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Posted: 5.29.2020

COVID-19 Crisis Creates Challenge for Employers to Perform Retirement Plan Fiduciary Duties and Pay Retirement Plan Costs

by David A. Allen, J.D.

 

We have witnessed how the COVID-19 crisis has affected the global economy and has drastically decreased revenues of many businesses worldwide. However, this pandemic has not significantly decreased employer expenses. This global tragedy also has not excused employers of their retirement plan fiduciary responsibilities and employers will need to work differently to fulfill their fiduciary obligations. In light of the current situation, some employers may need to consider shifting a portion or all of the retirement plan (“Plan”) costs they pay to Plan participants in order to maintain and not terminate their Plans.

 

Plan Sponsors (“Employers”) Fiduciary Responsibilities

Employers may be tempted to place their plan fiduciary duties on hold or even decide to discontinue their plan oversight responsibilities due to COVID-19. However, with the investment volatility and stock market uncertainty that continue to affect Plans, this is when fiduciary oversight is required more than ever. Many Employers understand the importance of their Plan fiduciary responsibilities. As a result, they have coordinated with their Plan vendors to perform their fiduciary duties by conducting Plan administration and investment review meetings via conference calls and/or video WebEx telecasts.

 

COVID-19 Business Assessment and Possible Reallocation of Retirement Plan Costs

The COVID-19 crisis has forced many businesses and not-for-profit organizations to take cost-cutting measures in order to continue operations. One cost-cutting measure that Employers may need to consider is how Plan costs are shared between the organization and Plan participants. The most common costs that Employers either pay or share with Plan participants are Plan administration expenses (recordkeeping, third party administration, investment advisory, trustee, and audit expenses). The Department of Labor considers these Plan administration expenses to be fiduciary expenses that Employers can charge the Plan. The 2019 Deloitte Defined Contribution Benchmarking Survey Report indicates that 25% of Employers pay all of these fees, 57% of Plan participants pay these fees, 12% of Employers share these fees with the Plan participants and 3% of Employers pay these fees from Plan forfeitures. Additionally, 25% of Employers changed vendors due to Plan costs, up 7% from 2017.*

If you, as Plan Sponsor, pay some or all of these Plan administration expenses, it may be possible to shift these expenses to your Plan and/or Plan participants.

 

Whether Employer Reallocation of Retirement Plan Costs Is Appropriate

Under the Employee Retirement Income Security Act (ERISA), fiduciaries are required to act in the best interest of Plan participants and their beneficiaries. Therefore, before Employers take action to shift some, additional or all Plan administration expenses to Plan participants, Employers need to establish a Plan review process to monitor and assess Plan costs paid by the Plan and/or participants, and should include benchmark data.

 

If your organization is struggling with cost-cutting measures as part of the COVID-19 crisis, you may want to consider shifting Plan administration expenses paid by your entity to your retirement plan. Please contact Midland Retirement Plan Services or reach out to me, David Allen, at 815-231-2823 or dallen@midlandsb.com for assistance today.

 

David Allen serves as Director of Retirement Plan Services at Midland Wealth Management. In this role, he is responsible for the management and administration of retirement plan services as well as the overall strategy development, client relationship management and business development. David has an impressive history of providing diverse and collaborative solutions with over 30 years’ experience as an employee benefits attorney, in-house benefits counsel, benefits consultant/broker, human resources benefits director, benefits compliance manager and division head of two bank retirement plan operations. He earned his Bachelor of Science from Indiana State University and his Juris Doctorate from the University Of Denver College Of Law. David is a member of the Illinois and Pennsylvania Bar Associations.

*2019 Deloitte Defined Contribution Benchmarking Survey Report, pages 5 and 20.

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Posted: 5.4.2020

Estate Planning 101

An estate plan can help protect your family and finances during your life and after you die. It is important to review your estate plan after any life-changing event. These events include marriage, divorce, other domestic arrangement changes, a financial windfall, the birth or adoption of a child.

 

A Health Care Proxy is for the health management of a person. It is a written authorization that appoints someone to make medical decisions on your behalf if you are incapacitated or unable to make a decision. You will also want to execute a HIPAA release with your Health Care Proxy so your agent will have access to your medical information.

A Medical Directive/Living Will is a declaration of what type of medical decisions and treatment you wish to be made on your behalf in the event you become incapacitated or unable to make such a decision.

A Power of Attorney (POA) is for management of property. A POA is a written authorization that gives someone legal authority to make financial decisions on your behalf. A durable POA means it will stay in effect if you become incapacitated and unable to handle matters on your own.

