Category Archives: Benefit News

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

DOL issues ERISA fiduciary advisor
The Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) has published the ERISA Fiduciary Advisor. The ERISA Fiduciary Advisor provides information and answers to a variety of questions about who is a fiduciary and their responsibilities under the Employee Retirement Income Security Act (ERISA). This Advisor was developed by the EBSA in its continuing effort to increase awareness and understanding about basic fiduciary responsibilities when operating a retirement plan.

For more information, click here.

IRS issues draft Instructions for Forms 1094-C and 1095-C
The IRS released draft Instructions for 2016 Form 1094-C and 1095-C with new revisions. On Form 1094-C, line 22, box B is designated “Reserved.” The Qualifying Offer Method Transition Relief is not applicable for 2016. In Part III, column (b), “Section 4980H” was inserted before “Full-Time Employee Count for ALE Member” to remind filers that the section 4980H definition of “full-time employee” applies for purposes of this column, not any other definition that an ALE Member may use for other purposes. On Form 1095-C, the language “Do not attach to your tax return. Keep for your records.” was inserted under the title of the form to inform the recipient that Form 1095-C should not be submitted with the return.

To download the draft instructions, click here.

IRS issues draft Instructions for Forms 1094-B and 1095-B
The IRS released draft Instructions for 2016 Form 1094-B and 1095-B with new revisions. The language “Do not attach to your tax return. Keep for your records.” was inserted on the Form 1095-B under the title of the form. Form 1095-B, Part I, lines 2 and 3, and Part IV, columns (b) and (c) were updated to reflect the rule that a taxpayer identification number (TIN) may be entered. Form 1095-B, line 9 is now reserved. The heading to Part II was revised to read “Information about Certain Employer-Sponsored Coverage” to clarify that Part II will be blank or some individuals with employer-sponsored coverage. Other minor clarifying changes were made to Form 1095-B.

To download the draft instructions, click here.

IRS revises Form 8717
The Internal Revenue Service revised 2016 Form 8717 (Determination Letter Request User Fee) and Form 8717-A (Opinion or Advisory Letter Request User Fee). The new form has been revised so that it does not contain specific user fee amounts. One must now enter the appropriate user fee when completing line 5 of the Form and the IRS has indicated that the amounts and number of forms submitted on line 5 of Form 8717 revised in August 2014) should not be used. One should now use the following fee schedule to determine the user fee for employee plan determination letter requests mailed to the IRS on or after February 1, 2016.

Revenue Procedure 2016-8 changed the fee schedule shown on lines 5a and 5b of Form 8717-A. Do not use the applications and fee schedule shown on lines 5a and 5b of Form 8717-A (Rev. August 2014) to determine the appropriate user fee. Instead, use the following updated schedule to determine the user fee for Form 8717-A mailed to the IRS on or after February 1, 2016.

For more information, click here.

IRS proposes deferred compensation rule for governmental and tax-exempt entities

The IRS has issued a long-awaited proposed rule on nonqualified deferred compensation plans (NDCPs) maintained by tax-exempt organizations (other than churches and certain church-controlled entities) and state and local governments. The proposed rule provides guidance for plan sponsors in determining when amounts are includible in employees’ incomes, the amounts that are includible, and the types of arrangements that are not subject to the requirements of tax code section 457. The proposed rule, which plan sponsors may rely upon immediately, also aligns the requirements for 457(f) plans with section 409A NDCPs. However, this Client Action Bulletin focuses on what many plan sponsors and participants may consider the most significant portion of the proposed rule: the expanded definition of a “substantial risk of forfeiture” (SROF) in 457(f) plans.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

CBO report offers considerations to improve the financial condition of PBGC’s multiemployer program
The Congressional Budget Office (CBO) released the report “Options to Improve the Financial Condition of the Pension Benefit Guaranty Corporation’s Multiemployer Program.” The 35-page report projects future claims on the program and losses to its beneficiaries and analyzes potential policy changes.

According to the report, some options, such as providing federal funding to PBGC, would be effective at helping plans that are facing insolvency in the near term. Other options, such as restricting plans’ investments in risky assets, would help prevent currently well-funded plans from becoming underfunded in the future but would have a limited effect on plans facing insolvency in the near term.

To download the entire report, click here.

Correcting required minimum distribution failures
The IRS has published information on correcting required minimum distribution failures on its website. Plan sponsors can use the Employee Plans Compliance Resolution System (Rev. Proc. 2013-12, as modified) to voluntarily correct the mistake of not making required minimum distributions (RMDs) under Internal Revenue Code Section 401(a)(9) to affected participants and beneficiaries.

For more information, click here.

IRS releases draft instructions for 2016 Forms 1094-C and 1095-C
The IRS released the draft instructions for the 2016 Form 1094-C and Form 1095-C. IRS 1094-C and 1095-C are filed by applicable large employers. The new draft C Form instructions generally follow the final 2015 instructions, but contain some important clarifications and additions.

To download the draft instructions, click here.

