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Cypen & Cypen
October 1, 2020

Stephen H. Cypen, Esq., Editor

The majority of working Americans will be looking to their workplace benefits for health and wealth support as a result of COVID-19, especially as they prepare for  open enrollment  in the midst of a pandemic, Voya Financial found in a survey.
Eighty-four percent of workers said they think their core benefits—medical, vision and dental—can sufficiently cover unplanned medical expenses. However, 71% plan to spend more time reviewing voluntary benefits than they did in their last enrollment period, and 53%  plan to make changes  to their benefits coverage.
“With COVID-19 part of our daily lives for the foreseeable future, our new survey reveals that many are focused on ways that they can protect the health and wealth of themselves and their families, and they recognize workplace benefits are a way to do just that,” says Rob Grubka, president of employee benefits at Voya Financial. “As a result, this upcoming open enrollment season, which typically occurs in the fall for millions of Americans, presents an opportunity for individuals to rethink and re-evaluate previously untapped benefits offered by their employer. This is not the year for employees to hit the ‘default button’ on their workplace benefits, and I find it encouraging to see that more working Americans plan to take positive steps during their next open enrollment period.”
Asked how they could better manage their current health needs, 38% of those surveyed pointed to health savings accounts (HSAs) and flexible savings accounts (FSAs). That was followed by 35% of employees selecting supplemental health benefits, such as hospital indemnity insurance, critical illness insurance or short-term and long-term disability income insurance.
Generation Z was the generation wanting the most additional information (82%) about benefits. This was true for 79% of Millennials, 77% of Generation X and 70% of Baby Boomers.
Eighty-three percent of members of Gen Z said they plan to spend more time reviewing their workplace benefits, while this is the case for 72% of Millennials, 71% of Gen X and 63% of Boomers.
Seventy-four percent of those in Gen Z plan to make changes to their benefits, compared with 60% of Millennials, 53% of Gen X and 28% of Boomers.
“As the youngest and newest workers, it makes sense that Gen Z would be most engaged on benefits, as they have had the least amount of time in the workforce, less familiarity with employee benefits options and limited experience making employee benefit decisions compared to their older colleagues,” Grubka adds. “The pandemic has presented employers with a unique opportunity to help educate Gen Z about the value of workplace benefits early in their careers, during a time when, historically, individuals tend to be less concerned with their health and financial wellness needs.”
Voya says sponsors should  encourage their workers to follow through on their selections , as 49% of survey respondents said they would rather plan a home improvement project or review their home cable and internet options than make a benefits change.  Nonetheless, 49% of respondents said becoming more financially secure is their top priority as life eventually goes back to normal.  Lee Barney, PLANSPONSORwww.plansponsor.com , September 21, 2020.

As millions of American workers struggle to adapt to new work and childcare challenges due to the COVID-19 pandemic, financial and emotional stress have risen dramatically. In a recent poll by the Kaiser Family Foundation, 53% of U.S. adults reported that their mental health has been negatively impacted due to stress caused by the coronavirus.  And 69% of Americans 18 and older report having financial worries, including concerns about debt, according to a survey by the National Foundation for Credit Counseling.
These new realities are causing many employers to rethink their approach to benefits. Benefits that once served employees’ needs--from gym memberships to commuter reimbursements--are now less relevant, at least for the foreseeable future. An increasing number of employers are looking to new benefit strategies that support not only employee retention and recruitment, but also employees’ emotional and financial well-being.

Focus on student debt
One innovative strategy is offering a benefit designed to help employees pay down their student loan debt. This addresses a critical need among early- and mid-career professionals, as well as older employees that have taken out Federal PLUS loans on behalf of their family members. More than 40 million Americans have outstanding student loan debt, which totaled more than $1.6 trillion--nearly $33,000 per borrower on average.  It is the largest source of non-mortgage debt today.  This debt burden is preventing many employees from funding other important priorities, including home ownership and retirement savings.
A student debt repayment benefit is designed to address this by providing direct, after-tax employer contributions toward a participating employee’s loan balance (see below: What is a student debt repayment benefit?).
Helping employees pay off their student loan debt faster helps free up money for other important financial needs--including contributions to their 401(k) or 403(b) retirement savings plans.
What is a student debt repayment benefit?

Reallocating funds for student debt repayment
Funding a student debt benefit does not have to require significant additional funding. Some innovative employers have reallocated money for benefits that are unused during the pandemic, or even unused vacation time, to fund a student debt repayment benefit.
Unum, a premier insurance provider to millions of Americans, launched a voluntary program that allowed participating employees to divert up to five days (40 hours) of their unused paid time off (PTO) annually toward their student loan payments. The results were impressive: 428 employees participated in the program, dedicating a total of $528,748 to paying down their debt. The company’s benefits manager estimated that the program saved participating employees more than $625,000 in loan principal and interest. Notably, the average time converted by employees was 37 hours--nearly the maximum allowed--a clear endorsement of the program’s value.

