Aon Washington Report
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August 28, 2017
Legislative
Congress Adjourned for Summer Recess; Returns After Labor Day Holiday
The House and Senate are adjourned for summer recess. The chambers are scheduled to return to the Hill after the Labor Day holiday.
Retirement
IRS Issues Model Plan Amendments for Pension Plans Offering Bifurcated Payment Options
On August 20, 2017, the Internal Revenue Service (IRS) published Notice 2017-44, which provides model plan amendments that may be used to comply with final regulations issued September 16, 2016. The 2016 final regulations clarified the calculation of benefits when a participant “bifurcates” the distribution of his or her pension benefit and receives a portion of his or her benefit in a lump sum (or other form of payment that must be paid in an amount not less than the amount calculated using the Section 417(e) conversion factors), and receives the remainder of his or her benefit in a payment form that is not required to use the Section 417(e) conversion factors. For example, a participant could elect to receive the following portions of his or her pension benefit in a lump sum and the rest of his or her benefit in an annuity: 20% of his or her accrued benefit; the benefit accrued before a certain date; or the benefit attributable to employee contributions. The 2016 final regulations are effective for distributions with annuity starting dates in plan years beginning on or after January 1, 2017, but may be applied retroactively.
If the model amendment is adopted, then the form of the plan document for an individually designed pension plan will not be adversely affected by the adoption of the amendment. An employer using a pre-approved plan document may adopt the model amendment without losing reliance on the pre-approved plan document. Of course, the plan’s administration must timely conform to the terms of the model amendment.
The notice permits plan sponsors to customize the model amendment to simplify administration or to reflect the plan sponsor’s objectives. Text may be added to the model amendment limiting the ways that the accrued benefit could be divided for payment purposes, and the payment forms that may be elected. For example, the accrued benefit may be bifurcated only in 25% increments, a dollar limit could be imposed on the amount payable as a lump sum, or bifurcation would only be allowed based on whether the benefit was accrued before or after a specified date. Employers should ensure that any optional provisions are acceptable under the 2016 final regulations.
The 2016 and 2017 guidance is part of the IRS’ efforts to encourage annuity forms of payment. In this case, permitting a participant or beneficiary to elect to receive a lump sum distribution of a portion of the participant’s pension benefit avoids forcing a participant to elect a lump sum for his or her entire pension benefit when a smaller lump sum would have been sufficient.
IRS Notice 2017-44 is available here.
Aon Publications
Wellness Rules Remanded Back to EEOC for Further Consideration
On August 22, 2017, a federal district court found that the U.S. Equal Employment Opportunity Commission (EEOC) did not provide sufficient basis for its 2016 regulations allowing employers to offer voluntary wellness programs that permit incentives of up to 30% of the cost of coverage without violating the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act. In a lawsuit filed by the American Association of Retired Persons, a federal district judge for the District of Columbia sent the regulations back to the EEOC for further consideration. However, the court did not vacate the regulations, so these requirements are still in effect for employers until further notice by the EEOC.
The Aon bulletin, which provides a brief overview of the court’s decision, can be found here.