IRS proposes additional guidance for nonqualified deferred compensation under 409A

Concluding that clarifications and modifications could help taxpayers comply with the requirements applicable to nonqualified deferred compensation plans (NDCPs) under tax code section 409A, the Internal Revenue Service (IRS) issued additional guidance in the form of a proposed rule. Compliance with the 409A requirements enables individuals covered by and employers sponsoring NDCPs to avoid adverse tax treatment of the amounts payable under these arrangements. The proposed rule, which taxpayers may rely upon immediately, is lengthy and complex, covering a diverse range of topics, most of which are beyond the scope of this Client Action Bulletin, which focuses on four key areas that may have the broadest application to NDCP sponsors.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

New process for DB plan determination letter applications
The Internal Revenue Service (IRS) published a post on its website highlighting the new process for defined benefit plan determination letter applications.

To read the entire post, click here.

IRS releases draft Form 5300
The IRS issued a draft of the revision for Form 5300, Application for Determination for Employee Benefit Plan. Form 5300 is used to request a favorable determination letter (DL) from the IRS on the qualified status of these plans and the exempt status of any related trust.

Form 5300 has undergone major revisions in format and information required. Many of the revisions reflect the changes affecting individually designed plans described in Announcement 2015-19, and Revenue Procedure 2016-37. The revised form significantly simplifies the information that plan sponsors must provide and is expected to reduce the taxpayer burden in filling out the form.

The IRS expects the final version of Form 5300 to be available by December 2016. If you wish, you can submit comments about the draft Form 5300.

Federal agencies release proposed revisions to improve Form 5500
The Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL), the IRS, and the Pension Benefit Guaranty Corporation (PBGC) are seeking public comments on proposed revisions to modernize and improve the Form 5500 Annual Return/Report filed by private-sector employee benefit plans. The EBSA also published a related notice of proposed changes to its annual reporting regulations under Title I of ERISA.

Form 5500 is the primary source of information about the operations, funding, and investments of private-sector, employment-based pension and welfare benefit plans in the United States.

To read the proposed rule, click here.

 

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

Technical corrections to best of interest rule; class exemption for principal transaction in certain assets
The Department of Labor (DOL) filed technical corrections to the Best Interest Contract Exemption, which was published on April 8, 2016. The Best Interest Contract Exemption allows certain persons that are fiduciaries under ERISA, or the Internal Revenue Code (the Code), or both, by reason of providing investment advice, to receive compensation that may otherwise be prohibited.

The corrections in this document fix typographical errors, make minor clarifications to provisions that might otherwise be confusing, and confirm insurers’ broad eligibility to rely on the exemption, consistent with the exemption’s clearly intended scope and the analysis and data relied upon in the DOL’s final regulatory impact analysis (RIA).

For more information, click here.

Office of Chief Counsel memo regarding testing otherwise excludable employees
The Office of Chief Counsel of the Internal Revenue Service (IRS) released Memorandum 201615013 concerning testing otherwise excludable employees. The taxpayer asked whether certain positions related to the definition of “otherwise excludable employees,” used for purposes of coverage testing under § 410(b)(4)(B) and computing the actual deferral percentage (ADP) under § 401(k)(3), are supportable.

To read the entire memo, click here.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

IRS guidance on determination letter program and the six-year remedial amendment cycle
The Internal Revenue Service (IRS) released Revenue Procedure 2016-37, providing modifications to the Determination Letter Program for tax-qualified individually designed plans and to the six-year remedial amendment cycle system for preapproved retirement plans. Under the changes, sponsors of individually designed qualified retirement plans can request a determination letter only upon initial qualification or plan termination. The guidance also extends the remedial amendment period for individually designed plans until August 1, 2017, and makes changes to the remedial amendment cycle for preapproved plans.

To read the entire Rev. Procedure, click here.

Census Bureau releases 2016 first quarter data on public pensions
The U.S. Census Bureau released its Quarterly Survey of Public Pensions, covering the first quarter of 2016. The survey provides national summary data on the revenues, expenditures, and composition of assets of 100 of the largest defined benefit public employee pension systems for state and local governments, comprising 88.4% of financial activity among such entities, based on the 2012 Census of Governments.

To read the survey, click here.

PBGC proposes late payment penalty relief

Hagin NeilThe Pension Benefit Guaranty Corporation (PBGC) insures the pension benefits accrued by participants covered under private-sector defined benefit pension plans in the event the employer sponsoring the plan becomes insolvent. If a plan sponsor is unable to meet its benefit obligation to participants, the PBGC will pay the pension benefit, but only up to certain limits established under Department of Labor regulations.

PBGC collects premiums from the employers, i.e., plan sponsors, in order to provide this federally mandated insurance. The premium for single-employer plans has two components: a flat dollar (flat rate) premium, which is simply a flat dollar charge for each participant covered under the plan, and a variable rate premium, which is a percentage of the deficit between the pension assets and the actuarially determined pension obligation (also referred to as the “unfunded vested benefits”).

Recent pension law changes have increased both the flat and variable premium rates used to determine the total annual premium paid to insure single-employer defined benefit plans. As a result, plan sponsors are and will be paying substantially higher premiums than they have in the past. For example, the flat rate premium in 2012 was $35 per participant; in 2016 it is $64 per participant, and will increase to $80 per participant in 2019. In 2012 the variable rate premium was $9 per $1,000 of unfunded vested benefits. For 2016 the variable rate premium is $30 per $1,000 of unfunded vested benefits and will increase to at least $41 in 2019.