A Revocable Trust is a trust established during your life that can be revoked or rescinded. A Revocable Trust allows your property to be managed by a trustee while you are still alive, if you become incapacitated or immediately upon your death. Trusts can be used to avoid probate and protect privacy.

A Last Will and Testament allows you to determine how your assets are distributed. If you have young children, you can name a guardian for them in the event of an untimely death. You can be both specific and general in your will – it’s up to you. Each state has laws to determine whether a will is properly executed. Remember that some assets pass according to how the property is titled or by beneficiary designation. Probate is the process that each state has to prove the validity of your Last Will and Testament. It can be costly, time-consuming and inconvenient. Trusts and Transfer on Death instruments are alternative options that allow you to avoid this process.

 

We’ve touched on numerous steps to an estate plan, including: Health Care Proxy, Medical Directive/Living Will, Power of Attorney, Revocable Trust and Last Will and Testament. Remember to keep your documents in a safe and secure environment that can be accessed easily, if necessary. Make sure those named in your documents know where they are located.

If you have questions and would like to learn more about trust and estate options, please contact your relationship manager at Midland Wealth Management or Midland Trust Company.

 

Midland Wealth Management does not provide tax or legal advice. Please consult your tax or legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

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Posted: 4.10.2020

New Legislation – 2020 CARES Act Retirement Highlights

In an effort to keep our clients informed, please note the following 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act retirement highlights for individuals:

Deadlines Extended to July 15, 2020

  • Tax Return Filing Date

  • 2019 IRA and Roth IRA contributions

  • HSA contributions

2020 RMDs Waived

  • 2019 RMDs due by April 1, 2020

  • 2020 RMDs from IRAs and company plans

  • 2020 Beneficiary RMDs

  • IRA owners age 70½ or older can still take Qualified Charitable Distributions (excluded from taxable income; will not count toward 2020 RMDs since they have been waived)

RMD Rollover Eligibility

  • For those who have taken their 2020 RMD, funds can be returned

  • Must occur within 60 days of receipt of funds

  • Limit to one rollover per year; excludes those who rolled over another distribution taken in the prior 12 months

  • Excludes non-spousal beneficiaries

Penalty-Free Premature Distributions

  • 10% federal penalty tax waived on 2020 coronavirus-related distributions from IRAs and employer-sponsored retirement plans up to $100,000

  • Income treated as 2020 income or spread over 3 years

  • All or portion of sum withdrawn may be recontributed within 3 years; not subject to usual annual contribution caps

Plan Loan Relief

  • Increased maximum amount to 100% of vested account balance up to $100,000

  • Applies to loans taken within 180 days of bill enactment

  • Due dates for new or outstanding loans extended by 1 year

If you have questions or would like to discuss how this affects you directly, please contact your relationship manager.

In case you missed it, please click here for prior market updates or follow us on LinkedIn for current posts.

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Posted: 4.3.2020

New Legislation – 2020 CARES Act Plan Sponsor Highlights

Hardship Distributions: Eliminates the 10% early withdrawal penalty tax on early withdrawals up to $100,000 from a retirement plan or IRA for an individual:

  • who is diagnosed with COVID-19;
  • whose spouse or dependent is diagnosed with COVID-19;
  • who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
  • other factors as determined by the Treasury Secretary.

 

The legislation also permits those individuals to pay tax on the income from the distribution ratably over a three year period and allows individuals to repay that amount into the plan over the next three years (subject to further guidance). Those repayments would not be subject to the retirement plan contribution limits.

 

Plan Loans: Increases the current retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan.

 

Participants with an outstanding loan from their plan with a repayment due from the date of enactment of the CARES Act through Dec. 31, 2020, can delay their loan repayment(s) for up to one year.

 

Plan Amendments: Plan Sponsors may adopt these rules immediately, even if the plan does not currently allow for hardship distributions or loans. The plan will have to be amended on or before the last day of the first plan year beginning on or after Jan. 1, 2022, or later if prescribed by the Treasury Secretary.

 

Temporary Waiver of Required Minimum Distribution(RMD) Rules: Waives RMDs for calendar year 2020 for Defined Contribution plans, including 401(k), 403(b), 457(b) and IRA plans, allowing individuals to keep funds in their retirement plans. The legislation also includes special rules regarding the waiver period to, in essence, hold harmless those individuals (and plans) who took advantage of the RMD waiver for 2020.

