The retirement plan world of 2019 is not that of 1995, or 1983, or 1974. And yet, there are important features of years past that laid the groundwork for where we are now – or perhaps, are even making an impact today.
In a workshop session at last week’s ASPPA Annual Conference, ASC's John P. Griffin discussed some of those key features that may be down but not out.
“A lot of what has changed is due to legislation, of course,” said Griffin. For instance, he said, ERISA had a key role in creating the retirement industry. Its enactment was “one of the major events that established the need to have actuaries, TPAs and other professionals.”
But Griffin also observed that regulations promulgated pursuant to legislation have had a major impact on the industry. They reflect the government’s interest in not having people depend on Social Security to too great a degree, he said, but also have more specific effects. For instance, the IRS regulations issued under Section 401(a)(4) provide a set of rules by which to determine if plans are discriminatory or non-discriminatory.
Griffin also outlined some plan features and aspects of administration that have changed:
Plan disqualification. Plan disqualification was more common before the IRS made the Employee Plans Compliance Resolution System (EPCRS) available. “It’s still a possibility, but you just don’t see it” much anymore, he said.
Money purchase plans. Money purchase plans are now much less popular than 401(k) plans are, Griffin said, but they still exist. “We just don’t see them much anymore, but they’re still out there,” he told attendees. Reasons for this include:
- they are subject to the qualified joint and survivor annuity rules and the minimum funding rules;
- the deduction limits for profit-sharing plans have changed; and
- pension plan rules apply.
But despite the disincentive to establish and maintain money purchase plans, Griffin said, there still are reasons to do so because:
- they entail a disciplined approach;
- they assure employees of an employer’s commitment to the plan; and
- collective bargaining agreements may require them.
Target benefit plans. Target benefit plans, a kind of money purchase plan, provided a way to provide higher benefits for older employees without violating the nondiscrimination rules. Now, said Griffin, with cross-tested plans there is much more flexibility. There just isn’t as much interest out there for target benefit plans, he said, and they are hard to find.
Life insurance. Since the retirement plan industry developed out of the life insurance industry, Griffin said, the latter exerted influence on the way plans are designed. And it can be connected to aspects of DB and DC plans, he observed.
After-tax employee contributions. Making contributions to a retirement plan account after taxes have been imposed is less popular than it once was, Griffin noted. For one thing, thrift savings plans became popular after the enactment of ERISA; pre-tax deferral opportunity has made after-tax employee contributions less beneficial. And yet, he noted, they still are around.
