Breaking News: for ERISA Attorneys

It looks like New Jersey and Illinois are being treated as ‘outliers’ rather than the inevitable consequences of a flawed public-plan funding system so I turned to some sessions on private plans and, in my world (and maybe yours), I came across a bombshell.

It is Enrolled Actuary meeting number forty (supposedly the only number that spells out alphabetically) and I have been to about 25 of them.  When I started in the business the typical scenario was that a defined benefit plan was set up by an ERISA attorney who got an IRS determination letter at a big one-time cost and an insurance agent came in to fund it with cash value life insurance and get that substantial first-year commission and then we took over administration at very reasonable annual fees.

These days the plan is likely to be a safe-harbor 401(k) plan with new comparability allocations and a broker will handle investments where the fees need to be transparent and more documents are pre-approved prototypes.  By 2017 all documents may be prototypes if a panelist at one of the sessions at this meeting is correct:

In a closed-door meeting late last month the IRS advised the American Bar Association that around January 1, 2017 (though it might be sooner) they will stop issuing determination letters on individually designed plans.

User fees for these submissions are fairly stiff but apparently the cost to the IRS of personnel is even higher so ERISA attorneys will likely be out of the pension plan setup business.  Though some may be able to transition to other lucrative related areas (suing or defending public plan actuaries?) it just won’t be the same.

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PS: This was a bolt out of the blue at the end of one the sessions.  Tomorrow there will be a dialogue with the IRS and Treasury at which I (or someone before me) will seek verification.

7 responses to this post.

  1. Posted by Tough Love on April 14, 2015 at 8:02 pm

    Funding Traditional DB pension Plans via Cash value Life insurance seems beyond odd. ….. where does the Plan get the funds to pay retirees who retire before participants begin to die? While I’m not familiar with small Plans, the large self-administered Plans of large corporations never do this (to my knowledge).

    While unbeknownst to most workers (AND retirees !!!) they often do carry life insurance on their worker/retirees (with the Corporation as the beneficiary), but this is simply taking advantage of Federal Tax loopholes and has nothing to do with pension funding.

    Reply

  2. Posted by George on April 15, 2015 at 7:06 am

    Off topic
    Chris Christie Pushes Means Test for Social Security in New Hampshire

    http://www.bloomberg.com/politics/articles/2015-04-14/christie-pushes-means-test-for-social-security-in-new-hampshire

    Apparently means testing medicare is a done deal already.

    http://www.theguardian.com/us-news/2015/apr/15/medicare-doc-fix-clears-us-congress

    Reply

    • My first thought upon reading the headline aspects of the plan was that this was like his pension reforms – put out there without any thought about the particulars. What was missed in the various NJ pension reforms we have been subjected to was the little question of legality. With this Social Security idea there is that issue plus a few more:
      1) How do you define income for the SS elimination? Is it salary only or do you include dividends, nondeferred compension, rental income and all those other things rich people get? If not then you would still have Warren Buffet collecting as long as he stays within the prescribed definition of pay.
      2) Would it have to be salary for the prior year since you wouldn’t know what your current year salary would finally be to know how much SS to cut?
      3) How would it work with the checks, especially for those in the phase-in? Would SSA have to recalculate those people’s amounts every year?
      4) Do you get your SS back if you go under $80,000 in one year?
      5) Does spousal income count?

      Some interesting debating points but for now all this does is give the rest of country some idea of the loony ideas this administration has hatched (and enacted to disastrous effect) in New Jersey.

      Reply

      • Posted by George on April 15, 2015 at 1:30 pm

        I would guess means testing for medicare and SS would be the same criteria. Supposedly means testing for medicare is a done deal, even though it has not gotten any news coverage or congressional debate. Medicare you pay for, isn’t that ObamaCare?

        Reply

  3. Posted by Anonymous on April 15, 2015 at 9:42 am

    CC is coming for you Federal & Armed Forces P&B, not to mention SS, Medicate, & Medicaid guess the 1% is looking for a social revolution!

    Reply

  4. Posted by truthnolie on April 15, 2015 at 11:50 pm

    And then there’s this:

    http://watchdog.org/211787/christie-avoids-income-taxes/

    Shared sacrifice huh??

    Reply

    • Posted by Tough Love on April 16, 2015 at 12:55 am

      No, this DOESN’T justify NJ’s grossly excessive Public Sector pensions/benefits ……. but I’m sure you’ll keep trying.

      $ Billions … unjustly granted by Elected Officials BOUGHT with Public Sector Union campaign contributions and election support.

      Reply

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