits▪ General questions▪ State and local laws▪ To wrap or not to wrap?

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Thank You!