Increasing retirement plan contributions
A student debt repayment benefit can also help promote retirement readiness.  Experience with Fidelity clients offering a student debt repayment benefit have shown meaningful increases in 401(k) deferral rates, year over year, for participating employees versus rates that remained flat for eligible but non-participating employees.
Allegro Microsystems, a global leader in power and sensing semiconductor solutions, saw a 20% increase in 401(k) contributions among employees under age 30 who participated in the company’s student debt repayment program, versus a 12% decline in contributions for their eligible coworkers who did not enroll.

Boosting recruitment and retention
Many employers with student debt benefits report that it has proven to be an attractive tool for recruiting new hires. After Fidelity launched its own program internally, 50% of new hires with student debt said the benefit was a major factor in their decision to join the company.
Once enrolled in a student debt benefit program, the employee has a powerful incentive to stay with the employer that is helping them reduce their loan burden. Experience with Fidelity student debt clients bears this out. Aggregate data from 24 employers shows a 52% reduction in voluntary turnover for employees enrolled in the student debt repayment benefit versus eligible coworkers who did not participate.
Howard Hughes, one of the world’s preeminent developers and operators of master planned communities and mixed-use properties, reported a 50% reduction in its voluntary attrition rate after introducing its student debt benefit program. This became even more important when the company announced plans to move its headquarters. The company’s benefits manager noted that a number of employees pointed to the student debt benefit as an important factor in their decision of whether to stay with the company and relocate.

Supporting the whole person
As the COVID-19 pandemic continues, forward-looking employers are focusing on innovative ways to support their employees’ emotional and financial wellness, as well as their job satisfaction. Taking advantage of benefits strategies like student debt repayment can help companies address their employees’ needs today, while positioning themselves as an organization that takes a “whole person” approach to employee well-being.
As with any major employee benefit, the keys to success are careful program planning, effective communication, and expert management. Working with an experienced benefits partner, one that has led the industry in the design and administration of successful student debt programs, can help ensure you and your employees make the most of this exciting benefit strategy.  Companies that do it right may find they can replace student debt with a debt of gratitude. What’s that worth?  PLANSPONSORwww.plansponsor.com , September 24, 2020.
Austin (Texas) Police Retirement System returned a net 1.3% for the year ended June 30, trailing the $809 million defined benefit plan's 4% benchmark return, an investment report showed.
The fund's net return for the year ended June 30, 2019 was 4.3%, while its benchmark was 6.9%.
The fund's net annualized performance also trailed the fund's benchmark over longer reported time periods ended June 30 with a 4.6% return over three years (benchmark, 6.9%); five years, 4.7% (7.1%); seven years, 5.3% (8.1%); and 10 years, 6% (9.4%).
APRS' asset allocation as of June 30 was domestic equity, 47.4%; international equity, 14.3%; real estate, 13%; core fixed income, 5.6%; non-core fixed income, 4.5%; multiasset funds, 4.5%; other equity, 4.1%; other fixed income, 3.1%; timber, 2%; cash, 1.1%; and other 0.4%, according to the performance report.
Net asset class returns in the 12 months ended June 30 were led by domestic equity, 4% (benchmark, 6.5%); real estate,1.7% (2.7%); cash, 1.4% (no benchmark); multiasset, 0.2% (0.5%); total fixed income (including core and non-core), -0.8% (6.3%); other equity, -1.3% (no benchmark); timber, -3.7% (0.3%); international equity, -4.6% (-4.4%); and other fixed income, -5.7% (no benchmark).
APRS' fiscal year end is Dec. 31.  Christine Williamson, Pension & Investments,   www.pionline.com , September 21, 2020.
State and local pension funding is the product of two key factors: required contributions and investment returns. Achieving the actuarially assumed return is critical to limit increases in contributions (for plan sponsors, participants and, ultimately, taxpayers). Even though financial markets have recovered from the crash sparked by the COVID-19 pandemic, most public pension plans will close fiscal year (FY) 2020 – which generally ends in June – with an annual return that falls short of actuarial expectations.

This brief investigates public pension investments and the implications of the market downturn. The first section documents the investment performance of public pension plans as of June 2020, a date that includes the crash in March and subsequent rebound. The second and third sections assess the concerns raised during the crash regarding public plan liquidity and vulnerability to sharp downturns. The final section concludes that even though public pension investment returns have fallen short of actuarial expectations in FY 2020, plans maintain a consistent cache of U.S. Treasuries that could be easily liquidated to pay benefits during severe market downturns.

Update on Public Pension Investment Returns 
State and local plans, on average, outperformed their assumed return in FY 2019 (the most recent reported annual data), with an average return of 8.9 percent compared to the average actuarially assumed return of 7.2 percent.1 However in early 2020, the financial markets were severely affected by the COVID-19 global pandemic and subsequent economic shutdown. Even though the market has recovered from the March crash, average returns for public plans in FY 2020 will fall short of actuarial expectations (see Figure 1).


Annual returns since 2001 have been above the average assumed return about as often as they have been below. Therefore, one might think that investment returns have met expectations on average over this period. However, the year-by-year performance does not provide an accurate picture of plans’ longterm performance relative to expectations. Calculating the annualized return (i.e. geometric return) from 2001-2020, public plans have averaged a 5.8-percent annual return over the last 20 years.3 Although plans have incrementally reduced their actuarially assumed return from 8.0 percent in 2001 to 7.2 percent in 2020, their cumulative realized returns over this period have fallen far short of actuarial expectations.  While virtually all plans have fallen short of their expectations, some have fared much worse than others. Plans in the top quartile of investment returns earned 6.5 percent on average compared to 4.9 percent for plans in the bottom quartile (see Figure 2).

