Compliance October 15, 2019

IRS Plan Includes Guidance on Student Loan Payments and Retirement Plans

The IRS says the published guidance process can be successful only if it has the benefit of the insight and experience of taxpayers and practitioners. It invites the public to provide comments and suggestions.

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The IRS has issued a new 2019-2020 Priority Guidance Plan, which sets forth guidance priorities for the Department of the Treasury and the IRS.

The 2019-2020 Priority Guidance Plan contains guidance projects that will be the focus of efforts during the 12-month period from July 1, 2019, through June 30, 2020 (the plan year). So, some items have already been completed. For example, the plan notes that final regulations have been issued regarding hardship withdrawals and regarding missing participants and uncashed checks.

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The IRS says the published guidance process can be successful only if it has the benefit of the insight and experience of taxpayers and practitioners who must apply the internal revenue laws. It invites the public to continue to provide comments and suggestions as the agency develops guidance throughout the plan year.

Listed in the new Priority Guidance Plan are regulations updating life expectancy and distribution period tables for purposes of the required minimum distribution (RMD) rules. Current legislation being considered by the Senate would push RMDs to a later age.

The plan also includes guidance on student loan payments and qualified retirement plans and 403(b) plans. Student loan repayment programs have gained interest by employers as well as lawmakers. In August 2018, the IRS issued a Private Letter Ruling sanctioning a student loan repayment program tied to the 401(k) plan of employer Abbott.

The IRS is still working on regulations on the definition of governmental plan, regulations updating rules for service credit and vesting, and regulations on the treatment of future interest credits and annuity conversion factors under a hybrid defined benefit plan and adjustments under a variable annuity plan for purposes of satisfying certain qualification requirements, among other things.
The Markets October 15, 2019

401(k) Investors Continue to Flee Equities

The third quarter marked the seventh consecutive quarter that 401(k) participants have moved their money from equities into fixed income, according to Alight.

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The third quarter saw 401(k) investors continue to trade money from equities to fixed-income funds, according to the Alight Solutions 401(k) Index. This marks the seventh consecutive quarter where net trades favored fixed-income funds over equity funds.

During the third quarter, 401(k) investors traded 0.61% of their starting balances. Year-to-date, they have traded 1.77% of their balances. Fifty-four of 64 trading days in the third quarter had net trading dollars moving from equities to fixed income. Net equity trading days only totaled 10. Year-to-date, 401(k) investors have moved the majority of their money into fixed income on 161 days, whereas they moved the majority of their money into equities on only 27 days.

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In the third quarter, there were only eight above-normal trading days. Year-to-date, there have been 24.

Asset classes with the most trading inflows in the third quarter were bond funds, taking in $605 million, or 47% of the inflows, followed by stable value funds ($394 million, 30%) and money market funds ($207 million, 16%). Asset classes with the most trading outflows were large U.S. equity funds ($643 million, 49%), company stock ($359 million, 28%) and small U.S. equity funds ($109 million, 8%).

In the third quarter, equity markets were mixed. U.S. bonds were up 2.3%. Large U.S. equities gained 1.7%. Small U.S. equities fell by 2.4%, and international equities lost 1.8%.

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