Posts Tagged ‘IRS’

Regulatory roundup

December 8th, 2014 No comments

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

House approves tax extenders bill with multiemployer pension plan provisions
On December 3, the House of Representative voted 404-17 to approve the “Achieving a Better Life Experience Act” (ABLE Act, H.R.647) which would allow for the creation of savings accounts to enable certain disabled beneficiaries to help pay for qualified expenses, effective for tax years beginning in 2015. Following the vote, the House combined the bill with the tax extenders legislation (H.R.5771) before sending it to the Senate.

Of interest to some employers are two provisions included in the ABLE Act:

• The IRS would be authorized to certify “professional employer organizations” (PEOs). Such PEOs would pay an annual fee of $1,000, satisfy certain requirements (including posting a bond to ensure they satisfy employment tax withholding and payment obligations and submitting audited financial statements), and assume sole responsibility for the customer’s employment taxes. The provision generally would be effective for wages paid by a certified PEO for services performed by an employee after 2015, and the IRS would be required to establish the PEO certification program by July 1, 2015. (The Joint Committee on Taxation estimates this provision would increase revenues by $8 million over 10 years.)

• Certain civil penalties under the tax code would be adjusted for inflation, beginning in 2015, including for failures to file a tax return or to pay tax; failures to file certain information returns, registration statements, and other statements; and failures to file correct information returns and payee statements. (The Joint Committee on Taxation estimates this provision will increase revenues by $115 million over 10 years.)

IRS extends submission deadlines
The IRS released Announcement 2014-41. This announcement extends to June 30, 2015, the deadline for submitting on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans for the plans’ second six-year remedial amendment cycle. This announcement also provides a two day extension (from Saturday, January 31, 2015, to Monday, February 2, 2015) for Cycle D on-cycle submissions (primarily individually designed plans including multiemployer plans).

For more information, click here.

DOL report to Congress finds EBSA has not provided guidance and oversight of use of limited-scope audits
The Department of Labor’s Office of Inspector General (OIG) has issued its Semiannual Report to Congress on the DOL’s activities, accomplishments, and concerns for the six-month period ending September 30, 2014. During this reporting period, the Office of Inspector General (OIG) issued 19 audit and other reports that identified needed improvements in Department of Labor (DOL) programs and operations.

Of interest to employee benefit practitioners was that an audit of the Employee Benefits Security Administration’s (EBSA’s) oversight of the use of limited-scope audits for employee benefit plans found that EBSA has not provided the guidance and oversight needed to adequately protect more than $1 trillion of plan assets invested in complex trust arrangements and hard-to-value assets held and certified by custodians.

To read the entire report, click here.

Read more…

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Regulatory roundup

December 1st, 2014 No comments

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

PBGC issues final rule on treatment of rollovers from DC to DB plans
The Pension Benefit Guaranty Corporation (PBGC) is publishing a final rule that makes it easier for participants in 401(k) plans with rollover options to get lifetime income by moving their funds into traditional pensions. The agency hopes to encourage people to get lifetime income by removing potential barriers to moving their benefits from defined contribution (DC) plans to defined benefit (DB) plans. The final rule removes the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits. When PBGC first proposed the rule in April it was well-received from various organizations in the pension and retirement community.

Under the final rule, benefits earned from a rollover generally would not be affected by PBGC’s maximum guarantee limits. For a plan terminating in 2015, the agency’s maximum guaranteed benefit for a 65-year-old retiree will be just over $60,000 a year.

Also, rollover amounts generally would remain untouched by PBGC’s five-year phase-in limits. Normally, benefit increases from changes to a plan in the five years before it ends are partially guaranteed. Under the new proposal, these restrictions generally would not apply.

To read the entire final rule, click here.

IRS issues notice amending two safe harbor explanations for eligible rollover distributions
The Internal Revenue Service (IRS) has released Notice 2014-74, which amends the two safe harbor explanations in Notice 2009-68, 2009-2 C.B. 423, that can be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (Code) that certain information be provided to recipients of eligible rollover distributions.

Amendments to the safe harbor explanations reflected in this notice relate to the allocation of pretax and after-tax amounts, distributions in the form of in-plan Roth rollovers, and certain other clarifications to the two safe harbor explanations. The amendments to the safe harbor explanations (and attached model notices) may be used for plans that apply the guidance in section III of Notice 2014-54, 2014-41 I.R.B. 670, with respect to the allocation of pretax and after-tax amounts.