FY 2001-2020, BY QUARTILE
Initially, as long-term investors, public plans could point to long-term market performance to support their use of actuarially assumed returns that seemed high relative to recent performance and the shifting outlook for capital markets.  However, as the period of plan under performance nears 20 years, pressure has increased for plans to use assumed returns that better align with the lower expectations for future market performance.

Public Pension Liquidity and Market Downturns
Historically, pension funds could pay annual benefits from a combination of pension contributions and income from interest and dividends. In that way, the body of plan assets would remain untouched, allowing capital gains to accumulate unfettered. However, since the 2008-2009 financial crisis, contributions and investment income have fallen short of the amount needed to pay benefits, forcing plans to liquidate roughly 1 percent of their assets each year (see Figure 3). In good years, plans can simply realize a portion of their capital gains to fund annual benefits. But, during a market downturn – as experienced in the early spring of 2020 – plans could be forced to liquidate assets at depressed prices.


Contributing to liquidity challenges during market downturns is the increased allocation to alternative investments that has occurred since 2005. Alternatives often consist of hard-to-value illiquid investments, which means that existing appraisals could vary significantly from the value that plans would receive if they had to quickly sell their holdings in a crisis.

Another challenge that comes with alternative investments – specifically private equity – is that plans are often subject to ongoing capital calls by their alternative asset managers. Generally, when a plan contracts with a private equity fund manager, it commits to the total capital it will provide to the fund manager to invest over the life of the fund. Then, as the fund manager identifies investment opportunities, the manager calls on the plan to provide portions of the total promised amount. In 2017, about one-third of plans in the PPD reported outstanding capital commitments equal to at least 10 percent of their total assets (see Figure 4). If alternative asset managers were to call for a significant amount of this outstanding capital during a crisis, it could force plans to liquidate more assets than they expected at the worst possible time.


What Can Plans Do to Protect Themselves in Market Downturns? 

Since 2009, as noted, public plan contributions and investment income have fallen short of what is required to pay benefits, so some portion of plan assets must be sold each year. In theory, pension funds can protect themselves from having to sell depressed assets during market downturns by holding some assets that tend to rise in value (or, at least, maintain their value) during downturns. One approach might be to hold derivatives that rise in value when pension asset values decline.  Another might be to hold U.S. Treasuries, which also tend to rise in value during market shocks and are extremely liquid.

As of 2019, public pension plans held derivatives contracts covering assets worth about 6 percent of their total assets.  The assets covered by derivatives were split nearly equally between equities and fixed income, with a small fraction in commodities (see Figure 5).


In theory, if these derivatives were designed to perfectly offset any decrease in pension assets, roughly 6-percent worth of pension assets would increase in value whenever plan assets declined. The pension plan could liquidate some or all of these derivatives during market downturns to help fill in the gap between contributions and benefits – limiting the need to sell pension assets at depressed levels. While we do not know precisely how derivatives will perform during future market downturns, we do know that the annual change in the fair value of derivatives and the annual return on pension assets have both been positive in each year from 2010 to 2019. This pattern suggests that derivatives are not being used purely as hedges against asset declines.

Most public plans maintain a small, but relatively consistent, portion of their portfolio in U.S. Treasuries. The average allocation to Treasuries dropped only slightly from 8.4 percent of assets in 2005 to 7.6 percent in 2018, even as the overall allocation to fixed income declined by about 8 percentage points over this same period (see Figure 6).  Treasuries would presumably rise in value in a market downturn due to a “flight to quality” and could be easily liquidated to cover the gap between contributions and benefit payments.  


Even though financial markets have recovered from the downturn in the early spring of 2020 sparked by the COVID-19 pandemic, most public pension plans will close FY 2020 with an annual return that falls short of actuarial expectations. Additionally, the market crash raised concerns about public plan liquidity and vulnerability to sharp market downturns. Although many plans have a negative cash flow and may need to sell assets to pay annual benefits, most also maintain a consistent cache of U.S. Treasuries that could be easily liquidated if necessary. So, while public pension plans face many long-term fiscal challenges, most are able to weather sharp downturns relatively unscathed.  Jean-Pierre Aubry, Center for Retirement Research at Boston College, Report No. 73,  https://crr.bc.edu , September 2020.