 

Single-employer DB Plan Funding Rules: Provides single-employer defined benefit plan funding relief by giving companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until Jan. 1, 2021. At that time, contributions due earlier would be due with interest. The provision also provides that a plan’s status for benefit restrictions as of Dec. 31, 2019 will apply throughout 2020, such that a plan sponsor may elect to treat the plan’s adjusted funding target attainment percentage for the last plan year ending before Jan. 1, 2020, as the adjusted funding target attainment percentage for plan years which include calendar year 2020.

 

Expansion of Department of Labor (DOL) Authority to Postpone Certain Deadlines: Provides the DOL with expanded authority to postpone certain deadlines under ERISA. In general, the legislation increases the circumstances to go beyond a terroristic or military action to also include a public health emergency declared by the Secretary of Health and Human Services under the Public Health Service Act.

 

We have covered several key topics that are addressed in the act. If you are interested in adopting these new CARES Act rules and amending your plan, please contact your Midland Retirement Plan Services relationship manager.

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Posted: 2.19.2020

Socially Responsible Investing

Midland Wealth Management’s Socially Responsible Portfolio is structured with high quality funds investing in the fixed income, equity and alternative markets. In addition to the normal quantitative analysis, these funds evaluate supplemental factors when reviewing profitable and growing companies. These factors can be categorized into three main groups: Environmental, Social and Governance (ESG).

 

Environmental (E)

Companies that:

  • Focus on renewable energy sources
  • Recognize impacts of climate change initiatives
  • Work towards improving environmental sustainability

Social (S)

Companies that:

  • Focus on a diverse and safe environment 
  • Monitor its supply chain and management of human capital
  • Encourage a positive community impact

Governance (G)

Companies that:

  • Provide shareholders transparency of company governance
  • Uphold policies guarding against corruption, bribery and fraud
  • Maintain guidelines regarding takeover defenses and political spending

 

The Socially Responsible Portfolio works to keep money invested in the market while balancing investor values. Allocations to each of the sectors and fixed income maturity, within your desired objective, are determined by the Midland Investment Strategy Committee based on its assessment of the economy, interest rates and relative risk/return value of each sector. With our Socially Responsible Portfolio, we do not guarantee an eradication of certain investments but rather minimized exposure.

 

Please contact your Midland Wealth Management Advisor at 888-637-2120 to discuss further.

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Posted: 2.5.2020

New Legislation - 2019 SECURE Act Highlights

The rules and regulations are ever-changing and one of Midland Wealth Management’s goals is to keep clients informed. Congress passed the federal government spending bill and was signed into law on December 20, 2019. The spending package includes the Setting Every Community Up for Retirement for Enhancement (SECURE) Act of 2019.

This bill offers several positives with the purpose to simplify administration and ease the path to retirement. Some highlights of the SECURE Act include:

  • Age Increase for Required Minimum Distributions
    • A Required Minimum Distribution (RMD) is the amount of money that must be withdrawn from a Traditional IRA or qualified plan when you reach age 70½. The SECURE Act increases the age to 72. Please note that there is a transition period, so if you turned 70½ before December 31st, 2019, you fall under the prior rules and will still need to take an RMD no later than April 1
  • Age Repeal for Traditional IRA Contributions
    • Under pre-SECURE Act rules, individuals could no longer contribute to an IRA after they turn age 70½. This has now been repealed and regardless of age, you can make contributions to a Traditional IRA, as long as you are still working. Keep in mind, other limitations apply, including annual limits.
  • Inherited Qualified Plans
    • Pre-SECURE Act, it was common for non-spousal beneficiaries to take RMDs over their life expectancy. This was known as a ‘stretch IRA’. The SECURE Act now limits the ability to stretch distributions from retirement assets. Non-spousal beneficiaries must take full payout from the inherited IRA within 10 years of the account holder’s death. Note, this 10-year span can be leveraged to create flexibility on which years to pay taxes.
  • Penalty-Free Withdrawals from Retirement Plans for Birth and Adoption
    • A 10% penalty is typically assessed for withdrawals from qualified retirement plans and IRAs before age 59½. There are some exceptions to the penalty though, such as qualified higher education expenses and qualified first-time homebuyers. The SECURE Act adds qualified births and adoptions to this exceptions list and allows parents to withdraw up to $5,000 penalty-free within a year of birth or adoption for qualified expenses.

We have covered four notable changes from the SECURE Act of 2019. There are other ways that this new legislation is impacting investors and taxpayers. Please contact your Midland Wealth Management Advisor at 888-637-2120 to discuss further.

Author: Steve Hofmann

 

Midland Wealth Management does not provide tax or legal advice. Please consult your tax or legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

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