Compliance May 10, 2019

PBGC Submits Updated Proposal for Determining Whether Plans Covered by ERISA

The agency explains that, in limited situations, employers will be able to use the soon-to-be issued coverage forms to request an opinion letter about whether a plan being developed is likely to receive PBGC coverage.

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The Pension Benefit Guaranty Corporation (PBGC) is requesting that the Office of Management and Budget (OMB) approve, under the Paperwork Reduction Act, a collection of information necessary for the PBGC to determine whether a defined benefit (DB) plan is covered under Title IV of the Employee Retirement Income Security Act (ERISA).

This is the second request by the agency and follows a period of comments on its first request this past December.

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A proposed form and instructions would be used by a plan sponsor or plan administrator to request a coverage determination and would be suitable for all types of requests. The proposed form would highlight the four plan types for which coverage determinations are most frequently requested:

  • Church plans as listed in Section 4021(b)(3) of ERISA;
  • Plans that are established and maintained exclusively for the benefit of plan sponsors’ substantial owners as listed in Section 4021(b)(9);
  • Plans established and maintained by professional services employers, as listed in Section 4021(b)(13) that, since September 2, 1974, have covered no more than 25 active participants; and
  • Puerto Rico-based plans within the meaning of Section 1022(i)(1) of ERISA.

A number of DB plans that have been determined to qualify for church-plan status by the IRS have had that status challenged in lawsuits. But, the PGGC tells PLANSPONSOR, its latest request has no tie to the lawsuits, and “the purpose of the coverage form is to ease the process by which people can make a request for a coverage determination.”

A supporting statement addressing public comments on the new proposed forms and instructions discusses a comment asking that employers be allowed to request coverage determinations before creating and sponsoring pension plans. Although the agency cannot provide coverage determinations for plans that do not exist, the supporting statement explains that, in limited situations, employers will be able to use the soon-to-be issued coverage forms to request an opinion letter about whether a plan being developed is likely to receive PBGC coverage.

Comments are due to OMB by June 7.

Client Service May 9, 2019

DOL Opinion Letter on Gig Workers Puts Retirement Savings Onus on Them

Experts say gig workers have little access to workplace retirement savings plans and the opinion letter will only discourage employers from offering them such plans, but they do have other options that advisers can educate them about.

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The Department of Labor (DOL) recently issued a wage and hour opinion letter concluding that service providers for a virtual marketplace company are independent contractors. This means that “these workers can be considered as owning and operating their business, which means that they can establish their own employer plans,” says David Musto, president of Ascensus in Dresher, Pennsylanvia.

Musto notes that these gig workers already have limited access to workplace retirement plans.  The DOL opinion could only discourage more employers from offering retirement savings plans to gig workers. That said, he believes there is an opportunity for financial advisers to help gig workers establish their own retirement plan, such as a SEP IRA, Individual(k) plan or an owner-only 401(k). A recent survey found gig workers are very receptive to financial advice.

“A SEP IRA is a reasonably low-cost, owner-only employer retirement plan for independent contractors to start saving for their own retirement,” Musto says. “An owner-only 401(k) plan is another alternative, which is generally quick and easy to start and simple to administer. If they have several different virtual marketplace companies to which they provide services, independent contractors can use their earnings from all self-employment sources to make retirement contributions, and control their overall retirement as a result.”

Musto notes that by one industry estimate, gig workers—including freelancers, part-timers and independent contractors—may comprise 34% of the workforce. “There’s no doubt that the American workplace is changing rapidly and the financial professionals supporting the retirement savings system need to reinvent their approach,” he says. “Advisers can educate on the options available to self-employed workers and help gig workers make retirement savings decisions based on their personal goals. They can encourage workers to consider the benefits of a SEP IRA plan or an Individual(k) plan, which generally have higher limits than an IRA.”

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Because it is hard enough to get workers at a traditional company that offers a retirement plan to participate, it is all the more imperative to help gig workers, who have to take the initiative to save all on their own, says Stuart Ritter, senior financial planner at T. Rowe Price in Baltimore. “Regardless of your status as a worker, you need to be thinking about retirement and saving 15% of your income,” Ritter says. “Gig workers do have options, and financial advisers have an important role in helping people understand what their retirement savings options are.”

Then there are gig companies themselves, like Lyft and Uber, which are offering payroll deduction IRAs to recruit talent, says Koray Bulut, partner, employment litigation and counseling at Goodwin Procter LLP in San Francisco. “However, these behemoths, which have gone public, are at a mature stage and competing with  each other, are outlyers,” Bulut says.

Recognizing that independent contractors and workers at small businesses need help saving for retirement, “some states and local cities are setting up Secure Choice auto IRAs, which gig economy workers could contribute to,” Bulut adds.

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