On May 28, 2019, the Council proposed a ten-year, $800M climate sustainability initiative.  At the time, they knew they were sitting on an unfunded pension liability of $448M.  And, they had disclosed it could easily balloon to over $700M with even a minor hiccup in CalPERS investment performance.  And, of course, CalPERS financial performance has fluctuated wildly in the last 5 years.  Starting in 2011, the City has made a total of $33.8M in supplemental payments to CalPERS simply to keep the unfunded liability to the current reported $448M.   In June 2019, the Council approved another ad hoc $45M pay down of the City’s pension unfunded liability along with some concessions to a subset of City employees.  However, combined with Covid-related skipped payments for the next two years, and increasing interest costs, this may only result in maintenance of the existing liability.  Meanwhile, a downside liability risk of around $700M+ remains, triggered by only slight underperformance of currently forecast CalPERS investments.
Potential Non-Resident Spending Could Hit $1.5 Billion…or More
Potential climate and pension spending works out to between $1.25 to $1.5M BILLION, to be funded over approximately 10 or so years as the climate initiative has been delayed, but not cancelled.  This, from a city with total annual revenues averaging ~$650M pre-Covid, and which will be $535M this year.   Moreover, the growth of the unfunded pension overhang far exceeds the growth of the city revenues.  The unfunded liability has climbed from 19% of our total annual city revenues in 2004 to almost 70% in 2018.  It will likely land between 80% and 90% in this Covid-constrained 2020, with reduced revenues and suspended CalPERS payments.  As it stands, the current pension deficit translates into a potential tax requirement of almost ~$9,000, and potentially up to ~$15,000 for every household in the city.   
And, let’s not even talk about the gargantuan subsidy requirements for the 6,152 affordable housing units the City wants to build over the next eight years since there is no Council pushback to the 6th Cycle RHNA state mandate.  And, btw, that subsidy is in large part due to developers getting out of meaningful (say Prop R’s 30%) inclusionary affordable production in their existing and planned projects, and shifts the burden to 100% affordable projects requiring huge City support.
Vicious Spiral?
This uncontrolled and myopic spending mentality is creating a financial vortex that is seriously undermining the residents’ future financial stability.  What all this will do is translate into an even larger drive for more revenue.  In this city, that means more hotels and mega projects which, in the best case, drive more socialized costs (i.e. that the projects themselves do not pay for) for services, infrastructure and degradation of our quality of life in congestion, reduced safety, and shuttered local businesses, to name but a few.  In the worst case, they will be built on outdated economic assumptions, deliver few, if any, of the imagined benefits, and become partially empty monuments to myopic agenda-driven thinking.
If nothing else, all this demonstrates three things – the absolute disconnect of resident interests to our city government decisions, a complete denial of financial reality, and the almost complete absence of competent fiscal management.
Potential Outcomes – Bankruptcy and City Employee vs. Resident Prioritization Conflicts
If this financial trajectory is not flattened and reversed, quickly, the only lifeline left for the city will be to declare bankruptcy.  What happens after that?  Likely replacement of the city employees defined benefit plans with shared risk plans.  The resistance against this would be huge.  In 2013, Stockton declared bankruptcy but still did not terminate the defined benefit pension plans.  Instead, they cut resident services, gutted the employee health care plans and raised taxes.  Two of the three actions directly hit the residents.  If Santa Monica’s Covid-induced budget cuts are any guide, there is no reason to believe that Santa Monica would react any differently.  This result places the resident interests against the public safety interests – one of the worst possible outcomes imaginable.  On top of that, the City’s borrowing costs would spike since its credit rating would be seriously degraded.
Is it not clear where this is going?  Is it not clear that we need to stop the vicious financial spiral we have entered and recreate financial stability and predictability for the residents?  
Where Do Residents Stand
The upshot – NONE of these increasing financial risks and taxpayer expenditures are, or will, translate into a more livable city or even sustainable (let alone better) quality of life for the residents.  Without achieving true financial sustainability scaled to the size of our resident base, there can be no environmental or any other kind of sustainability.  Period.  
We are entering a window in time where the absence of change will greatly magnify to the point of irreversibility, the financial risk and quality of life damage we are already living with.   We will be at-risk strangers in our own downtown.
What additional evidence do we need to determine that a new Council government direction is urgently needed to  refocus our city government back onto the residents?  If not this, then what?  Marc L. Verville, Santa Monica Mirrorhttps://smmirror.com , September 29, 2020.
What if Uncle Sam offered you a 5% pay raise? Even better it’s tax-deferred! Better still you don’t have to rub anybody out, or do anything that illegal, immoral or fattening!
A done deal, a no brainer, right? And yet -- every year, in some cases for decades, thousands of federal workers turn down an extra 1%, 2%, 3%, 4% or more contribution from the government to their Thrift Savings Plan account. Why? Because they need the money, or can’t afford it.
They can’t afford to do what it takes to make that incredibly generous offer -- by private sector 401(k) standards -- a reality. More money going into their TSP account which, thanks to the miracle of compounding, does tremendous things to your account worth and balance. The 5% government match is one reason so many feds earning modest salaries have become TSP millionaires.
So are you one of the smart ones? Consider this worth-its-weight-in gold tip from Abraham Grungold, a full-time fed and popular part-time financial coach. Here’s what he’s telling his clients about the incredible government matching contributions deal:

The TSP haves and the TSP have-nots 
It is hard to believe that there are federal employees who are contributing the maximum to the Thrift Savings Plan and there are federal employees who are not contributing to the TSP.