Notice 2014-74 will be published in Internal Revenue Bulletin 2014-50 on December 8, 2014. To read the entire notice, click here.

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IRS issues final and proposed rules for hybrid pension plans

November 25th, 2014 No comments

The Internal Revenue Service (IRS) has published a final rule covering tax-qualified cash balance (hybrid) pension plans, providing guidance on the key issue of “market rate of return.” Sponsors of hybrid plans have waited for four years for this guidance since the agency delayed the effective date of an October 2010 final rule following practitioners’ concerns that the IRS had incorrectly interpreted the statutory definition. In general, the final rule applies to plan years that begin on or after January 1, 2016.

The IRS also published a companion proposed rule to facilitate the transition for plan sponsors to adopt requirements, allowing for an election to apply the proposed rule to amendments adopted earlier than January 1, 2016. The IRS seeks comments on the proposal by December 18, 2014.

This Client Action Bulletin discusses final and proposed rules for hybrid pension plans.

Regulatory roundup

November 24th, 2014 No comments

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

PBGC annual report shows improvement in single-employer program and deterioration in multiemployer program
The Pension Benefit Guaranty Corporation (PBGC) has released its Annual Report, which showed that PBGC’s deficit increased to about $62 billion in fiscal year 2014, which was largely due to the declining condition of a few multiemployer plans. The financial condition of the single-employer program improved with a deficit of about $19.3 billion, down from $27.4 billion in the previous year.

The increase in PBGC’s deficit in the report is consistent with the estimates included in the FY 2013 Projections Report that was released in June. The projections report found that the insolvencies of a minority of multiemployer plans have become both more likely and more imminent.

To read the entire report, click here.

IRS updates rollover chart
The Internal Revenue Service (IRS) has updated its “Rollover Chart” for 2014. It’s a one-page summary in the form of a table, listing the eight kinds of plans and IRAs that can make rollover-eligible distributions, and the corresponding eight kinds of plans and IRAs into which those distributions can (or cannot) be rolled over. The chart was updated November 17, 2014, to reflect revised rollover rules.

To view the chart, click here.

Joint Committee on Taxation publishes analysis of the Tax Reform Act of 2014
The U.S. Joint Committee on Taxation (JCT) has released a Discussion Draft prepared by the Chairman of the House Committee on Ways and Means. This document provides a technical explanation, estimated revenue effects, distributional analysis, and macroeconomic analysis of the Tax Reform Act of 2014. The draft proposes to reform the Internal Revenue Code. Provisions related to pension and retirement begin on page 101, and include:

• Changes to rules for individual retirement arrangements
• Repeal of exception to 10% penalty for first-time home purchases and elimination of first-time home purchase as a qualified distribution from a Roth IRA
• Termination of new simplified employee pensions
• Termination for new SIMPLE 401(k) plans
• Modification of required distribution rules for pension plans
• Reduction in age for allowable in-service distributions
• Modification of rules governing hardship distributions
• Extended rollover period for the rollover of plan loan offset amounts in certain cases
• Coordination of contribution limitations for 403(b) plans and governmental 457(b) plans
• Application of 10% early distribution tax to governmental 457 plans; and inflation adjustments for employer-sponsored retirement plan dollar limitations on benefits and contributions

To read the entire draft, click here.

Picturing potential IRS penalties on audit, NDCP sponsors should seek selfies

November 13th, 2014 No comments

Pizzano-DominickAfter taking a selfie, the photographer/subject can examine the resulting image before deciding to share it. If the image is not satisfactory, appropriate adjustments can be made before others have the chance to view it. This same principle applies to nonqualified deferred compensation plans (NDCPs) with all the complex rules governing them and the costly consequences of noncompliance. Why risk the executive or sponsor being subjected to the paparazzi-like blitz of an Internal Revenue Service (IRS) audit, which could capture an unflattering candid shot of the plan’s operation? Wouldn’t it make more sense to take a selfie of the plan (i.e., conduct a self-audit) so that any operational blemishes may be fixed before seen through the unforgiving lens of an IRS audit? Encouraging such selfies, the NDCP operational correction procedures issued by the IRS generally provide that the quicker any errors are caught and corrected, the better the chances are of minimizing or even eliminating negative tax results for the affected participants.

