Products August 20, 2020

Lockton Creates PEP Solutions for Small and Large Employers

The launch will be available to clients in the Northeast and extend nationally over the course of several months.

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Lockton has launched a practice designed to help employers reduce the risk, effort and expense of sponsoring retirement plan benefits.

Based in the Northeast and co-founded by advisers Tom Clark and Mike Duckett, the new outsourced administrative responsibilities (OAR) practice will make pooled employer plans (PEPs) the first order of business. Lockton will launch a series of PEPs, initially in the Northeast and then nationally, over the next several months.

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“Lockton’s philosophy for delivering retirement advice has always been based not only on objectivity, but also maximizing the market’s potential. To do that, we must constantly innovate. OAR was specifically designed to leverage the marketplace inflection point the Setting Every Community Up for Retirement Enhancement [SECURE] Act created. That’s why we’re designing multiple PEP solutions. It’s a very strategic decision to maintain our objectivity and it’s a recognition that clients need more than a one-size-fits-all solution,” says Pam Popp, president of Lockton Retirement Services.

PEPs are often considered small plan solutions, but Lockton has engaged with providers Principal and Transamerica to develop PEPs for the larger market.

“Lockton believes that those who interact most directly with clients are best positioned to drive innovation,” says Bob Connolly, CEO of Lockton’s Northeast series. “That’s why we charged Tom and Mike with gathering marketplace intelligence and partnering with industry leading recordkeepers and asset managers to build a program that will set the standard PEP offerings.”

“The new rules create huge opportunities for retirement plan sponsors,” says Sam Henson, director of legislative affairs for Lockton Retirement Services. “Before, these programs were limited to affiliated organizations. Now any employer can pool their plan’s assets with other employers. The benefits are significant, including streamlined administration, reduced compliance and fiduciary risk, and greater plan negotiation leverage. The biggest advantage for companies dealing with COVID-related business challenges is the opportunity to provide best-in-class retirement benefits and shift the majority of fiduciary responsibilities to industry experts.” 

“Many anticipate that traditional multiple employer plan [MEP] providers will simply retool old, small market offerings with a ‘PEP’ label,” says Duckett. “Our approach begins with solving for our clients’ business needs. We’re leveraging opportunities created by the SECURE Act to enhance plan design flexibility and increase clients’ ability to outsource administrative complexity.”

In addition to outsourcing, PEPs allow employers to benefit from scale. According to Clark, this includes not only the scale of the employers’ combined plan assets, but also the scale of the associated adviser’s book of business.

“Objectivity is so foundational to what we do that, when building our multiple PEP options, we refused to sacrifice flexibility or best-in-class asset management just to achieve better pricing,” Clark says. “Instead, we leveraged Lockton’s negotiating strength. Where others create savings by consolidating assets to achieve $50 million or so of purchasing power, the clients attracted to a Lockton-built PEP can achieve the scale generated by more than $1 billion.”

PEPs are not a single provider offering. They must be constructed through partnerships of several entities including administrators, asset managers and advisers.

“Clients turn to and trust Lockton to help them solve complicated issues on insurance, benefits and retirement. Our specific clients in the Northeast tend to have complicated plan design rules as a result of their contracting requirements, and many have unique needs as it relates to ownership groups, M&A [mergers and acquisitions] and compliance testing. OAR will help our middle market clients to solve these important issues, while also outsourcing their fiduciary and administrative responsibilities and risks,” Connolly says.

Compliance August 19, 2020

IRS Issues NPRM for Extended Rollover Deadline for Qualified Plan Loan Offsets

A participant has until the due date (with extensions) for filing his federal income tax return for plan loan offset amounts resulting solely from the participant’s termination of employment or the employer’s termination of the plan.

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The IRS has issued a Notice of Proposed Rulemaking (NPRM) for qualified plan loan offset (QPLO) amounts to implement Section 13613 of the Tax Cuts and Jobs Act (TCJA), which provides an extended rollover period for a QPLO, which is a type of plan loan offset.

A distribution of a plan loan offset amount is a distribution that occurs when, under the plan terms governing the loan, the employee’s accrued benefit is reduced, or offset, in order to repay the loan. Prior to passage of the Tax Cuts and Jobs Act, a participant had 60 days to roll over a plan loan offset amount from a 401(k) or 403(b) plan account to an eligible retirement plan that accepts the rollover. The act extended this time period until the due date (with extensions) for filing the participant’s federal income tax return for plan loan offset amounts resulting solely from the participant’s termination of employment or the employer’s termination of the plan, i.e., a QPLO.

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The proposed regulations confirm that a QPLO is a type of plan loan offset, so most of the general rules relating to plan loan offset amounts apply to QPLO amounts. For example, the rule that a plan loan offset amount is an eligible rollover distribution applies to a QPLO amount. In addition, guidance concerning the offering of a direct rollover of a plan loan offset amount, and guidance concerning special withholding rules with respect to plan loan offset amounts, apply to QPLO amounts. The proposed regulations provide examples to illustrate the interaction of the special rules for QPLOs with the general rules for plan loan offsets.

The proposed regulations provide that a distribution of a plan loan offset amount that is an eligible rollover distribution and not a QPLO amount may be rolled over by the employee (or spousal distributee) to an eligible retirement plan within the 60-day period allowed to rollover distributions. A QPLO amount may be rolled over by the employee (or spousal distributee) to an eligible retirement plan through the period ending on the individual’s tax filing due date—including extensions—for the taxable year in which the offset is treated as distributed from a qualified employer plan.

If a taxpayer to whom a QPLO amount is distributed satisfies the conditions in Section 301.9100-2(b) of federal regulations, the taxpayer will have an extended period past his  tax filing due date in which to complete a rollover of the QPLO amount, even if the taxpayer does not request an extension to file his or her income tax return but instead files the return by the unextended tax filing due date. For example, if, on June 1, 2020, Taxpayer A has an eligible rollover distribution of $10,000 that is a QPLO amount, she may be able to roll over the $10,000 amount as late as October 15, 2021. This automatic six-month extension applies if Taxpayer A timely files her tax return by April 15, 2021, (the due date of her return), rolls over the QPLO amount within the six-month period ending on October 15, 2021, and amends her return by October 15, 2021, as necessary to reflect the rollover.

The proposed regulations provide several special rules for purposes of determining whether a plan loan offset amount is a QPLO amount.

The NPRM will be published in the Federal Register on August 20. There is a 45-day period to submit comments or requests for a hearing.

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