So, you are a TSP investor and you are contributing the maximum -- what else could you be doing? Well if you want to invest beyond your TSP and you have a few extra dollars, Dividend Reinvestment Plans (“DRIP”) investing is a way to go. You contact a company directly and sign up for their Direct Reinvestment Program. You can invest a low as $25 and buy partial shares or full shares for stocks in companies that appeal to you. The fees associated with these investments are miniscule. You can participate in several DRIP programs with different companies such as Coca-Cola, Mobil and many others. You can have a company such as Computershare to handle your recordkeeping paperwork. You can use a broker and put all your investments in one account. Many of the reputable brokerage houses, such as Fidelity and Charles Schwab, are advertising slicing investing, which is a similar method.

Also, this way of investing can be attractive to federal employees who have low wages and just cannot make the dedicated payroll contribution to their TSP. Unfortunately, there are employees who earn $50,000 a year and live in high-cost areas such as New York and San Francisco. These employees who cannot commit to a steady contribution to their TSP can only invest a few dollars here and there and can do so in a DRIP.

Still, the best way to go for low income earners is the TSP. Even if you can only contribute 1%-5% of your salary you do not want to give up on the government matching to your TSP contribution. By not contributing 1%-5% to your TSP, it is like giving up on an annual government salary bonus.  Mike Causey, Federal News Network,  https://federalnewsnetwork.com , September 22, 2020.

IRS Notice 2020-68 (Notice)  provides the first round of guidance on a number of provisions under the  Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act)  and the  Bipartisan American Miners Act of 2019 . The key qualified plan provisions are highlighted and summarized below:

  • Participation of part-time employees in 401(k) plans
  • Qualified birth or adoption distributions
  • Changes to in-service distributions from pension plans
  • Deadline for plan amendments

Participation of Long Term Part-Time Employees in 401(k) Plans (“LTPT”)
Section 112 of the SECURE Act requires that 401(k) plans allow long term, part-time employees to make elective deferrals once they have reached age 21 and have at least 500 hours of service in three consecutive 12-month periods. This 500 hours of service rule also applies for vesting purposes, even if the participant later becomes a full-time employee when a 1,000 hour rule would generally apply. This provision is effective for plan years beginning after December 31, 2020, with part-timers first becoming eligible under plans in 2024 plan years.
Notice 2020-68 provides limited guidance on how the SECURE Act rules interact with the general rules for counting service for vesting purposes. The new law clearly excludes 12-month periods beginning before January 1, 2021 in determining whether an employee is a long-term part-time employee eligible to make elective deferrals. And the new law is clear that employers are not required to provide employer contributions to such employees. However, the Notice takes the position that the longstanding rules of Code section 411(a)(4) apply to determine whether LTPT workers are vested in any employer contributions that are made on their behalf. Thus, for example, 12-month periods of service beginning before January 1, 2021 count for vesting in employer contributions unless the service may be ignored under the general rule, e.g., years of service before the employee attains age 18, service when the employer did not maintain the plan or a predecessor plan, etc. See Code sec. 411(a)(4).
This partial retroactive application of the provision, where employers may lack the data to recreate the vesting service, raises concerns and therefore is the initial point of focus for the IRS. The IRS specifically asked for ideas on how best to address this issue, so stay tuned.

Qualified Birth or Adoption Distributions (QBADs)
Section 113 of the SECURE Act added a new in-service distribution provision for “qualified” child births and adoptions – along with a new exception to the 10% additional income tax for early withdrawals – effective for distributions on or after January 1, 2020. In a long line of Q&As, the Notice provides helpful guidance on the scope of the provision that permits an individual, within the one-year period beginning on the date on which a child is born or on which a legal adoption of an eligible adoptee is finalized, to withdraw up to $5,000 for each child/eligible adoptee from an eligible plan or IRA (in the aggregate).

A. Distribution Rules for QBADs

  • Eligible Plans. A QBAD may be made from a 401(k) plan, 401(a) plan (other than defined benefit plans), 403(a) annuity plan, 403(b) annuity contract, and 457(b) governmental plan, or an IRA (an “applicable eligible retirement plan”).
  • Requirements for a Distribution to be a QBAD. An individual receiving a QBAD must include the name, age, and Taxpayer Identification Number of the child or eligible adoptee on such individual’s tax return for the taxable year in which the QBAD is made.
  • Eligible Adoptee. The adoptee must be under 18 or “disabled” (as defined under Code section 72(m)(7)), and not be a child of the taxpayer’s spouse. If the adoptee is 18 or older, he or she must be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to result in death or to be of a long-continued and indefinite duration.
  • QBADs to Both Parents. Each parent may receive a QBAD of up to $5,000 with respect to the same child or eligible adoptee.
  • Multiple Births or Adoptions. An individual is permitted to receive a QBAD with respect to the birth of more than one child (or the legal adoption of more than one eligible adoptee) so long as the QBADs are made within the one-year period following the birth(s) or finalization of the legal adoption(s). The Notice gives examples of an individual who gives birth to twins in October 2020 and takes a $10,000 distribution from a 401(k) plan in January 2021. Assuming the QBAD requirements are met (e.g., providing names, ages, etc. of the children), the entire $10,000 is a QBAD.
  • In-Service Distributions. An applicable eligible retirement plan is not required to permit in-service distributions for QBADs. However, an individual may claim the 10% penalty relief for any otherwise permissible plan distribution by taking that position on his or her tax return.
  • Reasonable Representations. The sponsor/administrator of an applicable eligible retirement plan may rely on reasonable representations from an individual that they are eligible to receive a QBAD unless it has actual knowledge to the contrary.
  • Available Sources. A QBAD may be made from elective contributions, qualified non-elective contributions, qualified matching contributions, and safe harbor contributions – amounts that would generally not be permitted to be distributed prior to age 59½.
  • Not a Rollover Distribution. A QBAD is not treated as a rollover eligible distribution from an applicable eligible retirement plan. This means a plan sponsor is not required to (i) offer an individual a direct rollover with regards to a QBAD, (ii) provide a 402(f) notice, or (iii) withhold 20% of the QBAD (though QBADs are subject to 10% withholding, unless the participant opts out).