A consequence of the dramatic rise in PBGC premiums is that the penalty for submitting premium payments after they are due, i.e., filing late, has also increased, as the penalty imposed by the PBGC is determined as a percentage of the unpaid premium. Currently, the penalty for plan sponsors that self-correct an underpaid filing is 1% per month (capped at 50%) of the unpaid amount. A plan sponsor can self-correct a late filing as long as the PBGC has not notified the plan sponsor that there is or may be an underpayment. For plan sponsors that receive notice from the PBGC that there is, or may be, an underpayment, the penalty is 5% per month (capped at 100%) of the unpaid amount.

The PBGC recently proposed a reduction to the penalty amount to reduce the financial burden imposed on plan sponsors. The proposed rule change would reduce the penalty by 50%; the self-correcting penalty will be reduced from 1% to 0.5% per month with a 25% cap and from 5% to 2.5% per month with a 50% cap for filings in which the PBGC gives notice.

The PBGC also proposed creating a new penalty waiver for plan sponsors that have a “good” compliance history and that act promptly to correct any underpayments. A plan would be considered to have a good compliance history if payment of all premiums for the five plan years preceding the year of the delinquency was made on time. A late payment would not be assessed against a plan if the PBGC did not require payment of a penalty (e.g., when an entire penalty is waived). The PBGC would consider the correction to be prompt if the premium shortfall for which the penalty is assessed was made good within 30 days after the PBGC notified the plan in writing that there was, or might be, a problem. If both of the conditions are met, the PBGC will waive 80% of any resulting penalty. Under this scenario, the penalty would be reduced from 2.5% per month to 0.5% per month, which is the same amount as if the plan had self-corrected.

This proposal could drastically reduce the financial burden imposed on a plan for underpaid and late filings. For example, a plan with a $1 million premium that is two months late (after notice from the PBGC) would have a $100,000 penalty (two months at 5% per month times the amount outstanding) under the current regulation. Under the proposed regulation, this penalty would be reduced to $50,000. The penalty could be further reduced to $10,000, if the plan is eligible for the compliant plan partial waiver of 80%.

Comments on the proposal are due to the PBGC by June 27, 2016. Only after the comments are reviewed and finalized will plan sponsors know when these new reduced penalties would be effective. Until then, plan sponsors are urged to file on time to avoid the mandated penalties.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

IRS’s ACT submits analysis and recommendations on changes to the Determination Letter Program
The Advisory Committee on Tax Exempt and Government Entities (ACT) of the Internal Revenue Service (IRS) held a public meeting and submitted its annual report and recommendations to the IRS. The ACT includes external stakeholders and representatives who deal with employee retirement plans; tax-exempt organizations; tax-exempt bonds; and federal, state, local, and Indian tribal governments. They advise the IRS on operational policy and procedural improvements.

To learn more, click here.

Multiemployer compliance trends and tips
The IRS has posted multiemployer plan compliance tips and trends collected by the Employee Plans Team Audit (EPTA) program. Multiemployer plans have unique characteristics that impact daily plan operation. EPTA audits have focused on issues in connection with participation agreements, conflicts among plan documents, participation by non-collectively bargained employees, and actuarial adjustments.

To learn more, click here.

IRS guidance on recovery of investment in contract from payments received from qualified DB plan during phased retirement
The IRS has released Notice 2016-39 and Revenue Procedure 2016-36. Notice 2016-39 provides guidance as to whether payments received by an employee from a qualified defined benefit (DB) retirement plan during phased retirement are amounts received as an annuity under section 72 of the Internal Revenue Code.

Revenue Procedure 2016-36 provides that Notice 2016-39, regarding recovery of investment in the contract from payments received from a retirement plan by an employee during phased retirement, does not apply to amounts that are received from a non-qualified contract. The revenue procedure concludes that in applying the § 72 regulations cited in the Notice to a non-qualified contract, the possibility of further contributions to the contract or a subsequent election under the contract to receive the benefit payable under the contract in a different manner generally will not affect the determination of whether distributions are amounts received as an annuity.

To read Notice 2016-39, click here.
To read Rev. Proc. 2016-36, click here.

DOL’s final overtime rule may affect retirement, other benefit programs

The Department of Labor issued a final rule on the overtime pay requirements of the Fair Labor Standards Act (FLSA) for most “white-collar employees,” effective December 1, 2016. Although the final rule focuses on paying time-and-a-half for hours worked in excess of 40 per week, it includes other new requirements that could have implications for sponsors of retirement plans (primarily 401[k] and similar arrangements), depending on the inclusion or exclusion of overtime pay and/or bonuses in the plan’s formula for employer contributions. The final rule also might affect a retirement or other benefit plan’s participation base, if salaried (exempt) employees are treated differently from hourly (nonexempt) employees, or it could raise concerns if the programs shift toward favoring the highly compensated. Milliman’s latest Client Action Bulletin offers more perspective.