While the sponsor may incur some cost in conducting a self-audit of its NDCPs, failing to find and promptly correct operational errors could potentially be even more expensive. IRC Section 409A violations can result in substantial tax penalties for the affected participants. The nonqualified deferred compensation (NDC) in question becomes fully taxable as soon as the participant has a vested (nonforfeitable) right to receive it. Furthermore, a 20% additional tax penalty on the value of the NDC will be imposed at the same time and, under certain circumstances, an interest charge will be imposed. Beyond the 409A ramifications, there may be other tax penalties for under-withholding if, for example, the applicable Federal Insurance Contributions Act (FICA) tax is not paid when due.

Maintaining operational compliance and correct reporting of amounts deferred to and distributed from their NDCPs poses a significant challenge for many sponsors who, while well-versed in qualified plan administration, do not have the same level of expertise available internally when it comes to the various and sometimes subtle differences presented by NDCPs. Just three of the plethora of potential pitfalls:

(1) Timely distributions: Most distributions from qualified plans do not occur until a participant elects to commence the benefit. The sponsor typically starts the process by sending an election package requesting the participant to make an election on the timing and form of the distribution. If no such election is made, it’s not uncommon for the benefit to be deferred in the plan. In contrast, there’s considerably less flexibility regarding the participant’s ability to choose the timing and form of distribution in NDCPs. Once the distribution triggering event occurs, the 409A compliance clock begins ticking and failure to transfer the applicable funds to the participant on a timely basis produces a 409A failure. It’s essential for sponsors to accurately track these distribution dates and stress to participants the importance of making sure the sponsor always has up-to-date instructions on where to send payments (especially in cases where participants terminate employment long before payment is due). A self-audit can determine if the current procedures are ensuring that all distributions are commencing in accordance with the plan’s terms.

(2) FICA calculation: While federal and most state income tax rules typically permit participants in a 409A-compliant NDCP to defer taxation until distribution, FICA taxation timing rules may require earlier inclusion in income. One of the most common omissions occurs in defined contribution style NDCPs that feature both executive deferrals and employer allocations. FICA rules require amounts deferred under these plans to be taxed when vested. Employee deferrals are 100% immediately vested and thus generally processed correctly (i.e., they are run through payroll and FICA tax procedures at that time). However, because employer allocations are treated separately and often subject to a vesting schedule, they can be overlooked and not properly FICA taxed once vesting occurs. A self-audit ascertains whether or not deferred amounts are being FICA taxed when due.

(3) W-2 reporting and withholding: There are separate, specific instructions and guidance that apply to which boxes need to be completed and what amounts should be entered on W-2 forms in order to properly report NDCP deferrals and distributions. NDCP sponsors must be extremely careful to not only accurately communicate the terms of their NDCPs to their payroll providers but also to review a provider’s initial withholding/report setup for the plan. Failure to address this during the initial stages can result in a wide range of negative tax consequences for participants. In addition to possibly triggering 409A violations, if amounts are not accurately reported, the participant may be overtaxed, under-taxed, and/or have their Social Security benefits adversely affected. A self-audit can compare the amounts currently being reported on W-2 with the supporting plan materials (e.g., election forms, benefit statements, salary information) to assure proper agreement.

NDCP sponsors would need a photographic memory to retain every nuance of the 409A rules, the FICA tax implications, and the reporting/withholding requirements. The preceding information represents just a very small snapshot of some of the issues that illustrate the need to self-audit. However, it is important to note that if the sponsors do not have the internal expertise in these areas, they should strongly consider seeking consulting advice to identify any and all imperfections so as to make sure that their selfies produce a pretty plan picture.

Regulatory roundup

November 3rd, 2014 No comments

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

IRS posts submission procedures for individually designed plans five-year remedial amendment cycle
The Internal Revenue Service (IRS) has published a web page outlining submission procedures for plan sponsors with individually designed plans and employer identification numbers (EINs) ending in 4 or 9.

For more information, click here.

GAO publishes report on pension valuation
The U.S. Government Accountability Office (GAO) has released a report entitled “Pension plan valuation: Views on using multiple measures to offer a more complete financial picture.” In this report the GAO discusses how defined benefit plans use interest rates to “discount,” or determine the current value, of estimated future benefits.

Experts in the United States have disagreed on both the approach that should be taken by plans to determine a discount rate and the appropriate rate to be used. Different discount rates can create large differences in the valuation of a plan’s obligations, which in turn can lead various stakeholders to draw different conclusions about a plan’s health, the value of a plan’s benefits, and the contributions required to fund them.

As requested, GAO examined different approaches used to determine the discount rate. This report addresses:

• The significance of differences in approaches used to determine discount rates among public and private plans
• Purposes for measuring the value of a plan’s future benefits and key considerations for determining discount rate policy
• Approaches selected countries have taken to choose discount rates

To read the entire report, click here.