B. Re-Contribution Rules for QBADs

  • Recontributions Allowed. Any amount of a QBAD may be recontributed to an applicable eligible retirement plan in which the individual is a beneficiary and to which a rollover can be made.
  • Recontributions Permitted Under Plan Rules. An applicable eligible retirement plan must permit recontributions of a QBAD if (i) the plan permits QBADs, (ii) the individual making the recontribution received a QBAD from the plan, and (iii) the individual is eligible to make a rollover contribution to the plan at the time recontributions are made.
  • Treatment of Recontributions. The recontribution of a QBAD to an applicable eligible retirement plan is treated as a direct rollover from another eligible retirement plan. The Notice indicates that additional guidance, via proposed Code section 72(t) regulations, is anticipated.

Earlier in-Service Distributions From Pension Plans Allowed
Section 104 of the Miners Act lowers the minimum age for allowable in-service distributions under Code section 401(a)(36) for defined benefit plans (and money purchase pension plans) from age 62 to age 59½. For governmental 457(b) plans, the Act lowers the minimum age from 70½ to 59½ for in-service distributions. These changes are effective for plan years beginning after December 31, 2019.
The Notice clarifies two important points: (1) the provisions are optional, and (2) these changes have no impact on the plan’s definition of normal retirement age.

Deadline for Plan Amendments
Section 601 of the SECURE Act generally provides that plan amendments to reflect the SECURE Act changes must be adopted by the last day of the first plan year beginning on or after January 1, 2022 (2024 for governmental plans), including anti-cutback relief.
The Notice clarifies that this deadline applies to all types of tax-favored plans that are impacted by the provisions of the SECURE Act, including 403(b) plans, governmental 457(b) plans, and 401(a) plans (whether the plans are individually designed or pre-approved documents). The same deadline applies whether the amendment is mandatory, optional/discretionary, or is an interim amendment.
Section 403(b) plans for public schools have until the end of the last day of the first plan year beginning on or after January 1, 2024 to adopt plan amendments, and governmental 457(b) plans have until the later of the end of the last day of the first plan year beginning on or after January 1, 2024 or, if applicable, the first day of the first plan year beginning more than 180 days after the date of notification by the Secretary that the plan was administered in a manner that is inconsistent with the requirements of Code section 457(b).

Next Steps
Plan sponsors and service providers of qualified plans should review this first round of guidance, identify which provisions they must (or would like to) adopt, and consider making the necessary operational changes to their policies and procedures. They also should stay tuned for more guidance.
When considering the QBAD feature, plan sponsors should take into account the various changes necessary to implement the participant-friendly provision (and coordinate with their record-keeper), including: (1) account sources, (2) 1099-R reporting changes, (3) 402(f), rollover and withholding changes, (4) updated Summary Plan Description (or Summary of Material Modification), (5) certification process and coordination for all controlled group plans, (6) recontribution process/procedures, and (7) plan amendment terms.
The IRS is asking for comments by November 2. As noted, this includes how to address the administrative burden for counting vesting service for part-time employees. But as this is just round one, and is not comprehensive guidance, plan sponsors should not rush to adopt SECURE Act plan amendments (unless of course your plan is terminating).  John Barlow, Elizabeth Thomas Dold, Louis Mazawey and David Powell, Groom Law Group,  www.groom.com , September 21, 2020.
Boston pensioners continue to rake in big bucks as the city shells out more than $596 million a year for retirees, according to city data.  The top earner in the pension system is former interim schools Superintendent John McDonough, who makes $15,413 a month, or $184,965 annually. McDonough, a 40-year schools employee, took the district’s reins for two years starting in 2013.
Then former Boston Police Superintendent Lisa Holmes, who retired in 2018, comes in second, making $15,127 a month, or $181,529 a year. Onetime Fire Commissioner Joe Finn, who just retired this year, makes $172,827 annually, getting a check for $14,402 each month.
Former Boston Police Superintendents Kevin Buckley and Paul Fitzgerald are third and fourth after retiring in 2018 and 2017, respectively. Buckley hauls in $14,230 a month and $170,765 a year, while Fitzgerald makes $13,911 twelve times a year for a total of
Another eye-catching name is sixth, where former Police Commissioner William Evans, who retired in 2018 after a long career with the department, is making $13,714 a month, which is $164,568 a year. That’s on top of his new gig as Boston College’s head of public safety.
In total, 20 retirees are making more than $150,000 a year, and 364 retirees make more than $100,000 a year. The pension system --which doesn’t include people within the Boston teacher’s pension system, which is separate -- pays out more than $596 million a year, or $49.7 million each month.
Even so, watchers say Boston actually remains in much better shape than many other cities and towns around the state and country.
“The Boston Retirement System has adopted an aggressive and responsible approach, in my opinion,” said government watchdog Greg Sullivan, a former state inspector general who’s now at the Pioneer Institute.
Pam Kocher, of the Boston Municipal Research Bureau, an independent nonprofit that’s long kept an eye on City Hall, notes that Boston’s pension liability is 76.9% funded, and is on track to be fully funded by 2025. The current fiscal year’s budget, even after pandemic-era tightening, includes the city making a $292 million payment into the pension fund.
“Even if the financial impact of the pandemic on the city means Boston needs to extend its pension funding schedule by a year or two, from 2025 to 2026 or 2027, Boston would achieve full funding status much sooner than the dates for many cities and towns,” Kocher said.
Mayor Martin Walsh’s office said in a statement, “The board routinely monitors the portfolio with its consultant and teams of investment fund managers to make necessary adjustments.”
The office noted that the city had made the “prudent decision” to lower the assumed rate of investment return, making the calculation more conservative.  Sean Phillip Cotter, Boston Heraldwww.bostonherald.com , September 27, 2020.

