Compliance News

February 2012

Retirement Plan Simplification and Enhancement Act

On February 16, 2012, Representative Richard Neal (D-MA) introduced the Retirement Plan Simplification and Enhancement Act of 2012 (H.R. 4050). The proposed legislation is divided into sections as outlined below. Here is a short summary of the items included in the proposed legislation.

Expand Coverage and Increase Savings

This section of the proposed legislation includes the following: Modify the automatic enrollment safe harbor to remove the 10% of pay cap, and increase the default percentage higher than the current 3%. Change the coverage rules so that part-time employees would be eligible to participate in the plan if they complete one year of service (work 1000 hours) or three years of service (and work at least 500 hours each year). Change the top heavy rules so that employees that have not met the statutory age and service requirements (1 year of service, age 21), are not required to receive a top heavy contribution.

Encourage Small Businesses to Sponsor a Plan

The following changes would encourage small businesses to adopt and maintain a retirement plan: Increase the tax credit that is given to small businesses that adopt a plan to the lesser of 50% of the start-up expense, or $1,500 (currently $500). Allow small businesses to band together and offer multiple employer plans.

Preservation of Income
This section offers changes intended to encourage annuities and preserve income: Simplify the existing joint and survivor rules for defined contribution (DC) plans to encourage DC plans to offer annuities.

Allow the rollover of life insurance contracts held under a qualified plan to an IRA, if certain conditions are met. Change the rules to allow for the portability of lifetime income options.

Simplify and Clarify Qualified Retirement Plan Rules

The proposed legislation offers the following changes to certain qualified plan rules: Amend the required minimum distribution rules to exempt participants that have a total balance in all of their retirement plans of less than $100,000 at age 70. Expand the correction program to allow more types of errors to be corrected through selfcorrection and simplify the Voluntary Correction Program (VCP) and reduce fees. Clarify that forfeitures in a DC plan may be used to fund safe harbor contributions. Direct the Pension Benefit Guaranty Corporation (PBGC) to issue a regulation to clarify that a 4062(e) event only occurs if an employer maintaining a defined benefit (DB) plan has both (1) a facility shutdown, and (2) a layoff of over 20% of the employers workforce. Clarify certain issues involving church plans. Amend the nondiscrimination requirements in 401(a)(4) and the minimum participation requirements in 401(a)(26) to exempt a closed group of employees if certain conditions are met. Direct the Department of the Treasury (Treasury), the Department of Labor (DOL), and the PBGC to review all reporting and disclosure requirements and make recommendations to consolidate, simplify, standardize and improve the requirements. Direct the DOL and Treasury to review the numerous notices required to be given to DC plan participants, and to consolidate as many as possible.

Next Step
This proposed legislation has been referred to the Committee on Ways and Means and the Committee on Education and Workforce for review. We will let you know of any developments.

WELL GIVE YOU AN EDGE

Principal Life Insurance Company, Des Moines, Iowa 50392-0001, principal.com Prepared by Retirement & Investor Services Compliance. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance products and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal Financial Group (The Principal, Des Moines, IA 50392.

PQ 10967

02/2012