PBGC announces maximum guarantee benefit for 2015
The Pension Benefit Guaranty Corporation (PBGC) has announced that the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer pension plan will increase to $60,136 for 2015, up from $59,318 in 2014. A table showing amounts for other ages is here.

Categories: Benefit News Tags: , , ,

COLAs for retirement, Social Security, and health benefits for 2015

October 31st, 2014 No comments

With the release of the September 2014 Consumer Price Index (CPI) by the U.S. Bureau of Labor Statistics, the Social Security Administration (SSA) and the Internal Revenue Service (IRS) have announced cost-of-living adjusted (COLA) figures for Social Security and retirement plan benefits, respectively, for 2015. The 2015 adjusted figures for high-deductible health plans (HDHPs) and health savings accounts (HSAs) included in this Client Action Bulletin were released by the IRS earlier this year and are provided here for convenience.

Regulatory roundup

October 27th, 2014 No comments

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

IRS announces pension plan limits for 2015
The Internal Revenue Service (IRS) has announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015. Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.

For additional information, click here.

IRS issues guidance on target date funds for qualified defined contribution plans
The IRS has issued Notice 2014-66, providing a special rule that enables qualified defined contribution plans to provide lifetime income by offering, as investment options, a series of target date funds (TDFs) that include deferred annuities among their assets, even if some of the TDFs within the series are available only to older participants.

This special rule provides that, if certain conditions are satisfied, a series of TDFs in a defined contribution plan is treated as a single right or feature for purposes of the nondiscrimination requirements of § 401(a)(4) of the Internal Revenue Code. This permits the TDFs to satisfy those nondiscrimination requirements as they apply to rights or features even if one or more of the TDFs considered on its own would not satisfy those requirements.

Notice 2014-66 will be published in Internal Revenue Bulletin 2014-46 on November 10, 2014.

In an accompanying letter, the U.S. Department of Labor (DOL) has confirmed that target date funds serving as default investment alternatives may include annuities among their fixed income investments. The letter also describes how ERISA fiduciary standards can be satisfied when a plan sponsor appoints an investment manager who selects the annuity contracts and annuity provider to pay the lifetime income.

To read Notice 2014-66, click here.
To read the DOL’s letter, click here.

IRS posts summary of new single distribution rule for 401(a) qualified, 403(b), and 457(b) governmental retirement plans
Beginning January 1, 2015, when participants choose to direct their retirement plan distribution to go to multiple destinations, the amounts will be treated as a single distribution for allocating pretax and after-tax basis (Notice 2014-54 and proposed rules issued September 19, 2014).

For additional information, click here.

PBGC posts 2015 premium rates
The Pension Benefit Guaranty Corporation (PBGC) posted the 2015 premium rates. The per-participant flat premium rate for plan years beginning in 2015 is $57 for single-employer plans (up from a 2014 rate of $49) and $13 for multiemployer plans (up from a 2014 rate of $12).

For plan years beginning in 2015, the variable-rate premium (VRP) for single-employer plans is $24 per $1,000 of unfunded vested benefits (UVBs), up from a 2014 rate of $14. This $10 increase was provided in the Bipartisan Budget Act of 2013. The VRP rate is also subject to indexing, but because of statutory rounding rules, indexing had no effect on the 2015 VRP rate.

For 2015, the VRP is capped at $418 times the number of participants (up from a 2014 cap of $412). Plans sponsored by small employers (generally fewer than 25 employees) may be subject to an even lower cap. Multiemployer plans do not pay a VRP.

The Bipartisan Budget Act of 2013 calls for the VRP rate to increase another $5 starting with 2016 (on top of indexing).

To view the PBGC premiums rates, click here.

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Regulatory roundup

October 20th, 2014 No comments

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

IRS revises Publication 4531, adds two new questions to 401(k) compliance checklist
The Internal Revenue Service (IRS) has updated its 401(k) compliance checklist for October 2014 and added two new questions to help employers determine if their plans meet the requirements of key IRS rules. The checklist, contained in Publication 4531, added the following two questions:

• Were top-heavy minimum contributions made?
• Was Form 5500, Annual Return/Report of Employee Benefit Plan, filed?

Each question has a yes or no answer, with a link to more information if the answer is no.

To access the updated checklist, click here.