George Floyd… Breonna Taylor… Daniel Prude… Jacob Blake. The long road to racial justice in this country has been rocky and painful.  It started long before these four people became household names and will, tragically, go well beyond their injuries and deaths.
In response to these tragedies, many donors – whether in private or public foundations, donor-advised funds or less structured philanthropy – have, internally and externally, offered important statements of support for the Black Lives Matter movement and racial justice and equity, with a commitment to anti-racism efforts.
These statements are commendable, and they’re  just the beginning of the transformational work that must be done in philanthropy.  As Richard Woo, Senior Advisor in Philanthropy and Impact Investing, says: "The pledges of solidarity with the Black Community and standing against systemic racism go far beyond the polite statements of diversity, equity and inclusion that existed before in foundations, if they existed at all. Now is the moment to back bold words with bolder actions to transform broken systems to be more whole and just."
Five Steps to Transformational Change
Understand that being anti-racist involves much more work and commitment than simply not being racist; the latter is passive, while the former is active.  This column’s space limitations make it impossible to address the issue comprehensively.  Nonetheless, here are some steps funders can take toward transformational change.
Begin by looking internally and deeply at your own organization (foundation, family, corporate philanthropy, etc.) and take inventory of what you’ve already done on the diversity, equity and inclusion (DEI) spectrum. Understand that DEI work is interdependent; you can’t effectively concentrate on one aspect without intentionally doing all. Examine your own personal and organizational barriers to achieving equity by looking at your:

  • Leadership, both professional and volunteer, and ask whether it reinforces a culture and system in which positions of power uphold the status quo or whether the lived experiences of the community being served are reflected in the makeup of leadership from the board to executives and staff.
  • Operations, to determine if they serve the wishes of the donor or

best support grantees and communities in achieving their vision of social change;

  • Investments and banking relationships, to determine if they perpetuate systemic racism and exploitation of human capital or if they replenish community wealth and build community assets.
  • Pay-out limits, to ask if you’re treating the 5% minimum payout requirement for foundations as the floor or the ceiling for grant-making.  Is the goal of growing or maintaining an endowment more important than the goal of serving communities and funding transformational change?
  • Employment policies, to see if they’re less about counting people and more about people counting, seeking to understand and support the lived experiences and needs of the people with whom you work.

External Actions
All of the internal reflection is a prelude to tangible, external actions in support of Black, Indigenous & People of Color (BIPOC) communities. This means philanthropy that increases funding, builds capacity, advocates just policies and transfers power—regardless of your philanthropic mission. Race and racial inequities are evident across all missions including health care, education, housing, hunger, employment, the arts, the environment, criminal justice, voting rights and more.
Examine the role that impacted people and communities play in your decision making around grants. Are their voices being heard?  Are they involved in developing grant making strategies and in making grant decisions? Are BIPOC – led organizations the recipients of your grants?
Long-Term Commitment
Make a long-term commitment to address racial inequality. Congressman John Lewis taught us, “Take a long, hard look down the road you will have to travel once you have made a commitment to work for change. Know that this transformation will not happen right away…. We used to say that ours is not the struggle of one day, one week, or one year. Ours is not the struggle of one judicial appointment or presidential term. Ours is the struggle of a lifetime, or maybe even many lifetimes, and each one of us in every generation must do our part. And if we believe in the change we seek, then it is easy to commit to doing all we can, because the responsibility is ours alone to build a better society and a more peaceful world.”
Additional Resources
There are many resources available for people and organizations committed to doing the work.  Among them are:  Just Transition for Philanthropy by Justice Funders;   Awake to Woke to Work: Building a Race Equity Culture by Equity in the Center; and  We Must be in it for the Long Haul by the Association of Black Foundation Executives.  Bruce DeBoskey, Wealth Management,  www.wealthmanagement.com ,  September 18, 2020.
Getting free stuff is cool…until it  isn’t free . It is decidedly uncool when, after luring you in with “free trials” for products you might like, a company hits you with surprise charges during the supposedly “free” trial period.
In a complaint filed in federal court,  the FTC alleges that NutraClick , which marketed dietary supplements and beauty products through paid subscription programs, broke the law by not making it clear exactly when its free trials ended and the billing began. NutraClick offered samples of its products as part of an 18- or 34-day free trial period to get people to enroll in its subscription programs. But the trial periods included negative option terms, in which sellers can automatically charge people’s cards or bank accounts if they don’t cancel their subscriptions.
According to the FTC, NutraClick broke telemarketing rules, violated online sales laws, and ignored a federal court order, when it failed to properly tell people they had to cancel at least one day before the end of the trial to avoid charges for the monthly subscription. People lost more than a million dollars because of NutraClick’s conduct, the FTC says.
Considering free offers? Keep this in mind:

  • Do some research. Search the product and company name online with words like “review,” “complaint,” or “scam” to see what others are saying.
  • Find the terms and conditions for the offer. If you can't find them or can't understand exactly what you're agreeing to and when you’ll be charged - including what you’ll be charged for and the date by which you have to act to avoid a charge - don't sign up.
  • Monitor your credit and debit card statements. If you’re charged for something you didn’t order,  dispute those charges  as soon as you spot them.
  • Read your credit and debit account statements. That way, you’ll know right away if you’re being charged for something you didn’t order.

And if a company didn’t make it clear when they’ll bill you after your free trial,  tell the FTC .  Lisa Lake, Consumer Education Specialist, FTC,  www.ftc.gov , September 22, 2020.

More than 85 large wildfires are ripping across the West Coast, from California to Oregon and Washington. In the Southeast, people are just beginning to recover from Hurricane Sally, while more storms are brewing in the Atlantic. And the Midwest continues to recover from the recent derecho.
Severe weather and natural disasters can occur anywhere - sometimes with little warning. The FTC’s site,  Dealing with Weather Emergencies , has practical tips to help you prepare for, deal with, and recover from a weather emergency. It’s mobile-friendly, so easy to get to when and where you need it.

  • Thinking about how you’d get your family, pets, and property  ready for an emergency ? There’s help for you. (And it’s National Preparedness Month – not a bad time to think about your plan.)
  • Scammers scuttle out of the woodwork after a disaster, so you’ll find  ways to spot and avoid their scams .
  • Disasters can cause all kinds of financial stress — and lost documents.  Check out some ideas  to manage money, credit, housing, and those lost docs.

Then, help others in your community by sharing  tips on social media  or — if you’re able — by printing and handing out a one-page graphic,  Picking Up the Pieces after a Disaster  or  Ready for HURRICANE SEASON? 5 things to do now , depending on where you are and what’s happening.  And don’t forget to sign up for FTC's consumer alerts. Thank you, and stay safe. Colleen Tressler, Consumer Education Specialist, FTC,  www.ftc.gov , September 21, 2020.

The U.S. Department of the Treasury and the Internal Revenue Service today issued  final regulations  updating the federal income tax withholding rules for certain periodic retirement and annuity payments made after Dec. 31, 2020.   
Prior to the Tax Cuts and Jobs Act (TCJA), if no withholding certificate was in effect for a taxpayer’s periodic payments, the amount to be withheld from the payments was determined by treating the taxpayer as a married individual claiming three withholding exemptions. 
The TCJA amended this rule to provide that the rate of withholding on periodic payments when no withholding certificate is in effect (the default rate of withholding) would instead be determined under rules prescribed by the Secretary of the Treasury.
The final regulation issued today provides guidance for 2021 and future calendar years.  This guidance specifies that the Treasury Department and the IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments in applicable forms, instructions, publications and other guidance. 
In July 2020, the IRS released a draft of a redesigned 2021 Form W-4P and instructions intended to align with the redesigned  Form W-4 , “Employee’s Withholding Certificate.” 
The draft 2021 Form W-4P also proposed a new default rate of withholding on periodic payments that begin after Dec. 31, 2020.  Based on comments received on the draft Form W-4P, regarding the time required by payors to implement the new form and a new default rate of withholding, the IRS will postpone issuance of the redesigned form. Instead, the 2021 Form W-4P will be similar to the 2020  Form W-4P .
The IRS also intends to provide in the instructions to the 2021 Form W-4P and related publications that the default rate of withholding on periodic payments will continue to be determined by treating the taxpayer as a married individual claiming three withholding allowances.
The Treasury and IRS will continue working closely with the tax community on the redesign of Form W 4P, with the intention of making the withholding system more accurate and transparent for taxpayers.  For more information about this and other TCJA provisions, visit  IRS.gov/taxreform .  IRS Newswire, IR-2020-223,  www.irs.gov , September 28, 2020.

A relief map shows where the restrooms are.
Why didn't Noah swat those two mosquitoes?

"Stop chasing the money and start chasing the passion."  - Tony Hsieh

On this day in 2019, Former Dallas police Officer Amber Guyger was found guilty of murdering her black neighbor in his apartment in a landmark case on use of police force and racial bias



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