IRS issues employee plans newsletter
The IRS has released the latest issue of Employee Plans News. The newsletter covers the following issues:

• New single distribution rule
• Canadian retirement plan participants
• Mandatory electronic filing for Form 8955-SSA and 5500-series
• Fidelity bonds and depositing plan contributions
• Form 500-EZ Pilot Penalty Relief Program
• IRS Nationwide Tax Forums online
• The Advisory Committee on Tax-Exempt and Government Entities (ACT)
• Highway and Transportation Funding Act of 2014 (HATFA) premium guidance
• Pension Benefit Guaranty Corporation (PBGC) premium payments

To read the newsletter, click here.

PBGC issues technical update regarding HATFA’s impact on annual financial and actuarial information reporting
The PBGC has issued Technical Update 14-2 providing guidance on the effect of HATFA on annual financial and actuarial information reporting under section 4010 of ERISA and part 4010 of PBGC’s regulations. This technical update supersedes any inconsistent guidance in PBGC’s 4010 filing instructions.

To read the entire technical update, click here.

PBGC files two notices requesting OMB approval
The PBGC has filed two notices of intention to request extension of Office of Management and Budget (OMB) approval (with modifications). PBGC is proposing to modify:

• Form 5500 Series: The 2015 Schedule MB (multiemployer defined benefit plan actuarial information) and instructions and the Schedule SB (single-employer defined benefit plan actuarial information) and instructions.
• Regulations on termination of single-employer plans and missing participants: Implementing forms and instructions.

The notices inform the public of PBGC’s intent to modify these forms and solicit comments after publication in the Federal Register.

To read the entire notice regarding annual reporting via Form 5500 Series, click here.
To read the entire notice regarding termination of single-employer plans and missing participants, click here.

FASB issues proposed accounting standards update on compensation
The Financial Accounting Standards Board (FASB) has issued the exposure draft “Proposed accounting standards update: Compensation – retirement benefit (Topic 715)” covering “Practical expedient for the measurement date of an employer’s defined benefit obligation and plan assets.”

The amendments in this proposed update would provide a practical expedient for employers with fiscal year-ends that do not fall on a month-end by permitting those employers to measure defined benefit plan assets and obligations as of the month-end that is closest to the entity’s fiscal year-end and to follow that measurement date methodology consistently from year to year.

The amendments would require that an entity disclose the accounting policy election and the alternative date used for measuring defined benefit plan assets and obligations.

The proposed amendments would reduce the costs of measuring defined benefit plan assets and obligations for entities with fiscal year-ends that do not fall on a month-end without decreasing the usefulness of the information to financial statement users.

To read the entire exposure draft, click here.

EBSA requests OMB extend approval of information collection requests
The Employee Benefits Security Administration (EBSA) has filed a notice requesting public comment on their request that the Office of Management and Budget (OMB) extend approval of information collection requests (ICRs) contained in certain rules and prohibited transactions.

The titles of the ICR rules and prohibited transactions are:

• Prohibited transaction exemption 86-128
• Consent to receive employee benefit plan disclosures electronically
• Furnishing documents to the Secretary of Labor on request under ERISA 104(a)(6)
• Patient Protection and Affordable Care Act (ACA) Section 2715 summary disclosures
• ERISA Section 408(b)(2) regulation
• ERISA Procedure 76-1 advisory opinion procedure
• ERISA Technical Release 91-1
• Disclosures by insurers to general account policyholders
• Registration for EFAST-2 credentials
• Notice of blackout period under ERISA
• ACA internal claims and appeals and external review procedures for non-grandfathered plans

To read the entire notice, click here.

BLS issues multiemployer pension plans analysis
The Bureau of Labor Statistics (BLS) has published an analysis of multiemployer pension plans in its latest issue of Beyond the Numbers. According to the analysis, about one in four workers currently covered by a traditional pension plan is in a multiemployer plan, established by a labor union and an industry or trade group to cover workers from two or more related employers.

To read the entire analysis, click here.

Multiemployer Alert: IRS issues final hybrid plan regulations with variable annuity pension plan implications

October 15th, 2014 No comments

On September 19, 2014, the Internal Revenue Service (IRS) published final regulations providing guidance on hybrid pension plans that includes some items of interest to multiemployer pension plan trustees. Although mainly focused on cash balance and pension equity plans, the guidance includes provisions related to variable annuity pension plans (VAPPs), which have been drawing attention among trustees who believe there is enormous value in the defined benefit system. Some of the more onerous provisions needed to satisfy hybrid plan rules are now explicitly removed for VAPPs, and trustees adopting VAPPs have been given more flexibility in plan design. This Multiemployer Alert offers some perspective on the final regulations.